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By JORDYN DAHL
with PHELIM KINE
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Hello China watchers, I’m Jordyn Dahl, filling in for Stuart this week, covering the start of Xi Jinping’s European tour with our senior correspondent Clea Caulcutt, who is on the ground in Paris. Phelim Kine will be with you from the U.S. on Thursday.
XI IN FRANCE
THE EMPEROR HAS ARRIVED: In his first visit to the EU in five years, Chinese President Xi Jinping is employing a familiar tactic: divide and conquer. His visit kicked off in Paris with a meeting with French President Emmanuel Macron and European Commission President Ursula von der Leyen. While Xi faced criticism from the two over China’s economic overcapacity and financial support for Russia, Xi will be among friends in the latter half of his trip in Serbia and Hungary.
State of play: The trade battle between the EU and China overshadowed the proceedings, with the Commission now wrapping up its anti-subsidy investigation into Chinese electric cars. The reliance of German automakers on the Chinese market has left France leading the charge on the investigation — as Xi is well aware and looking to exploit. Macron, for his part, has tried to shore up alliances, hosting German Chancellor Olaf Scholz for a dinner last week in preparation for Xi’s visit.
Absorption factor: Despite recent statements by Macron denouncing China’s economic practices, von der Leyen was the most critical in public, calling out China’s overcapacity in her statement to press after the meeting. “Combined with a domestic demand that is not increasing, the world cannot absorb China’s surplus production,” she said. Macron took a more measured tone, saying Xi needs to offer “fair rules for all.”
Separate worlds: Xi, however, denied the existence of a “so-called ‘China’s overcapacity problem’,” according to a readout of the meeting in Chinese media. “The two sides are basically operating in different realities based on what they’re saying,” said Grzegorz Stec, head of the Brussels office at MERICS, a think tank. “What do you do when your diplomatic partner basically tells you that they’re already doing things to resolve the problem or … not acknowledging the problem in the first place?”
No coincidence: It’s likely too late for Xi to torpedo the EV investigation or curb tariffs. Instead, his arrival ahead of the June EU election is part of a long-term strategy to influence member-state priorities when setting mandates for the next five years, particularly concerning de-risking strategies.
Overplaying his hand: But that is precisely where Xi is going astray, Stec said. Beijing is anticipating that former President Donald Trump will win a second term in the United States, which Xi believes would bring the EU and China closer together. “EU-China relations are supposedly going to blossom once again, which is by far not … how Europeans see it,” he said. “It’s a bit of a miscalculation.”
NEXT UP: Xi heads to Serbia today, where he will mark the 25th anniversary of the 1999 NATO bombing of China’s embassy in Belgrade during the Kosovo War. The bombing killed three Chinese journalists and strained relations between Beijing and Washington.
MORE EV NEWS
CHINA'S EV MAKERS HAVE LITTLE INCENTIVE TO COOPERATE: It should come as no surprise that China's electric vehicle makers aren't cooperating with the EU's investigation into the allegedly unfair subsidies they receive, economist Niclas Poitiers at Brussels-based think tank Bruegel told trade reporter Koen Verhelst.
ICYMI: The European Commission sent letters to three EV companies last month, informing them that they hadn't released enough information to allow an anti-subsidy probe to happen. As a result, the firms could face higher duties than if they had cooperated.
Gate closing: The unwillingness of Chinese companies to expose their inner workings is part of a larger trend, Poitiers argues. "China publishes less and less data; the systems through which the benefits [might flow to] these companies … are quite opaque and difficult to understand in the first place. It’s not always clear if even the Chinese central government knows exactly what’s going on."
Many layers: Both the Chinese firms — whether state-owned like SAIC or privately held like BYD — and local governments might not have "a great incentive … to be cooperative," Poitiers explained. "Or they might fear political retaliation. They might not know what’s going on in some cases."
Overcompensating: Lower governments in China may well be doing more for the companies in their provinces or cities than Beijing requires, meaning EV companies and their suppliers could be receiving support the central government doesn't know about. "There might be incentives for local governments to subsidize things in opaque ways that might not be totally aligned with what the central government expects them to do," Poitiers said.
Political struggle: Of course, it’s not just China that fears the severity of the impending duties. A political fight within the EU has blown wide open in recent months, with German carmakers opposing any duties — and even advocating the removal of the 10-percent import tariff that is levied on all foreign-made cars.
Xinjiang problem: Poitiers is not impressed, underlining that some Western carmakers "have even invested into areas like Xinjiang where, even 10 years ago, everyone knew that there were problems there with human rights violations," he said, flagging Volkswagen's large plant in Ürümqi. "They’re willing to engage with that in return for profits they could make on the Chinese market and they did really well there."
OLYMPICS
CAN’T WE ALL JUST GET ALONG: Macron and Xi are at loggerheads over trade, but they agree on making a success of the Olympic Games in Paris this summer. "I thank you for showing your desire during our talks to ask all parties to have an Olympic truce," Macron said.
