When Olaf Scholz took over as Chancellor of Germany on December 8, President Xi Jinping made a note in his diary to call him as soon as possible. His reason? Persuade him to be China's best ally in Europe.
The two had their conversation last Tuesday (December 21) and Xi partially achieved his objectives.
"Germany is willing to strengthen practical co-operation with China in clean energy, the digital economy and services," Scholz told Xi. "I hope the EU-China investment pact will take effect as soon as possible."
For five consecutive years, China has been Germany's biggest trading partner, with bilateral volume reaching 212.1 billion euros in 2020, according to official German figures. China is also the single most important market for the German automotive industry.
Volkswagen sells more cars in China than in Germany. In the first half of this year, its sales in the mainland and Hong Kong were 1.85 million units, up 16.2 per cent on the same period in 2020.
In their conversation, Xi stressed these points. "Co-operation between China and Germany has always been the 'bellwether' of China-EU co-operation," he said. He wants Scholz to continue the policies of his predecessor Angela Merkel.
But relations between China and the EU have fallen to their lowest point in 30 years, because of differences over Hong Kong, Xinjiang and Taiwan and the behaviour of China's "Wolf Warriors" in Europe.
An annual EU-China summit planned for this month was postponed until next year because of no prospect of agreement over human rights, economics and trade.
On December 15, EU member Lithuania withdrew all its diplomats from Beijing after they were instructed to apply for new accreditation. China was enraged when Taiwan opened a representative office in Vilnius, the capital of Lithuania. The EU has supported Lithuania and said that it had not breached the one-China policy.
Since Vilnius' decision, its companies have been unable to export goods to China and Chinese firms have cancelled orders for Lithuanian products.
"The latest measures China has adopted against Lithuania amount to a trade boycott that will impact the whole of the EU," said the BDI, the most important German business organisation. "Imports from China, which are needed in German manufacturing facilities in Lithuania, are also being affected, as are exports from Germany to China which contain Lithuanian components."
Joerg Wuttke, president of the EU Chamber of Commerce in China, said that Beijing's treatment of Lithuania was "a stark warning for other EU countries not to follow the Lithuanian example. The Czech and Slovakian economies are deeply embedded into the German supply chains."
While the economic impact of the dispute is limited, it has further turned public and political opinion in Europe against China.
Scholz and other European leaders have to decide how to balance their enormous economic interests in China against what they consider Beijing's negative policies in human rights, trade and misinformation.
On the one side is the European Parliament, which blocked passage of the EU-China investment treaty after Beijing imposed sanctions against four of its members. It says that lifting the sanctions is a pre-condition of approval. Also hostile to Beijing are large segments of public opinion, politicians sympathetic to Taiwan and human and civil rights organisations.
On the other side are powerful companies, like Volkswagen (VW), which have invested billions of dollars in China.
"It would be very damaging if Germany or the EU wanted to decouple from China," said Herbert Diess, chief executive of VW. "We need more co-operation and presence in China, not less." Earlier this month, Diess took part in a virtual dialogue at a Global CEO Council summit with Premier Li Keqiang and about 30 other global CEOs.
"On the political side, we need co-operation, dialogue, international collaboration and an expansion of our economic relations," he said.
"German enterprises, such as VW, Audi, BMW, Daimler, Siemens, Bosch and Adidas have become household names in China," wrote Chen Weihua, EU bureau chief of the China Daily in an article last week.
"Sino-German co-operation has benefitted not just the two countries but the world beyond, by helping create jobs, boosting their economies and reviving the global economy given the highly integrated global supply chains."
Germany and France are the motors of the European Union and have the strongest voices on China policy. Olaf Scholz has much to do to resolve these competing interests.