Since Annalena Baerbock began campaigning for chancellor, her words carry double weight. It is highly likely that she will help determine the country’s fate as a member of the next federal government, perhaps even at its head. She now defined what she sees as the necessary way to deal with China as a mixture of “dialogue and toughness.” China experts and stakeholders will have to use the next few months to credibly explain their agenda and interests in China to the Green Party.
How seriously Xi Jinping takes the reduction of CO2 emissions and what regulatory means he uses to achieve this is of interest not only to all of us in general but also to everyone who is economically active and thus affected in China. At Joe Biden’s climate summit, one could see the first contours of Xi’s plans. Christiane Kuehl assesses the summit and the weight of Xi Jinping’s pledges to reduce the share of coal power in China.
Finn Mayer-Kuckuk has spent a good 200 hours following the meetings of the Wirecard investigation committee in recent months. Most recently, on Friday, Angela Merkel had to explain to parliamentarians why she had intervened in Beijing on behalf of a company whose fraudulent business practices had long been the subject of public reporting at the time of her intercession. An economic thriller between Berlin and Beijing.
Chinese investors want to invest around €100 million in Wilhelmshaven’s Jade-Weser Port. Frank Sieren puts the plans in the context of Beijing’s Silk Road initiative.
And automotive expert Daniel Burow explains in today’s Opinion what European battery manufacturers can expect when patent protection for LFP technology expires next year and the European market is open to Chinese manufacturers.
Joe Biden’s climate summit is over; and now the experts are beginning their analyses: What do the commitments made at the virtual summit by some 40 heads of state and government mean? And does all this also bring geopolitical shifts – new cooperations and lines of conflict, for instance? One of the surprises was the announcement by Brazil’s President Bolsonaro that he would cut his country’s emissions by 50 percent by 2030. However, the element of surprise was quickly over: One day after the summit, Bolsonaro cut his Environment Ministry’s 2021 budget by 24 percent.
Such about-turns are not to be expected from China. In his appearance, Xi stuck to the typical premise that it is better to promise too little than too much – and certainly not under pressure from other countries. In keeping with socialist plans, it is always better to exceed the planned target in the end than to break the bar – including losing face. In this respect, Xi’s initially meager announcement to reduce coal consumption from 2025 is definitely worth something.
“Xi has never before made such a statement on reducing coal consumption or controlling new coal-fired power plants,” Lauri Myllyvirta, senior analyst at the Center for Research on Energy and Clean Air and an expert on China, pointed out on Twitter. “However, this will only make a difference if concrete targets and guidelines follow now. But Xi’s remarks pave the way for that.”
In fact, this pledge, now made in front of the whole world, gives Xi something in his hands in the tussle with the provinces over coal. If Xi says that China will strictly limit coal expansion, provincial permits already granted for new coal-fired power plants may come under scrutiny. Especially since Xi stressed at the climate summit that he doesn’t think much of constant U-turns in climate policy. The elephant in the room here was the US, which under Biden’s predecessor Trump, left the Paris climate agreement and made no effort at all to protect the climate. A certain mistrust with regard to the reliability of the USA after the next presidential election, therefore, exists not only in China.
And what does the climate diplomacy of the last few weeks mean for the general relationship between China and the US? The US has recently been treating climate in relation to China separately from other issues, much like the EU. Both Washington and Brussels describe their relationship with China as characterized by rivalry, competition, and cooperation – depending on what the issue is. China disagrees with that approach, says Byford Tsang of the London-based climate think tank E3G China.Table. “But in practice, they are currently going along with it.” What happens next with the climate also depends on whether China continues to do so, Tsang says.
Whereas Beijing’s decision on this is likely to depend inversely on each other’s China policies. On the day of the summit, the US Senate Foreign Relations Committee decided to support the Strategic Competition Act – a bipartisan bill in Congress that specifically targets China. The bill includes the possibility of a boycott of the 2022 Beijing Olympics by US officials, seeks to increase international development funding and increase cooperation with allies and international organizations – vis-à-vis China. The timing is unlikely to have been pleasing to Beijing.
So the next few months leading up to November’s climate summit in Glasgow will show the extent to which the US and China are implementing their climate cooperation, which was put back on track by a joint statement issued by climate envoys John Kerry and Xie Zhenhua. Xie, according to a report in the South China Morning Post over the weekend, said Beijing and Washington have resumed dialogue, including several rounds of video conferences since February between himself and Kerry. China and the US had also agreed to present their respective plans to achieve carbon neutrality before the Cop26 summit in Glasgow, he said. At the summit, all countries must present more ambitious plans, according to the Paris climate agreement.
“Even if cooperation on climate change works out, competition will eventually emerge on this issue as well,” Byford Tsang expects. At the summit, many participants, including US Secretary of State Antony Blinken, evoked opportunities for businesses through the development of new technologies. US Energy Secretary Jennifer Granholm said Friday that developing clean energy technologies would open up a “$23 billion market” by 2030. Key areas the US government wants to develop in collaboration with scientists and industry include hydrogen, CO2 capture, industrial fuels and batteries, and solar energy, she said. China is also promoting the development of cutting-edge environmental technologies like these. It is therefore not unlikely that this sector will fall into the clutches of economic conflict. In a video interview, however, Kerry rejected a CO2 limit mechanism for imported goods produced in a climate-unfriendly manner, as discussed by the EU.
