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Germany’s chancellor, Olaf Scholz, delivered a message to companies, stating that it was their responsibility to manage the risks associated with China, which may have been met with skepticism in European boardrooms. Over the years, multinational corporations have received conflicting advice on investment from EU governments, the European Commission, the Biden administration, and the Chinese government. These entities have increasingly supported their advice with unlimited subsidies.
Scholz’s words echoed a similar sentiment expressed by China’s Premier, Li Qiang, to German corporate executives a week earlier. However, in heavily politicized trade disputes, business decisions are often intertwined with official decisions, especially in Germany, due to its influential government-corporate-trade union connection.
National and economic security concerns have become more prominent in recent times. Certain sectors of the German industry are heavily invested in China and need to advocate for open trade and investment, despite the risks. While disengaging from China may not be favorable for companies operating in sensitive areas like high-end semiconductors, those exposed to the coercive powers of the US administration have limited options. The Dutch government, for example, has been coerced by the US into implementing new export control measures for semiconductor equipment, making every export deal subject to potential scrutiny for national security threats.
Less sensitive technologies, such as electric vehicles, offer more room for companies to maneuver. However, political input will still heavily influence business decisions in these areas. In the EU, the debate on China’s role in the expanding electric vehicle market is intensifying. French internal markets commissioner, Thierry Breton, recently threatened to launch an antidumping investigation into Chinese EV manufacturers exporting to Europe, which could affect European companies with Chinese plants. Additionally, the EU could use its new regulations against state-subsidized companies to discourage Chinese car businesses from establishing plants within the EU.
Despite a shift in German government policy away from alignment with Beijing, German industry, especially Volkswagen, remains committed to avoiding trade disputes and maintaining openness towards China. Excluding China from the EU’s electric vehicle market is seen as counterproductive, considering China’s global leadership in EV technology and production capability. Instead, encouraging domestic uptake of green technology, as China did with EV incentives, would benefit the EU’s own green tech industry. There are indications that EV production will likely be localized, further supporting expansion within the EU.
The European business-government nexus has been criticized for lacking foresight in embracing EVs. German car manufacturers, in particular, have prioritized conventional engines and failed to address emissions test manipulation, as shown in the Dieselgate scandal. Companies operating in a politicized environment must be aware of potential governmental interference and make realistic assessments of government involvement while adapting to technological and market changes. De-risking trade with China requires recognizing the role that governments should play rather than denying their influence.
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