Europeans revalue the double-edged sword of trade with China

EU exports to China have grown at a double-digit pace since the pandemic hit a year ago, a sparse and bright spot on the otherwise bleak European economic landscape.

But China’s actions in places like Xinjiang and Hong Kong have made it clear to European companies that trade with China could be a double-edged sword, prompting some to revise their ties to the second-largest economy. and ask their governments for a tougher line with Beijing on human rights and unfair competition.

Since the pandemic first occurred, China has become the EU’s largest trading partner for goods, the source of nearly a quarter of the goods imported into the bloc last year, while 10% of goods exported from the EU went the other way. Two-way trade has increased by 67% in the last decade, compared to 19% growth between the EU and other countries.

The only companies that are credible are the ones that are leaving [Xinjiang]

As a result, China’s rapid rebound from the virus it has helped cushion Europe from the much heavier economic blow it experienced. Figures to be released on Friday will confirm that the eurozone fell into a double-dip recession in the first quarter of this year as new closures slowed activity.

Trade – and trade with China in particular – is likely to be one of the few parts of the bloc’s economy that can counteract the trend.

But despite this “success story. . . not only [in] Germany, but also the rest of Europe, ”Wolfgang Niedermark, a member of the executive board of BDI, Germany’s leading industrial association, warned of the problems.

“It’s time to treat China as a competitor and cooperate with it as a partner and confront it when we disagree, such as human rights,” he said.

China’s internment of Uighurs, Kazakhs and other Muslims in the Xinjiang region has led to sanctions in the United States, the EU, the United Kingdom and Canada. retaliation for Beijing and leave some European companies facing controversy about their dealings. Like the repression of Beijing in Hong Kong.

Niedermark said Beijing had become bolder in asserting its interests, which means that “China’s tone is different, so we need to take a different approach.”

“We no longer accept China as an emerging market that is not ready. . . play by the same rules, ”he said.

Earlier this month, three pressure groups and a Uighur woman who had been interned in Xinjiang filed a lawsuit in Paris against four European and American clothing manufacturers, accusing them of committing crimes against humanity over the purchase of cotton. manufactured by forced labor in the region, which produces about one-fifth of the world’s cotton.

“Obtaining cotton from this region is inherently problematic and the lack of information also makes it difficult for companies,” said Miriam Saage-Maass, deputy legal director of the European Center for Constitutional and Human Rights. supported the demand of Paris. “The only companies that are credible are those that are leaving the region.”

The ECHR is working on similar demands in other countries, including Germany and the Netherlands.

The campaign has an effect. Tchibo, the Hamburg-based coffee maker, has already told the ECHR that it will stop buying cotton from a Chinese company that activists have accused of using forced labor.

The dilemma is particularly acute for German companies, because the intensification of the trade relationship is largely a German story.

More than 40% of EU goods imported into China during the twelve months to February came from Germany.

German exports to China rose 26% in February compared to the same month last year, when the pandemic closed much of the Chinese economy. This compares with a drop of 1.2% in all German exports during the same period.

Betting on German companies will only increase; Berlin is plan a law this would hold companies accountable for human rights violations or environmental standards in their global supply chains.

“This creates a headache for the strategic departments of many companies,” Niedermark said, adding that several had urged the BDI to talk about human rights. “We should deal with this with our Chinese friends and not shy away from it.”

In particular, Volkswagen is facing more and more scrutiny, as one of the few western car manufacturers with a factory in Xinjiang. It is a sensitive issue for VW, given its use of forced labor during World War II and because China is its largest market.

VW denied that any of its employees “worked under duress,” adding that “suppliers who do not meet our requirements do not receive contracts.” The vehicle manufacturer is integrating human rights into its “compliance management system” and this year “will conduct internal evaluations of Volkswagen-controlled entities in China,” he said.

The wider geopolitical environment can take these decisions out of the hands of European companies, according to Janka Oertel, head of the Asia program at the European Foreign Relations Council. The shift from China to autonomy in key industries it should be “a concern for European companies” aimed at the Chinese market, he said.

Oertel warned that it was a “risky option” to assume that Beijing would continue to open up its economy after forced sanctions left the balance of the EU-China trade agreement agreed in December.

“This is bigger than individual companies,” he said. “It’s a political issue that needs to be addressed at the European level and not at an individual or country level.”

There are indications that Brussels is tightening its position on China. The European Commission will be presented next week legislative powers repress subsidies from foreign governments that distort the market, widely seen as a response to Beijing’s state support for its national champions.

The BDI is pressuring the EU and Germany to use public scrutiny and investment control as a lever to open the Chinese economy to fairer competition.

“It sounds like protectionism and we don’t like that because we’ve always tried to be open,” Niedermark said. “But if no one is following us, we will have to strengthen our own set of tools.”