Li Shuo of Greenpeace East Asia thinks the concept of rivalry, competition, and cooperation is inappropriate anyway. “In the US-China context (and to some extent true for EU-China), the danger of this misperception is as soon as cooperation is no longer politically appealing, people take for granted that competition or confrontation are the only alternatives,” Li, an expert on the intersection of environment and politics, wrote on Twitter. He advocates what he calls “engagement” – as he did through Kerry’s visit to Shanghai. That engagement, contains all three elements, but is different – and includes the possibility of persuasion. It may be a theoretical debate. But persuasion is indeed different from cooperating – or not cooperating – on the basis of decisions made by each state alone. That is why most observers welcomed the joint statement by Kerry and Xie for the fact that it came about at all.
When Angela Merkel appeared before the Bundestag’s Wirecard investigation committee on Friday, the subject was China. The MPs’ questions mainly concerned the Chancellery’s support for Wirecard’s entry into the Chinese market in September 2019, when the company planned to take over the small Chinese financial services provider Allscore and ramp it up to become a competitor for Alipay. At the time, Merkel promoted the deal to either President Xi Jinping or Premier Li Keqiang.
No Bundestag parliamentary group found fault with the flanking of a planned market entry – Merkel’s involvement received the approval of the deputies across the board. Staff members of Merkel and the Finance Ministry had already explained the specifics of the China deal to the committee during their testimony in recent months. The CCP expects to be involved in international transactions. There is then no way around the ceremonial signing in the presence of political leaders. But if a deal has the blessing of the top leadership, it is on the fast track.
It was other questions that had aroused the curiosity of the deputies. What role did the advisor and ex-politician Karl-Theodor zu Guttenberg play? He had established access to the Chancellor’s office for Wirecard. And why did Merkel campaign at all for a company that was already surrounded by allegations of fraud?
The Chancellor’s Office as a whole was not completely clueless. The committee had already worked that out in December. The young civil servant Michael Papageorgiou was on loan from the Deutsche Bundesbank to the Chancellor’s Office finance department at the beginning of 2019. He had advised at the time to cancel an appointment request from Wirecard CEO Markus Braun “for scheduling reasons” because there were too many doubts about its seriousness. Papageorgiou thus saved the chancellor from direct contact with the fraud company.
Eight months later, however, these doubts were forgotten when the chancellor put the company on her list of China-related concerns. “With China’s most powerful man, you don’t lobby for every chip shop,” marvels Fabio De Masi, a member of parliament from the Left Party. The Chancellor went into such a meeting with the ten most important concerns of Germany and Europe – and one of them was, of all things, a company whose history was accompanied by rumors of fraud?
However, De Masi also has a solution to this riddle. This, in turn, is connected with the figure of zu Guttenberg. As is well known, he was Minister of Economics and Defense under Merkel before the fraud with his doctoral thesis was exposed. Since then, he has founded the Spitzberg Partners consulting firm in New York. The name is an artificial product; there is no Mrs. or Mr. Spitzberg. The business purpose is primarily lobbying. Zu Guttenberg asked for a meeting with Merkel in a casual tone shortly before the China trip. At that time, he had a mandate from Wirecard to flank the market entry in China. If he had been successful, he would have obtained a bonus worth millions after the Allscore takeover.
Merkel had agreed to the lobbyist’s request for an appointment because she “naturally complied with the wishes of former members of the German government”. According to Merkel, she did not recall Wirecard as a topic of conversation, but that was not unusual given the many issues she dealt with. However, when zu Guttenberg brought up corporate issues, she referred him to the relevant experts in the Chancellor’s Office. At the time, she had not known that zu Guttenberg had a consulting mandate with Wirecard.
In principle, Merkel has acted correctly by sending the matter on to the experts for examination – and yet De Masi sees a problem here. By knocking on zu Guttenberg’s door at the very top, the attentive experts at the lower level were bypassed. Thus Lars-Hendrik Roeller immediately dealt with the request. Roeller is an economist and the economic advisor to the Chancellor. The latter put Wirecard on the list of concerns in China. That was two days before departure, as Roeller had testified before the committee in December. “There was no reason to be malicious here” and not comply with Wirecard’s request. After all, he said, it was a Dax company whose balance sheets had been approved by auditors. Specifically, Wirecard had needed permission from the People’s Bank of China to acquire Allscore plus a license as a payment service provider.
Merkel was able to explain the motives for her involvement conclusively overall. Wirecard fitted in well with the German government’s strategy of testing China’s willingness to open up its market and at the same time creating pioneers for market entry. Since the financial industry is still lacking in “reform and opening up”, a payment service provider would have been an excellent test balloon. At the time, the CAI was in negotiations, and such moves would have been a way of sounding out the goodwill in Beijing.
In retrospect, however, the situation is different. The true motives of company CEO Markus Braun for the attempted Allscore takeover are better known today. The rapid expansion in Asia generally served to conceal the large-scale fraud. In its subsidiaries and affiliates from Dubai to India to Singapore, the company generated the bogus profits it used to inflate its balance sheet. The acquisitions also provided a good justification for discreetly booking away high losses.
The expansion also served as a justification for requesting ever higher credit lines from banks. “They camouflaged the fake growth by saying that they had acquired subsidiaries in other countries,” said financial expert Florian Toncar of the FDP. The opportunity to buy in China was a “godsend” under the circumstances, Toncar said. The large Chinese market would have offered Braun and his accomplices the opportunity to continue spinning the growth fairy tale.
During Merkel’s interrogation, several deputies also addressed the chancellor about the wife of her economic advisor. Dr. Zhentang Zhang-Roeller had appeared in the files on the scandal because she apparently had contact with the head of the Chinese company Mintech during the Beijing trip. The latter then wanted to network with Wirecard CEO Braun. Roeller passed this request on to Wirecard’s advisors.
