Germany Wavers on China Policy as Automakers Push for a Tougher Line

EU member states must settle on a future trade policy toward China by October, according to the European press. While Brussels and Beijing negotiate ways to reduce their trade imbalance, Germany finds itself torn between protecting its own exports and industry demands—particularly from carmakers—for a tougher stance.

For years, Germany pushed for a cautious EU approach to China, since, unlike most European countries, it sold more to China than it bought. Those days are over: German exports to China are now roughly comparable in volume to its exports to the Czech Republic.

A Government Divided

German Social Democrats are urging Chancellor Friedrich Merz to back a harder line, as Chinese companies increasingly compete with German industry, including its automotive sector. The Economy Ministry, led by Katherina Reiche, remains wary of provoking Beijing with such moves. But the chancellor himself has now joined the ranks of critics of the current approach.

"I am not willing to accept that things simply stay as they are, because this is unilaterally costing jobs in Europe," Merz said in July, commenting on China's currency policy. According to him, the yuan is undervalued by roughly 30%, giving Chinese exporters an unfair advantage at everyone else's expense.

The federal government has yet to agree on a unified strategy: Reiche still believes a hardline approach would ultimately hurt German exporters. Meanwhile, at the EU level, all eyes are on Germany's position—France has already staked out the toughest stance among member states.

Quotas on Chinese Components

The EU is weighing quotas that would limit the share of Chinese components allowed in European-made products. The goal is to push local companies to reduce their dependence on Chinese supply chains—either by relocating production to Europe or by finding alternative suppliers.

The measure would also affect carmakers, who remain almost entirely dependent on China for electric vehicle battery production. Škoda Auto, for instance, recently confirmed that it sources battery cells for its top electric models from China's CATL.

Automakers Shift Their Stance

The German auto industry association VDA has also entered the debate. For a long time, it worked to shield China from EU regulation, since German carmakers relied heavily on the Chinese market and feared retaliation from Beijing. But as Germany continues to lose market share in China anyway, that position is shifting.

"China, too, must come forward with constructive proposals toward Europe, consistently and swiftly end practices that distort competition, and refrain from restricting free global trade through export controls, especially in the current situation," the VDA said in a statement.

According to the industry outlet Automobilwoche, German automakers' views on China are shifting noticeably—largely out of concern that Beijing could restrict exports of strategically important raw materials or components at any moment.

Volkswagen is especially concerned about defending its position in Europe, where Chinese brands are making rapid inroads: in June, their combined share of the EU market topped 10%. Volkswagen has joined Renault and Stellantis in calling for stricter local-content rules—under their proposal, at least 70% of the components in cars assembled in Europe would need to be locally made for the vehicle to count as European.

Special Treatment for Allies

At the EU level, the business press reports, an alliance is taking shape among several countries aimed at pushing back against the expansion of Chinese automakers. Cars from Japan, South Korea and the UK could be granted an exemption, subject to the same rules as vehicles manufactured at EU-based plants.

Cars made in China, by contrast, would remain subject to tariffs—including the current emergency duties on electric vehicles, which could be extended to hybrids as well. Brussels argues that Chinese factories have benefited from years of state subsidies, giving them an unfair competitive edge.

That argument, however, may soon lose its force: Chinese manufacturers such as BYD and SAIC no longer want to simply export cars to Europe—they want to build them there. In the coming years, a number of new plants are expected to open in Spain and Hungary, supplying the local market under Chinese brands.

Through supply-chain regulation, the EU hopes to ensure that these plants don't merely assemble parts shipped in from China, but instead help build a genuine network of regional suppliers. So far, Spain has benefited the most from this trend, attracting major investment from SAIC, Chery and battery maker CATL.

Germany, meanwhile, remains on the sidelines: Chinese automakers are in no hurry to set up production there. BYD is only in talks to buy part of Volkswagen's so-called "Transparent Factory" in Dresden, which has also served as a tourist attraction, but the Chinese have no plans yet for large-scale production in Germany. Elvis Chen, head of European expansion for the Xpeng brand, acknowledged that his company doesn't rule out cooperation with Volkswagen, but described the group's factories as "a bit outdated" and questioned whether they would meet his brand's standards.

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Source: seznamzpravy.cz