German leader Olaf Scholz walks a fine line in China

German Chancellor Olaf Scholz tried to strike a delicate balance on a trip to China this week, strengthening trade ties with his country's largest trading partner while raising concerns about its increased exports to Europe and its support for Russia.

Mr. Scholz met with Chinese leader Xi Jinping at the Diaoyutai State Guesthouse in Beijing on Tuesday, the culmination of a three-day visit with a delegation of German officials and business leaders. He also met with Premier Li Qiang as relations between the two countries soured over Russia's war in Ukraine and China's rivalry with the United States, Germany's most important ally.

Throughout his trip, Mr. Schulz has promoted the interests of German companies that find it increasingly difficult to compete in China. He also expressed growing concern in the European Union that the region's market has become a dumping ground for Chinese goods produced at a loss.

But Mr. Schulz chose a conciliatory rather than combative tone in his opening remarks before he sat down with Mr. Xi on Tuesday morning, for a meeting that stretched for more than three hours and turned into a picnic and lunch.

This was the German leader's first visit to China since his government adopted a strategy last year that identified the Asian power as a “partner, competitor and systemic competitor,” calling on Germany to reduce its dependence on Chinese goods.

The German economy contracted last year, exposing its vulnerabilities and its dependence on China for growth. Energy prices have risen due to the war in Ukraine, which was facilitated by Beijing's support for the Kremlin. German companies have pushed for more access to China and complained they face it Unfair competition.

The Chancellor visited German companies with large-scale investments in China and met with trade representatives and officials in the sprawling industrial city of Chongqing in southwest China and in Shanghai and Beijing.

Speaking to a group of students in Shanghai on Monday, Mr. Schulz answered a question from a student who was planning to study in Germany this year, who said he was “really concerned” because the country had partially legalized cannabis. “When you study in Berlin, you can run around all the time and never meet anyone who does,” the advisor assured him.

But he also used the platform to push more serious messages about trade. “The competition has to be fair,” Mr. Schultz told the students. He added: “We want equal opportunities.

Mr. Schulz's trip was an example of the difficult dance Germany is trying to do: maintaining economic ties with China while managing American pressure to ally more closely with Washington against Beijing.

In his meetings, Mr. Schulz highlighted Germany's commitment to doing business with China, but also warned that Beijing should limit the flow of Chinese goods to Europe. At the same time, he expressed reservations about the EU's investigations into China's use of subsidies for green technology industries, saying any discussion on trade must be based on fairness.

“This should be done out of self-confident competitiveness, not protectionist motives,” Schulz told reporters on Monday.

China's move towards manufacturing in green sectors such as electric cars and solar panels has sparked trade disputes with Europe and the United States, where these industries have also received government support. But with 5,000 German companies active in the Chinese market, Germany stands to lose more than many of its European partners if Beijing retaliates against the EU.

“If the EU takes tough measures against China, we can expect countermeasures, and this would be a disaster for us,” said Maximilian Butteck, executive director of the German Chamber of Commerce in China.

“For us, it is very important that the Chinese market remains open,” he said.

In his meeting with Mr. Xi, Mr. Schulz noted that Russia's war on Ukraine and its weapons buildup were at the top of his agenda. “They directly affect our fundamental interests. They are indirectly destroying the entire international system,” he said in his opening remarks at the meeting, the text of which was provided by Mr. Schulz’s office.

Despite pressing the issue with Xi, he does not appear to have won the commitment he had sought from the Chinese leader to participate in an international conference on Ukraine scheduled for June. Germany had hoped that China could use its influence over Russia to help work toward a peace agreement.

Germany would also like China to stop selling goods to Russia that have potential uses on the battlefield, and Schulz told reporters he raised the issue in his meeting. “The point has been made,” he said. “There can be no misunderstanding about how we see things.”

China hopes to drive a wedge between Europe and the United States by courting leaders like Mr. Schulz. Official media reports portrayed his visit as evidence of China's strong relations with Europe and the strengthening of its economic ties with Germany.

In his opening remarks to Mr. Schulz, Mr. Xi said that cooperation between China and Germany, which have the second- and third-largest economies, is good for the world, a remark that could be read as directed at those who have urged Berlin to distance itself from Beijing.

“The two countries should view and develop bilateral relations from a long-term strategic perspective, and work together to inject more stability and certainty into the world,” Mr. Xi told Mr. Schulz, stressing the importance of seeking “common ground.”

Beijing would certainly welcome the message that German companies are committed to China. The Asian giant is trying to attract foreign investment to revive its economy, which has faltered due to the slowdown in the housing sector. Some Western companies and investors have also been alarmed by Mr. Xi's focus on national security, which they see as making doing business in the country more dangerous.

From China's perspective, Germany may be its best hope for delaying or easing any trade restrictions from Europe, said Noah Barkin, senior China practice advisor at Rhodium Group, a research firm.

German automakers have invested billions of dollars in China, and a large portion of their revenue comes from there. Many worry that if the European Commission imposes higher tariffs on Chinese exports, and Beijing retaliates, German companies will suffer the most.

Barkin said Chinese officials “know that German companies are investing heavily and they are using that politically to influence political decision-making in Berlin.”

Mr. Parkin added that Germany's largest companies, including BMW, Mercedes-Benz and BASF, have significant operations in China and strong and effective lobby groups in Berlin. Executives from those companies, along with several other companies, traveled with Mr. Schultz to China.

“The supply chain in China is full of German goods,” said Jörg Wuttke, former head of the European Union Chamber of Commerce in China. “If China has a price war with Germany, no one will make money anymore.”

Mr. Schulz was also accompanied by the German agriculture, environment and transport ministers, officials who experts said were particularly interested in working with China.

“You set an agenda with these three ministers, and the general approach is cooperation, and these are the areas we want to work on,” said Janka Oertel, director of the Asia program at the European Council on Foreign Relations.

For their part, Chinese officials have ignored European accusations of unfair trade practices, describing them as baseless and an act of “abuse.”Typical protectionismThey hinted that they may respond to any actions taken by the European Union, saying that China is “deeply dissatisfied with and firmly opposed to its investigations.”

in interview In an interview with German newspaper Handelsblatt, Wu Qin, China's ambassador to Germany, said that the competitive advantage of Chinese electric cars “depends on innovation, not subsidies.”

“The challenge facing developed countries lies more in the fact that Chinese companies have become more efficient,” the ambassador said.

Zexu Wang He contributed reporting from Hong Kong.