Then, at the committee meeting on December 17, a strange scene occurred. The deputies asked Roeller what his wife’s profession was. He answered: “Housewife”. His statement remains a mystery to this day. Zhentang Zhang-Roeller holds a doctorate in economics and has worked for the DIW in Berlin, for example. Although she took a longer family break from 2008, she was not completely inactive, at least in recent years. In between, she founded an investment company and shut it down again, and she was a “networker” for the company BHS Berlin Health, which arranges medical treatments in Germany for rich Chinese. She is also connected with RHT Europe GmbH, which offered air purifiers from Hong Kong in Germany during the pandemic.
All of this is not honorable as far as it goes. Conversely, it would be surprising if Zhang-Roeller’s qualifications really limited her to a role as a housewife in the long term. RHT Europe has also “hardly made any sales,” according to the company’s statement in response to a question from China.Table. Zhang-Roeller also had a limited role there, according to the CEO. Her husband has not yet clarified why he would not name the professional activities before the committee. The chairman Kay Gottschalk (AfD), confirmed to China.Table, however, that Mr. Roeller had written him a letter: His wife was definitely involved with companies. Possibly, the committee will ask Roeller again about the details.
In the overall picture, however, neither Merkel nor Roeller has yet been accused of anything worth mentioning. Commitment to the German economy is one of their core responsibilities. And even though there were already reports of fraud at Wirecard at the time, hardly anyone could have imagined its extent. In Germany, after all, another Dax company had turned out to be a pure fraud number.
The abbreviation LFP stands for lithium iron phosphate, which is used as a cathode material in lithium-ion battery cells. It is cheap to produce, comparatively easy to handle and is considered very safe due to its chemical structure. When the Chinese industry embarked on the long march toward e-mobility, the chemical compound licensed by a European-Canadian consortium was therefore considered the material of choice. China negotiated a long-term agreement early on that allows the country’s companies to use it royalty-free on the domestic market to this day.
About ten years ago, however, when the German automotive industry began to take an interest in Chinese battery manufacturers, the focus shifted to nickel-cobalt-manganese cathodes (NCM). Only with this higher-energy material, according to the tenor of the research departments of the car companies, could the requirements for ever greater ranges of electric cars be met. Today, as e-cars are set to conquer not only the premium segment but also the mass market, and an unexpectedly steep market ramp-up is in the offing, the issues of cost efficiency and raw material availability are increasingly coming to the fore. And LFP seems to be on the verge of a late comeback.
However, LFP never really disappeared from the battery market. In the market for electric buses, for example, which has grown immensely in China over the last few years, the material plays out its safety advantage. NCM materials have the disadvantage that they become chemically unstable when overcharged or overheated, decompose in a chain reaction, and can thus release large amounts of energy – the dreaded thermal runaway. While the focus in the passenger car sector was on minimizing the risk, primarily through control electronics designed to high safety standards, the Chinese government wanted to play it safe with buses. The use of NCMs is still prohibited here, leaving only the alternative of LFP. Whether this policy is based solely on safety concerns or also on industrial policy considerations – manufacturers from Japan and South Korea have a technological lead in NCM battery cells – remains to be seen. Together with the also rapidly increasing demand for stationary energy storage and batteries for e-scooters, solid demand for LFP materials was ensured throughout. This is because, in both fields of application, energy densities play a subordinate role, while costs play a decisive one.
Now, as is often the case, a tweet from Elon Musk in February of this year generated a lot of attention in the industry: “Nickel is our biggest concern for scaling up lithium-ion cell production. That’s why we are shifting standard range cars to an iron cathode.” Tesla announced at its Battery Day last year that it would henceforth rely on LFP cells from Chinese cell manufacturer Contemporary Amperex Technology Co. Limited (CATL) for standard-range Model 3s produced at its Shanghai Gigafactory. Up to now, NCM cells from the Korean manufacturer LG Chem have been used in particular.
Tesla is thus addressing an issue that is also increasingly causing concern among European automakers. At its Power Day in March, Volkswagen also announced its intention to use LFP cells for volume models in the future. In addition to the significant cost advantage, VW also cited a sustainable supply chain as a criterion for selecting the cathode material. “Sustainable” should not only be understood from a socio-ecological point of view (cobalt from crisis regions) but also in terms of long-term supply security. In a report published a few weeks ago on behalf of the Joint Research Center of the European Commission, the raw material analysis company Roskill points to emerging supply problems. Nickel supplies, analysts say, threaten to fail to meet demand in the European Union from 2027. Iron, on the other hand, is the second most abundant element in the earth’s crust and is easily accessible in large quantities. So it seems logical that Roskill, in another market study published in January, expresses a positive outlook for LFP’s market share.
In China, LFP battery production for electric vehicles had already risen by around 21 percent by 2020. The Chinese battery industry, therefore, did not wait for a Musk tweet, but anticipated the development beforehand. The turnaround in subsidy policy that the Chinese government is currently implementing is certainly also playing a significant role. In the wake of the COVID-19 crisis, subsidies for the purchase of electric vehicles were extended by another two years. However, they are scheduled to expire in 2022, and the government intends to invest more in charging infrastructure instead. In the past, the Chinese subsidy system primarily favored high-range, purely battery-electric vehicles. It can be assumed that the cost-benefit ratio will play a much greater role in the future. In addition, a denser network of charging options is likely to take pressure off the quest for ever greater ranges. The Chinese market could serve as a blueprint for the situation in Europe.
