On 4 November German chancellor Olaf Scholz, flanked by twelve German industry leaders, became the first G7 leader to visit China since the Covid pandemic’s onset. His visit represents the growing splits within the German ruling class: the very real reliance of Germany’s exports and economy on Chinese markets, balanced against a growing desire to follow the US into conflict with China. This, all amidst a backdrop of the proxy war in Ukraine, which has wrenched Europe away from dependence on Russian gas at the risk of major economic upheaval for European imperialism. The key question for US imperialism: can Europe be dragged through a similar process with China?
US and European imperialism
Severing Europe’s reliance on Russian gas has been a key strategic aim of US imperialism as it seeks to isolate China and its allies, who represent a mounting threat to US hegemony. The next step is directly challenging Europe’s economic relationship with China. The European ruling class is divided on this question, with some sections, including the European Commission, sharing the US’ aim. A week before Scholz’s visit to China, European Commission commissioner Thierry Breton sent a warning to be ‘extremely vigilant’ in dealing with Chinese investment, describing the nation as a ‘systemic rival’ to the EU. However, the EU will fight to ensure that this is handled on its own terms without its interests being undermined by US imperialism.
Europe also has to worry about competition from the US as European industry remains under threat from the energy crisis, especially in energy intensive sectors such as fertiliser, chemicals, steel, and aluminium production. Fears have been worsened by the US’ introduction of tax-breaks for US manufactured products under the Inflation Reduction Act. The European Commission has responded by convening a task force specifically to deal with this. Their fear is an exodus of European industry to the US where it can enjoy these tax-breaks. Of specific concern is the sector of electric vehicle production: Europe currently represents 25% of global electric vehicle production to a 10% US share, something US imperialism seeks to address. French Finance Minister Bruno Le Maire spoke out against worries of the ‘deindustrialisation of Europe’.
EU internal divisions
Though some sections of the European ruling class are determined to isolate China, other sections continue to view Chinese markets as an important source of profitability, though are wary of growing dependence on China. The latter position is exemplified in Germany.
Immediately prior to his visit the country, Scholz stated: ‘we don’t want to decouple from China’. But he did express a desire for increased representation of German interests in their bilateral relationship. This represents the views of large sections of the German ruling class, who are not opposed to a continued economic relationship with China, but see it as unbalanced and demand greater reciprocity from it
In 2016, China overtook the US and France to become Germany’s largest trading partner and has maintained this number one spot every year since, with China’s share of German total trade (imports plus exports) increasing to nearly 10% in 2021. In 2020, when German total trade dropped nearly 9% on the previous year due to the pandemic, its total trade with China still increased by 3.5%. German capitalism’s recovery from the 2008 financial crisis has been largely dependent on Chinese export markets, especially for cars, heavy machinery, and electronic equipment.
German foreign direct investment (FDI) into China tells a similar story: in 2009 Germany accounted for 26% of total European FDI outflows to China, a figure which had increased to 46% by 2021. In 2018, German FDI accounted for the majority (51%) of European FDI outflows to China. This represents not only an increase in German investment, but also a relative decrease in the rate of investment in China by other European imperialist powers. In the first six months of 2022, German investment into China amounted to almost €10bn, smashing the previous half-year peak of €6.2bn. German capitalism’s dependence on China currently shows no signs of slowing.
However, Chinese capital flows into Germany are a fraction of those flowing in the opposite direction, even when compared to each country’s total capital outflows. German FDI into China in 2018 was more than double total Chinese FDI into Germany 2014-19.
Although relatively small in volume, Chinese investment in Germany is being driven by high-profile acquisitions within high-technology industry sectors. This represents China’s growing need to move industry away from low-cost, labour-intensive production towards a more high-tech industry and manufacturing base, something given expression to by its ‘Made in China 2025’ policy. This is alarming sections of the German ruling class who are expressing an increasing desire for protectionism against Chinese capital flows into Germany; Germany’s competitiveness in exports relies on its high-level, cutting-edge technology, and they see this being undermined by any Chinese access to such industrial secrets.
In 2018, Chinese automotive company Geely Group acquired a 9.7% stake in leading German automotive company Daimler AG, which owns Mercedes-Benz and Detroit Diesel. The reality of a Chinese company becoming lead shareholder in an iconic German company provoked further hostility, with a German MP referring to the process as ‘engineered’: an accusation of Chinese state interference.
In October, a previously agreed deal with Chinese shipping conglomerate Cosco to purchase a 35% stake in a Hamburg container terminal came up against fierce opposition. The German economy minister attempted to block the deal, citing concern with ‘critical infrastructure’ being owned by foreign rivals. In the end, Scholz agreed on a compromise of 25%, despite opposition from his economy, foreign, defence, and interior ministers.
Chip wars
The rapid intensification of inter-imperialist rivalry is increasingly dividing the world into competing blocs, and these tensions and divisions have inevitably spilled over to a relatively new frontier: semiconductor or chip production. In November, the German government blocked the takeover of a Dortmund chip factory by a Swedish subsidiary of Chinese company Sai Microelectronics. It also blocked Chinese investment into Bavaria based ERS Electronic, another semi-conductor company.
This occurs amidst a backdrop of a renewed US assault on China, with measures introduced targeting China’s ability to import semiconductors. This has alarmed European imperialist powers, who see this as potentially harmful to their own operations. There are concerns that these measures will be extended, further putting European companies at risk.
For over a year, the US has been attempting to reach a deal on such measures with Japan and the Netherlands, where several of the largest chip making companies in the world outside the US and Taiwan are headquartered. Now, US imperialism will instead look to lever these nations into adhering to its aims of isolating China. This prompted Xi Jinping to urge Dutch leader Mark Rutte against ‘decoupling’ from China at the G20 summit in November.
US imperialism has successfully broken Europe from its dependence on Russian gas via the proxy war in Ukraine. Its similar aims in relation to China will be largely dependent on the battles taking place within the European ruling classes. Unlike Russian gas, however, there is no ‘capital flows to China’ pipeline that can be blown up.
George O’Connell
