German Ruling Coalition Calls for EU to Take Tougher Stance on Unfair Competition, with China's Excess Capacity in Focus

German Ruling Coalition Calls for EU to Take Tougher Stance on Unfair Competition, with China's Excess Capacity in Focus

Introduction: Germany's ruling coalition is calling for the European Union to take a tougher stance on market distortions and unfair competition. According to German lawmakers, the policies are primarily aimed at China's excess capacity, with the automotive and industrial manufacturing sectors being the main focus.

Article: Germany has long been one of the most cautious countries in Europe when it comes to trade barriers with China. The reason is simple: China is both an important market for German companies and a crucial node in the supply chain for companies like Volkswagen, BMW, Mercedes, and chemical and machinery manufacturers. Berlin has long been concerned that if it takes too strong trade measures against Chinese goods, Beijing may retaliate against German companies.

However, this caution is changing.

The latest policy document passed by the parliamentary groups of the Christian Democratic Union (CDU) and the Social Democratic Party (SPD), which make up Germany's ruling coalition, calls for the EU to take a tougher stance on "market-distorting practices and unfair competition" and advocates for faster and broader use of anti-dumping and anti-subsidy measures. According to a Reuters report on August 28, German lawmakers involved in the policy discussions said that the policy suggestions are primarily aimed at China's industrial excess capacity, which is having a significant impact on the European market.

The document does not directly mention China, but the target is clear

The policy document itself does not directly mention China, so it cannot be said that the document explicitly targets China.

However, German lawmakers involved in the discussions have indicated that one of the key focuses of the policy is China's industrial excess capacity, particularly in the automotive and industrial sectors, which are putting pressure on European manufacturers.

The CDU had previously publicly proposed that the economic relationship with China should shift from "dependence" to "fair competition" and listed rare earths, key raw materials, market access, and state subsidies as strategic risks. Readers can check the original policy statement on the CDU's website.

The German automotive industry is the most concerned

The industry under the most pressure is the automotive sector.

In recent years, Chinese electric vehicles have rapidly expanded their market share in Europe, while China's domestic automotive production capacity is significantly higher than local demand. The European industry believes that Chinese automakers have received government financing, land, electricity, industry funds, and other policy support, making it difficult for European companies to compete.

As a result, the German ruling coalition has proposed that when Germany formulates its electric vehicle subsidy policy in the future, it should consider including local production or local value-added standards that comply with EU law.

This means that German taxpayers' electric vehicle subsidies may in the future be more focused on European local production, rather than automatically going to vehicles that rely on Chinese production and imports.

The German industrial sector is also changing its attitude

The change is not only happening in the government.

The German industrial sector has long opposed trade barriers because many large companies are heavily dependent on the Chinese market. However, this attitude is reversing.

German companies and industry organizations are increasingly concerned that Chinese companies, supported by the state, will further erode the market share of German manufacturers in the European domestic market.

This is why the CDU has recently repeatedly emphasized "fair competition rather than dependence." The related policy statement shows that the German political circle is increasingly viewing the economic relationship with China as an issue of industrial security and competition policy, rather than just an export market issue.

The German Bundestag has already taken notice of Chinese automakers' use of European production capacity

A parliamentary inquiry made public by the German Bundestag in June showed that Green Party lawmakers asked the federal government to explain the situation regarding Chinese automakers, subsidiaries, affiliates, or joint ventures establishing, expanding, renting, or taking over production facilities in Germany and the EU since 2020.

The parliamentary document explicitly mentions that there have been reports of Chinese automakers discussing the use of idle European factories to produce Chinese-branded vehicles, which could potentially circumvent some tariffs.

Readers can check the original parliamentary document on the Bundestag's website.

This shows that Berlin is concerned not only with "Chinese goods imports" but also with how Chinese capital is entering the European industrial system and whether local production could change the effectiveness of the EU's existing trade defense measures.

Europe is reevaluating China's state subsidy model

Behind Germany's policy shift is a larger European debate: how to determine whether Chinese companies' competitive advantages come from efficiency or state support.

Under trade law, whether there is dumping or unfair subsidies requires the European Commission to investigate specific industries, companies, and products. It cannot be assumed that products from Chinese companies constitute dumping simply because they are from China.

However, for Germany, the issue has expanded from individual companies to the industrial policy model itself.

If an industry receives large-scale financing, land, electricity, or other policy support over a long period and forms significant excess capacity beyond local demand, European governments will face a real choice: continue to rely on open markets to absorb imports or use anti-subsidy, anti-dumping, and local production rules to protect domestic industries.

Berlin is no longer just worried about Chinese retaliation

Germany's core concern in the past was that if the EU takes strong measures against China, China may restrict German automobiles, machinery, or chemical products from entering the Chinese market.

Now, Germany is facing another risk that is becoming more significant: if it does not take measures, Chinese companies may further expand their market share in the European domestic market, and German manufacturing may face even greater pressure on employment and supply chains.

This means that Berlin is recalculating the costs.

The question in the past was "will toughness hurt German companies?"; now the question is gradually becoming "if we don't take tough measures, can German manufacturing maintain its competitiveness?"

The next China-EU trade conflict may be more institutionalized

The measures proposed by the German ruling coalition are not yet new tariff decisions.

However, the political significance lies in the fact that Europe's largest industrial economy is increasingly openly supporting the use of EU trade defense tools.

If the German government ultimately pushes these demands to the EU level, it is possible that there will be more frequent anti-subsidy investigations, stricter rules of origin and local content requirements, investigations into tariff circumvention, and stricter scrutiny of Chinese companies involved in state subsidies.

European economic policy towards China may thus shift from "reducing risks" to more proactive industrial defense.

For Beijing, this change may be more troublesome than a single tariff, as it means that the political and industrial foundation in Germany that previously opposed tough policies towards China is changing.

"Focus on China" will continue to track the German ruling coalition's formal policy documents, the German Bundestag's subsequent discussions, and whether the European Commission will introduce new anti-subsidy, anti-dumping, or local production measures.