The Chinese battery industry is benefiting from this development, as it has a strong historical position in LFP and is still not on a par with its Korean competitors in NCM technology. The barriers to market entry are significantly lower for LFP technology than for NCM because the material’s chemical stability means that it does not place such high demands on production conditions. This reduces investment costs immensely, and process defects have less serious consequences than with the more sensitive NCM. Not least because of this and the stable domestic demand for LFP cells, a considerable number of battery cell manufacturers have been able to emerge in China in just a few years, some of them growing into global players. While the European industry has long sought its salvation in the “next technological leap”, China has started with the simplest and most cost-effective technology with the pragmatism so typical of the country.
One company that could benefit particularly strongly from the comeback of the LFP is BYD. The conglomerate, which is listed on the Hong Kong and Shenzhen stock exchanges, has consistently adhered to LFP technology in the passenger car sector as well. The company made up for the material’s energy density disadvantage elsewhere in its “Blade Battery”. By dispensing with the usual structure of several modules and instead integrating the cells directly into the overall system (cell-to-pack technology), the battery achieves competitive energy densities. In a study published in Nature Energy in January, the energy density by volume of the BYD Han – the first car model to use the technology – is even higher than that of the Tesla Model 3 LR from the 2017 model year. Added to this are advantages of LFP in terms of fast-charging capability and service life. According to the portal BusinessKorea, Hyundai has now expressed interest in the Blade Battery for its models sold in China.
The inspiration for the battery’s name comes from particularly long, narrow cells that fill the entire width of the battery pack, thus also giving it mechanical rigidity. The unusual format poses special challenges for manufacturing. According to an insider from the Chinese battery industry, about two years of development work were necessary – an effort that BYD could turn into a lasting competitive advantage.
Another competitive advantage of BYD is that the company controls the entire value chain down to LFP material production. The same applies to the Chinese competitor Gotion High-Tech, in which Volkswagen acquired a 26 percent stake last year. For non-Chinese material producers such as BASF, however, the business could soon become more lucrative. That’s because patents for the material’s manufacturing process will begin to expire in 2022, and with them the royalties are due. At the same time, however, the export restrictions for Chinese companies will no longer apply. The race is, therefore, on in a market that is becoming freer, and it is possible that other players will join in.
Meanwhile, CATL is also investing heavily in vertical integration. In January, the industry leader from southern China’s Fujian Province announced plans to build an LFP factory with its subsidiary Shenzhen Dynanonic at a cost of $280 million. CATL founder Zeng Yuqun commented, “For a certain time, lithium iron phosphate still has room for improvement, it’s still the absolute mainstream for many applications.” Or, in other words, there’s life in the old dog yet.
Dr. Daniel Burow is a chemist and technical project manager. He has worked for German and Chinese companies in the automotive industry and completed his doctorate in the field of battery materials.
Xi Jinping trusts him. This alone gives Qin Gang access to the closest circle of the leading elite in the Communist Party. Now he is being traded as one of the hottest successor candidates for the post of outgoing Chinese Ambassador Cui Tiankai in Washington. At a time when the US and China are constantly butting heads alongside threats of sanctions, trench warfare over their countries’ international supremacy, and a growing estrangement with regards to each other’s foreign policies, Qin’s position is all the more significant. The choice of Qin Gang also underscores speculation that Qin is highly in Xi Jinping‘s favor and should therefore be entrusted with this particularly delicate task.
Qin Gang earned the trust of China’s first man by working hard on his career. When Xi was relatively new in office and his image needed to be put in the right light internationally, Qin was in charge of protocol at the Foreign Ministry. He was able to work to ensure that Xi was also perceived on the international stage as the one leading China into a new era.
It was Qin Gang, for example, who accompanied Xi on many of his foreign trips as chief of protocol and paid attention at the big banquets at home to how Xi’s appearances were staged not only for the state media but especially for the heads of state from abroad. That he has done his job well is also shown by his promotion to vice foreign minister in 2018. Behind Wang Yi, who has been foreign minister since 2013 and has also studied abroad and who is considered a hardliner, Qin has played second fiddle for almost three years. In doing so, he has now apparently gained enough experience to move up to the position of ambassador.
At the Foreign Ministry, Qin Gang has had a very stellar career: The 55-year-old has been working there for 33 years. Immediately after his education at Tianjin University, he embarked on a career as a civil servant. Prior to his role as Vice Foreign Minister, Qin was also in charge of the Europe Department, in addition to serving as Foreign Office spokesman. Qin previously spent many years in London working for the Chinese Embassy in Great Britain and Northern Ireland as secretary (1995-1999). He returned to the Chinese Embassy in England a second time as an adviser from 2002 to 2005. Again in 2010, but by then with the title of Minister. In the years between his three stays abroad in England, Qin repeatedly returned to the Foreign Ministry in Beijing. There he first rose to the position of Director of the European Department (1999-2002) and then worked his way up to Director of the Information Service and Spokesman of the Foreign Office (2005-2010). As a result, he has not lost his way within the Ministry of Foreign Affairs in Beijing.
Nevertheless, international observers initially reacted with surprise to the news of Qin’s possible posting to Washington. After all, he has little experience in dealing with the United States. However, Keith Zhai of the Wall Street Journal sees this as a “positive sign” because an ambassador with no previous US experience can be seen as a positive new beginning for relations. As Qin’s counterpart, Nicholas Burns is currently being traded as the new US ambassador to China. The career diplomat and Harvard professor only chided Europe in mid-April at a virtual event for making a “tactical mistake” in reaching an investment agreement with China. Burns calls for greater cohesion among Europe, the US, and Japan.