Ceasefire talks: The French president also hinted that an opportunity might arise regarding a ceasefire between Russia and Ukraine. "Maybe this could [be] an opportunity to work toward a sustainable resolution [of the Ukraine conflict] in the full respect of international law," he said. Events on the ground, however, suggest a different outcome, with Russian forces taking advantage of Ukraine’s dwindling military supplies in recent months.
Neutrality: Despite China’s “no-limits partnership” with Russia, Xi warned Ukraine’s backers not to focus too much on Beijing’s support for Moscow, hinting at Washington's role in the conflict. "We oppose those who use the crisis and throw the responsibility on a third party, and call for a new Cold War," he said. China is Russia’s main source of consumer goods and key battlefield technologies after sanctions eliminated other suppliers.
We’ll take what we can get: Macron, meanwhile, welcomed Chinese "commitments" to "abstain from selling any weapons" to Russia and "closely control the export of dual-usage equipment," saying that such statements were "reassuring."
TRANSLATING WASHINGTON
CHINA WATCHER SCOOP — SOLAR PANEL FIRM FAVORED CHINESE SUPPLIER: When China Watcher reported in March that South Korean conglomerate Hanwha's flagship solar factory, which is benefitting from Biden administration tax incentives, will be using Chinese argon-gas recycling technology in its manufacturing process, the company said it had evaluated bids from multiple vendors. POLITICO's Daniel Lippman now writes in that Hanwha subsidiary QCells had late-stage negotiations with an American manufacturer to buy its equipment, but in the end chose to purchase a system from Shanghai Lianfeng Gas Co. The equipment also temporarily requires Chinese technicians to operate it on the QCells factory floor, according to three people familiar with the matter.
QCells, as part of an alliance of domestic solar manufacturers, also recently filed a petition alleging dumping and subsidization by Chinese solar companies, prompting John Barrasso (R-Wyo.), a ranking member of the Senate energy committee, to criticize QCells' use of a Chinese supplier. "Chinese companies and the Chinese Communist Party shouldn't receive a single cent of American taxpayer dollars," he said in a statement. "It has to stop." QCells spokesperson Debra DeShong said setting up the plant requires the purchase of equipment from both local suppliers and from companies around the world. Treasury spokesperson Ashley Schapitl said in a statement that the Inflation Reduction Act "incentivizes onshoring the entire solar supply chain … to reduce our overdependence on China."
HK OFFICIALS IN VEGAS DRAW FIRE: A U.S. lawmaker and Hong Kong pro-democracy activists have denounced an event featuring senior officials from the territory at the Milken Institute's 2024 Global Conference in Las Vegas on Sunday. The panel discussion, which included Hong Kong Trade Development Council Executive Director Margaret Fong as well as Fred Lam, CEO of the territory's Airport Authority, focused on Hong Kong's economic Recovery, Relaunch, and Reinvention.
The strict focus on the territory's economy made the event "a propaganda outlet for the very officials who are eroding the rule of law, destroying press freedom and incarcerating political prisoners," said Rep. Chris Smith (R-N.J.), chair of the Congressional-Executive Commission on China. The event amplifies "the fiction that Hong Kong is still the vibrant, free city that it once was," said Mark Clifford, president of nonprofit advocacy group the Committee for Freedom in Hong Kong.
INDIANA SENATOR SLAMMED FOR CHINA LINKS: Six years ago, as a Republican running in a GOP primary in a deep-red state like Indiana, Sen. Mike Braun (R-Ind.) was not hurt by his business ties to China. But in 2024, with the voting public increasingly seeing the Asian superpower as a threat to America's own position in the world, Braun’s bid to become Indiana's next governor has been complicated by his past business dealings with China and Chinese-sourced companies. POLITICO's Adam Wren has the full story here.
INDO-PACOM CHIEF: CHINA STAKING 'EXPANSIONIST CLAIMS': The new chief of U.S. Indo-Pacific Command is signaling that China's activities in the region will remain a top priority. The "troubling actions" and "rapid buildup [of] forces" by Beijing require Indo-Pacom to push back against "the PRC's increasingly intrusive and expansionist claim" in the region, Adm. Samuel J. Paparo said in a speech on Friday. Paparo's comments reflect rising U.S. concerns about increasingly aggressive Chinese incursions into the Philippine waters of the South China Sea.
HEADLINES
Financial Times: Chinese homebuyers favour 'second-hand' houses as property crisis bites
Nikkei Asia: China’s next defense buildup is mandatory military training for students
Reuters: Australia denounces China over ‘unsafe’ aerial confrontation
MANY THANKS: To editor Tom Nicholson, reporters Clea Caulcutt and Koen Verhelst, and producer Seb Starcevic.
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