China's Economic Practices: Risks to European Prosperity & Security

German economic leaders are raising concerns about increasing competitive imbalances and risks associated with economic ties to China, even as they acknowledge the country’s importance as a partner. A new paper from the Asia-Pacific Committee of German industry highlights issues that could reshape the economic relationship between Europe and China.

Mounting Economic Concerns

The report, reviewed by Reuters, points to several factors destabilizing global markets. These include industry-driven overcapacity, substantial subsidies, a distorting exchange rate policy, and the growing use of export controls as a geopolitical tool. These practices are seen as undermining fair competition.

A Complex Relationship

The assessment comes just days before a planned trip to China by Friedrich Merz, a key German political figure. While the paper emphasizes that China remains a central economic, innovation, and cooperation partner, it also stresses that competition, systemic risks, dependencies, and competitive distortions have “clearly intensified.”

Did You Know? The report explicitly states that the identified issues – overcapacity, subsidies, exchange rate policy, and export controls – are now a “central challenge for prosperity and security in Europe.”

The paper suggests these challenges have reached a point where they threaten European prosperity and security. It calls for a coordinated European approach to “derisking” – reducing vulnerabilities – and the potential implementation of “robust defensive measures” where economic and national security risks increase.

Potential Future Scenarios

A coordinated European response to these concerns is likely to be a key focus in the coming months. This could involve increased scrutiny of Chinese investments in Europe, or the development of policies to counter unfair trade practices. The implementation of “robust defensive measures” could take the form of stricter export controls or other trade barriers, but this is presented as a potential step, not a certainty.

Expert Insight: The call for a “derisking” approach suggests a shift towards a more cautious and strategic engagement with China, acknowledging the potential for economic and political vulnerabilities. This reflects a growing recognition that the benefits of economic integration must be weighed against potential risks to national security and economic stability.

The timing of the report, ahead of Chancellor Merz’s visit, suggests an intention to frame the discussion with Chinese officials. The German delegation will raise these concerns directly, seeking assurances and exploring potential solutions. However, the extent to which China will be receptive to these concerns remains uncertain.

Frequently Asked Questions

What are the key concerns raised in the report?

The report identifies industrially-driven overcapacity, massive subsidies, a distorting exchange rate policy, and the increasing use of export controls as geopolitical tools as key concerns.

Does the report suggest severing ties with China?

No, the report explicitly states that China remains a central economic, innovation, and cooperation partner. However, it acknowledges that risks and distortions have increased.

What is a “derisking” approach?

The report calls for a European-coordinated “derisking” approach, which suggests reducing vulnerabilities and dependencies in the economic relationship with China.

How might these developments impact global trade dynamics in the long term?

China’s Economic Practices: Risks to European Prosperity & Security