It is possible that Beijing chose Qin Gang for the post in Washington precisely because of his European experience. An ambassador to the American capital who knows what makes Europeans tick probably knows better than anyone how to drive wedges into transatlantic relations – for China’s benefit. Ning Wang
Since Annalena Baerbock began campaigning for chancellor, her words carry double weight. It is highly likely that she will help determine the country’s fate as a member of the next federal government, perhaps even at its head. She now defined what she sees as the necessary way to deal with China as a mixture of “dialogue and toughness.” China experts and stakeholders will have to use the next few months to credibly explain their agenda and interests in China to the Green Party.
How seriously Xi Jinping takes the reduction of CO2 emissions and what regulatory means he uses to achieve this is of interest not only to all of us in general but also to everyone who is economically active and thus affected in China. At Joe Biden’s climate summit, one could see the first contours of Xi’s plans. Christiane Kuehl assesses the summit and the weight of Xi Jinping’s pledges to reduce the share of coal power in China.
Finn Mayer-Kuckuk has spent a good 200 hours following the meetings of the Wirecard investigation committee in recent months. Most recently, on Friday, Angela Merkel had to explain to parliamentarians why she had intervened in Beijing on behalf of a company whose fraudulent business practices had long been the subject of public reporting at the time of her intercession. An economic thriller between Berlin and Beijing.
Chinese investors want to invest around €100 million in Wilhelmshaven’s Jade-Weser Port. Frank Sieren puts the plans in the context of Beijing’s Silk Road initiative.
And automotive expert Daniel Burow explains in today’s Opinion what European battery manufacturers can expect when patent protection for LFP technology expires next year and the European market is open to Chinese manufacturers.
Joe Biden’s climate summit is over; and now the experts are beginning their analyses: What do the commitments made at the virtual summit by some 40 heads of state and government mean? And does all this also bring geopolitical shifts – new cooperations and lines of conflict, for instance? One of the surprises was the announcement by Brazil’s President Bolsonaro that he would cut his country’s emissions by 50 percent by 2030. However, the element of surprise was quickly over: One day after the summit, Bolsonaro cut his Environment Ministry’s 2021 budget by 24 percent.
Such about-turns are not to be expected from China. In his appearance, Xi stuck to the typical premise that it is better to promise too little than too much – and certainly not under pressure from other countries. In keeping with socialist plans, it is always better to exceed the planned target in the end than to break the bar – including losing face. In this respect, Xi’s initially meager announcement to reduce coal consumption from 2025 is definitely worth something.
“Xi has never before made such a statement on reducing coal consumption or controlling new coal-fired power plants,” Lauri Myllyvirta, senior analyst at the Center for Research on Energy and Clean Air and an expert on China, pointed out on Twitter. “However, this will only make a difference if concrete targets and guidelines follow now. But Xi’s remarks pave the way for that.”
In fact, this pledge, now made in front of the whole world, gives Xi something in his hands in the tussle with the provinces over coal. If Xi says that China will strictly limit coal expansion, provincial permits already granted for new coal-fired power plants may come under scrutiny. Especially since Xi stressed at the climate summit that he doesn’t think much of constant U-turns in climate policy. The elephant in the room here was the US, which under Biden’s predecessor Trump, left the Paris climate agreement and made no effort at all to protect the climate. A certain mistrust with regard to the reliability of the USA after the next presidential election, therefore, exists not only in China.
And what does the climate diplomacy of the last few weeks mean for the general relationship between China and the US? The US has recently been treating climate in relation to China separately from other issues, much like the EU. Both Washington and Brussels describe their relationship with China as characterized by rivalry, competition, and cooperation – depending on what the issue is. China disagrees with that approach, says Byford Tsang of the London-based climate think tank E3G China.Table. “But in practice, they are currently going along with it.” What happens next with the climate also depends on whether China continues to do so, Tsang says.
Whereas Beijing’s decision on this is likely to depend inversely on each other’s China policies. On the day of the summit, the US Senate Foreign Relations Committee decided to support the Strategic Competition Act – a bipartisan bill in Congress that specifically targets China. The bill includes the possibility of a boycott of the 2022 Beijing Olympics by US officials, seeks to increase international development funding and increase cooperation with allies and international organizations – vis-à-vis China. The timing is unlikely to have been pleasing to Beijing.
So the next few months leading up to November’s climate summit in Glasgow will show the extent to which the US and China are implementing their climate cooperation, which was put back on track by a joint statement issued by climate envoys John Kerry and Xie Zhenhua. Xie, according to a report in the South China Morning Post over the weekend, said Beijing and Washington have resumed dialogue, including several rounds of video conferences since February between himself and Kerry. China and the US had also agreed to present their respective plans to achieve carbon neutrality before the Cop26 summit in Glasgow, he said. At the summit, all countries must present more ambitious plans, according to the Paris climate agreement.
“Even if cooperation on climate change works out, competition will eventually emerge on this issue as well,” Byford Tsang expects. At the summit, many participants, including US Secretary of State Antony Blinken, evoked opportunities for businesses through the development of new technologies. US Energy Secretary Jennifer Granholm said Friday that developing clean energy technologies would open up a “$23 billion market” by 2030. Key areas the US government wants to develop in collaboration with scientists and industry include hydrogen, CO2 capture, industrial fuels and batteries, and solar energy, she said. China is also promoting the development of cutting-edge environmental technologies like these. It is therefore not unlikely that this sector will fall into the clutches of economic conflict. In a video interview, however, Kerry rejected a CO2 limit mechanism for imported goods produced in a climate-unfriendly manner, as discussed by the EU.
Li Shuo of Greenpeace East Asia thinks the concept of rivalry, competition, and cooperation is inappropriate anyway. “In the US-China context (and to some extent true for EU-China), the danger of this misperception is as soon as cooperation is no longer politically appealing, people take for granted that competition or confrontation are the only alternatives,” Li, an expert on the intersection of environment and politics, wrote on Twitter. He advocates what he calls “engagement” – as he did through Kerry’s visit to Shanghai. That engagement, contains all three elements, but is different – and includes the possibility of persuasion. It may be a theoretical debate. But persuasion is indeed different from cooperating – or not cooperating – on the basis of decisions made by each state alone. That is why most observers welcomed the joint statement by Kerry and Xie for the fact that it came about at all.
When Angela Merkel appeared before the Bundestag’s Wirecard investigation committee on Friday, the subject was China. The MPs’ questions mainly concerned the Chancellery’s support for Wirecard’s entry into the Chinese market in September 2019, when the company planned to take over the small Chinese financial services provider Allscore and ramp it up to become a competitor for Alipay. At the time, Merkel promoted the deal to either President Xi Jinping or Premier Li Keqiang.
No Bundestag parliamentary group found fault with the flanking of a planned market entry – Merkel’s involvement received the approval of the deputies across the board. Staff members of Merkel and the Finance Ministry had already explained the specifics of the China deal to the committee during their testimony in recent months. The CCP expects to be involved in international transactions. There is then no way around the ceremonial signing in the presence of political leaders. But if a deal has the blessing of the top leadership, it is on the fast track.
It was other questions that had aroused the curiosity of the deputies. What role did the advisor and ex-politician Karl-Theodor zu Guttenberg play? He had established access to the Chancellor’s office for Wirecard. And why did Merkel campaign at all for a company that was already surrounded by allegations of fraud?
The Chancellor’s Office as a whole was not completely clueless. The committee had already worked that out in December. The young civil servant Michael Papageorgiou was on loan from the Deutsche Bundesbank to the Chancellor’s Office finance department at the beginning of 2019. He had advised at the time to cancel an appointment request from Wirecard CEO Markus Braun “for scheduling reasons” because there were too many doubts about its seriousness. Papageorgiou thus saved the chancellor from direct contact with the fraud company.
Eight months later, however, these doubts were forgotten when the chancellor put the company on her list of China-related concerns. “With China’s most powerful man, you don’t lobby for every chip shop,” marvels Fabio De Masi, a member of parliament from the Left Party. The Chancellor went into such a meeting with the ten most important concerns of Germany and Europe – and one of them was, of all things, a company whose history was accompanied by rumors of fraud?
However, De Masi also has a solution to this riddle. This, in turn, is connected with the figure of zu Guttenberg. As is well known, he was Minister of Economics and Defense under Merkel before the fraud with his doctoral thesis was exposed. Since then, he has founded the Spitzberg Partners consulting firm in New York. The name is an artificial product; there is no Mrs. or Mr. Spitzberg. The business purpose is primarily lobbying. Zu Guttenberg asked for a meeting with Merkel in a casual tone shortly before the China trip. At that time, he had a mandate from Wirecard to flank the market entry in China. If he had been successful, he would have obtained a bonus worth millions after the Allscore takeover.
Merkel had agreed to the lobbyist’s request for an appointment because she “naturally complied with the wishes of former members of the German government”. According to Merkel, she did not recall Wirecard as a topic of conversation, but that was not unusual given the many issues she dealt with. However, when zu Guttenberg brought up corporate issues, she referred him to the relevant experts in the Chancellor’s Office. At the time, she had not known that zu Guttenberg had a consulting mandate with Wirecard.
In principle, Merkel has acted correctly by sending the matter on to the experts for examination – and yet De Masi sees a problem here. By knocking on zu Guttenberg’s door at the very top, the attentive experts at the lower level were bypassed. Thus Lars-Hendrik Roeller immediately dealt with the request. Roeller is an economist and the economic advisor to the Chancellor. The latter put Wirecard on the list of concerns in China. That was two days before departure, as Roeller had testified before the committee in December. “There was no reason to be malicious here” and not comply with Wirecard’s request. After all, he said, it was a Dax company whose balance sheets had been approved by auditors. Specifically, Wirecard had needed permission from the People’s Bank of China to acquire Allscore plus a license as a payment service provider.
Merkel was able to explain the motives for her involvement conclusively overall. Wirecard fitted in well with the German government’s strategy of testing China’s willingness to open up its market and at the same time creating pioneers for market entry. Since the financial industry is still lacking in “reform and opening up”, a payment service provider would have been an excellent test balloon. At the time, the CAI was in negotiations, and such moves would have been a way of sounding out the goodwill in Beijing.
In retrospect, however, the situation is different. The true motives of company CEO Markus Braun for the attempted Allscore takeover are better known today. The rapid expansion in Asia generally served to conceal the large-scale fraud. In its subsidiaries and affiliates from Dubai to India to Singapore, the company generated the bogus profits it used to inflate its balance sheet. The acquisitions also provided a good justification for discreetly booking away high losses.
The expansion also served as a justification for requesting ever higher credit lines from banks. “They camouflaged the fake growth by saying that they had acquired subsidiaries in other countries,” said financial expert Florian Toncar of the FDP. The opportunity to buy in China was a “godsend” under the circumstances, Toncar said. The large Chinese market would have offered Braun and his accomplices the opportunity to continue spinning the growth fairy tale.
During Merkel’s interrogation, several deputies also addressed the chancellor about the wife of her economic advisor. Dr. Zhentang Zhang-Roeller had appeared in the files on the scandal because she apparently had contact with the head of the Chinese company Mintech during the Beijing trip. The latter then wanted to network with Wirecard CEO Braun. Roeller passed this request on to Wirecard’s advisors.
Then, at the committee meeting on December 17, a strange scene occurred. The deputies asked Roeller what his wife’s profession was. He answered: “Housewife”. His statement remains a mystery to this day. Zhentang Zhang-Roeller holds a doctorate in economics and has worked for the DIW in Berlin, for example. Although she took a longer family break from 2008, she was not completely inactive, at least in recent years. In between, she founded an investment company and shut it down again, and she was a “networker” for the company BHS Berlin Health, which arranges medical treatments in Germany for rich Chinese. She is also connected with RHT Europe GmbH, which offered air purifiers from Hong Kong in Germany during the pandemic.
All of this is not honorable as far as it goes. Conversely, it would be surprising if Zhang-Roeller’s qualifications really limited her to a role as a housewife in the long term. RHT Europe has also “hardly made any sales,” according to the company’s statement in response to a question from China.Table. Zhang-Roeller also had a limited role there, according to the CEO. Her husband has not yet clarified why he would not name the professional activities before the committee. The chairman Kay Gottschalk (AfD), confirmed to China.Table, however, that Mr. Roeller had written him a letter: His wife was definitely involved with companies. Possibly, the committee will ask Roeller again about the details.
In the overall picture, however, neither Merkel nor Roeller has yet been accused of anything worth mentioning. Commitment to the German economy is one of their core responsibilities. And even though there were already reports of fraud at Wirecard at the time, hardly anyone could have imagined its extent. In Germany, after all, another Dax company had turned out to be a pure fraud number.
The abbreviation LFP stands for lithium iron phosphate, which is used as a cathode material in lithium-ion battery cells. It is cheap to produce, comparatively easy to handle and is considered very safe due to its chemical structure. When the Chinese industry embarked on the long march toward e-mobility, the chemical compound licensed by a European-Canadian consortium was therefore considered the material of choice. China negotiated a long-term agreement early on that allows the country’s companies to use it royalty-free on the domestic market to this day.
About ten years ago, however, when the German automotive industry began to take an interest in Chinese battery manufacturers, the focus shifted to nickel-cobalt-manganese cathodes (NCM). Only with this higher-energy material, according to the tenor of the research departments of the car companies, could the requirements for ever greater ranges of electric cars be met. Today, as e-cars are set to conquer not only the premium segment but also the mass market, and an unexpectedly steep market ramp-up is in the offing, the issues of cost efficiency and raw material availability are increasingly coming to the fore. And LFP seems to be on the verge of a late comeback.
However, LFP never really disappeared from the battery market. In the market for electric buses, for example, which has grown immensely in China over the last few years, the material plays out its safety advantage. NCM materials have the disadvantage that they become chemically unstable when overcharged or overheated, decompose in a chain reaction, and can thus release large amounts of energy – the dreaded thermal runaway. While the focus in the passenger car sector was on minimizing the risk, primarily through control electronics designed to high safety standards, the Chinese government wanted to play it safe with buses. The use of NCMs is still prohibited here, leaving only the alternative of LFP. Whether this policy is based solely on safety concerns or also on industrial policy considerations – manufacturers from Japan and South Korea have a technological lead in NCM battery cells – remains to be seen. Together with the also rapidly increasing demand for stationary energy storage and batteries for e-scooters, solid demand for LFP materials was ensured throughout. This is because, in both fields of application, energy densities play a subordinate role, while costs play a decisive one.
Now, as is often the case, a tweet from Elon Musk in February of this year generated a lot of attention in the industry: “Nickel is our biggest concern for scaling up lithium-ion cell production. That’s why we are shifting standard range cars to an iron cathode.” Tesla announced at its Battery Day last year that it would henceforth rely on LFP cells from Chinese cell manufacturer Contemporary Amperex Technology Co. Limited (CATL) for standard-range Model 3s produced at its Shanghai Gigafactory. Up to now, NCM cells from the Korean manufacturer LG Chem have been used in particular.
Tesla is thus addressing an issue that is also increasingly causing concern among European automakers. At its Power Day in March, Volkswagen also announced its intention to use LFP cells for volume models in the future. In addition to the significant cost advantage, VW also cited a sustainable supply chain as a criterion for selecting the cathode material. “Sustainable” should not only be understood from a socio-ecological point of view (cobalt from crisis regions) but also in terms of long-term supply security. In a report published a few weeks ago on behalf of the Joint Research Center of the European Commission, the raw material analysis company Roskill points to emerging supply problems. Nickel supplies, analysts say, threaten to fail to meet demand in the European Union from 2027. Iron, on the other hand, is the second most abundant element in the earth’s crust and is easily accessible in large quantities. So it seems logical that Roskill, in another market study published in January, expresses a positive outlook for LFP’s market share.
In China, LFP battery production for electric vehicles had already risen by around 21 percent by 2020. The Chinese battery industry, therefore, did not wait for a Musk tweet, but anticipated the development beforehand. The turnaround in subsidy policy that the Chinese government is currently implementing is certainly also playing a significant role. In the wake of the COVID-19 crisis, subsidies for the purchase of electric vehicles were extended by another two years. However, they are scheduled to expire in 2022, and the government intends to invest more in charging infrastructure instead. In the past, the Chinese subsidy system primarily favored high-range, purely battery-electric vehicles. It can be assumed that the cost-benefit ratio will play a much greater role in the future. In addition, a denser network of charging options is likely to take pressure off the quest for ever greater ranges. The Chinese market could serve as a blueprint for the situation in Europe.
The Chinese battery industry is benefiting from this development, as it has a strong historical position in LFP and is still not on a par with its Korean competitors in NCM technology. The barriers to market entry are significantly lower for LFP technology than for NCM because the material’s chemical stability means that it does not place such high demands on production conditions. This reduces investment costs immensely, and process defects have less serious consequences than with the more sensitive NCM. Not least because of this and the stable domestic demand for LFP cells, a considerable number of battery cell manufacturers have been able to emerge in China in just a few years, some of them growing into global players. While the European industry has long sought its salvation in the “next technological leap”, China has started with the simplest and most cost-effective technology with the pragmatism so typical of the country.
One company that could benefit particularly strongly from the comeback of the LFP is BYD. The conglomerate, which is listed on the Hong Kong and Shenzhen stock exchanges, has consistently adhered to LFP technology in the passenger car sector as well. The company made up for the material’s energy density disadvantage elsewhere in its “Blade Battery”. By dispensing with the usual structure of several modules and instead integrating the cells directly into the overall system (cell-to-pack technology), the battery achieves competitive energy densities. In a study published in Nature Energy in January, the energy density by volume of the BYD Han – the first car model to use the technology – is even higher than that of the Tesla Model 3 LR from the 2017 model year. Added to this are advantages of LFP in terms of fast-charging capability and service life. According to the portal BusinessKorea, Hyundai has now expressed interest in the Blade Battery for its models sold in China.
The inspiration for the battery’s name comes from particularly long, narrow cells that fill the entire width of the battery pack, thus also giving it mechanical rigidity. The unusual format poses special challenges for manufacturing. According to an insider from the Chinese battery industry, about two years of development work were necessary – an effort that BYD could turn into a lasting competitive advantage.
Another competitive advantage of BYD is that the company controls the entire value chain down to LFP material production. The same applies to the Chinese competitor Gotion High-Tech, in which Volkswagen acquired a 26 percent stake last year. For non-Chinese material producers such as BASF, however, the business could soon become more lucrative. That’s because patents for the material’s manufacturing process will begin to expire in 2022, and with them the royalties are due. At the same time, however, the export restrictions for Chinese companies will no longer apply. The race is, therefore, on in a market that is becoming freer, and it is possible that other players will join in.
Meanwhile, CATL is also investing heavily in vertical integration. In January, the industry leader from southern China’s Fujian Province announced plans to build an LFP factory with its subsidiary Shenzhen Dynanonic at a cost of $280 million. CATL founder Zeng Yuqun commented, “For a certain time, lithium iron phosphate still has room for improvement, it’s still the absolute mainstream for many applications.” Or, in other words, there’s life in the old dog yet.
Dr. Daniel Burow is a chemist and technical project manager. He has worked for German and Chinese companies in the automotive industry and completed his doctorate in the field of battery materials.
Xi Jinping trusts him. This alone gives Qin Gang access to the closest circle of the leading elite in the Communist Party. Now he is being traded as one of the hottest successor candidates for the post of outgoing Chinese Ambassador Cui Tiankai in Washington. At a time when the US and China are constantly butting heads alongside threats of sanctions, trench warfare over their countries’ international supremacy, and a growing estrangement with regards to each other’s foreign policies, Qin’s position is all the more significant. The choice of Qin Gang also underscores speculation that Qin is highly in Xi Jinping‘s favor and should therefore be entrusted with this particularly delicate task.
Qin Gang earned the trust of China’s first man by working hard on his career. When Xi was relatively new in office and his image needed to be put in the right light internationally, Qin was in charge of protocol at the Foreign Ministry. He was able to work to ensure that Xi was also perceived on the international stage as the one leading China into a new era.
It was Qin Gang, for example, who accompanied Xi on many of his foreign trips as chief of protocol and paid attention at the big banquets at home to how Xi’s appearances were staged not only for the state media but especially for the heads of state from abroad. That he has done his job well is also shown by his promotion to vice foreign minister in 2018. Behind Wang Yi, who has been foreign minister since 2013 and has also studied abroad and who is considered a hardliner, Qin has played second fiddle for almost three years. In doing so, he has now apparently gained enough experience to move up to the position of ambassador.
At the Foreign Ministry, Qin Gang has had a very stellar career: The 55-year-old has been working there for 33 years. Immediately after his education at Tianjin University, he embarked on a career as a civil servant. Prior to his role as Vice Foreign Minister, Qin was also in charge of the Europe Department, in addition to serving as Foreign Office spokesman. Qin previously spent many years in London working for the Chinese Embassy in Great Britain and Northern Ireland as secretary (1995-1999). He returned to the Chinese Embassy in England a second time as an adviser from 2002 to 2005. Again in 2010, but by then with the title of Minister. In the years between his three stays abroad in England, Qin repeatedly returned to the Foreign Ministry in Beijing. There he first rose to the position of Director of the European Department (1999-2002) and then worked his way up to Director of the Information Service and Spokesman of the Foreign Office (2005-2010). As a result, he has not lost his way within the Ministry of Foreign Affairs in Beijing.
Nevertheless, international observers initially reacted with surprise to the news of Qin’s possible posting to Washington. After all, he has little experience in dealing with the United States. However, Keith Zhai of the Wall Street Journal sees this as a “positive sign” because an ambassador with no previous US experience can be seen as a positive new beginning for relations. As Qin’s counterpart, Nicholas Burns is currently being traded as the new US ambassador to China. The career diplomat and Harvard professor only chided Europe in mid-April at a virtual event for making a “tactical mistake” in reaching an investment agreement with China. Burns calls for greater cohesion among Europe, the US, and Japan.
It is possible that Beijing chose Qin Gang for the post in Washington precisely because of his European experience. An ambassador to the American capital who knows what makes Europeans tick probably knows better than anyone how to drive wedges into transatlantic relations – for China’s benefit. Ning Wang
