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Perspectives: China’s economic relationship with the West
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Three renowned experts discuss China’s economic relationship with Europe and the US.
Dr Frederic Neumann, Chief Asia Economist and Co-head of Global Investment Research Asia, HSBC, is joined by Joerg Wuttke, Partner, Dentons Global Advisors-Albright Stonebridge Group, and Chris Johnson, President and CEO, China Strategies Group. They share insights on the big themes impacting China-US and China-Europe relations, including trade tensions, investment, overcapacity, technology competition, the opportunities for multinational corporates in China, and much more.
This episode was recorded on the sidelines of HSBC’s 12th Annual China Conference in Shenzhen on 1 September 2025.
Disclaimer: Views of external guest speakers do not represent those of HSBC.
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Transcript
Introduction and Guest Introduction
00:00:00
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:12
Speaker
Make sure you're subscribed to stay up to date with new episodes. Thanks for listening, and now onto today's show.
00:00:21
Speaker
Welcome to the HSBC Perspective Series. My name is Fred Newman. I'm the Chief Asia Economist here at HSBC and I'm joined by two wonderful guests, dear friends we've known over the years, experts really on the Chinese economy, on China's broader relations with the US and with Europe on my very left is your boot go who's partner at the Stonebridge Albright group in Washington DC and then we have Chris Johnson also based in the United States and he's a president CEO of the Chinese strategies group now both of you are of course seasoned analyst when it comes to us-china relations European China relations and the Chinese economy overall
00:01:05
Speaker
But let me start with
China-Europe Economic Relations
00:01:07
Speaker
you, Jörg. When you think about ah really Chinese economic relations with Europe, for example, um there have been a lot of tensions, but also the US tariffs, obviously putting things in perspective. Do you see Europe and China moving a little bit together or are there persisting tensions between Europe and China?
00:01:28
Speaker
Well, on the surface, it looks excellent because the trade is very dense, but it's very uneven. We have four containers going to Europe and only one comes back. ah We had last year a trade for export from Europe into China from 230 billion.
00:01:43
Speaker
And in July only, it was already 50 billion. The showcases that stuff that cannot go to the US any anymore ends up at our doorstep. um So in a way, we have a deep investment relationship.
00:01:57
Speaker
um but it pales in comparison to what we do as Europeans in the United States. The stock of European investment in China is 185 billion, in the US is 2.4 trillion. And just indicates the the challenges that we face. The US is an irreplaceable partner.
00:02:12
Speaker
Whereas China as an export market is a declining partner because we export less
US-China Trade Dynamics and Tariffs
00:02:17
Speaker
and less. And then investment location also, it's getting more challenged. The economy is more stiff. China is for us more, we can talk about this later, a ah technology fitness center.
00:02:27
Speaker
and The US definitely is for us irreplaceable. Let me come back to this idea of a fitness center in in China. I come to you, ah Chris, first. um Now, ah we have seen already some tensions between the EU and China on trade, but nothing compared between the US and China. We had the threat of 150% tariffs. Now we'll be down back to 50%.
00:02:48
Speaker
ah fifty percent How do you see this evolve? Do you think we'll get another increase in tensions or have we kind of reached a new equilibrium, if you will? I think it remains to be seen. i think the one thing that we have seen is a sort of testing of each other's fences, right? So Trump obviously he decided to put sky-high tariffs on China, and the response was not what he was expecting. I think that he had been advised that you know if you rapidly escalated tariffs, Xi Jinping would effectively you know fold like a cheap suit.
00:03:20
Speaker
He did not. um And when that happened, I think the administration was caught unawares. ah They've learned some lessons from that. And then of course also the Chinese demonstrated this power with regard to rare earths.
00:03:31
Speaker
um And that I think has sort of humbled the US administration in that respect. So there's a genuine recognition on both sides. I think in terms of can we find ourselves in an equilibrium,
00:03:42
Speaker
It's striking that we've had now three rounds of senior level dialogue between the negotiating teams, right, of the two sides, Geneva, London, and Stockholm. And all they've really managed to do in those three rounds is avoid ruinous mute mutually ruinous tariffs and also maybe have some swapping between export control,
00:04:01
Speaker
relaxation and rare earths and so on. In other words, if we're going to get ourselves to a deal, which would be that equilibrium you're describing, the two sides need to start putting their cards on the table for a proper negotiation. I think we're seeing the early days of that and we're starting to see that momentum, but they have a lot of work to do between now and that summit meeting potential.
Impact of US Tariffs on Europe and China
00:04:18
Speaker
So still a lot of work to do and we don't know exactly where we land. So a lot of uncertainty for businesses still and investors when it comes to relationship.
00:04:26
Speaker
Jörg, you said something that was i picked up in your earlier answer, which was that as US imposes tariffs on China, some of the goods are being redirected to Europe, flooding the European market. is that Has that been a concern of late that we see increased ah exports from China to Europe as a result of the US tariffs? And has that been a concern for European businesses?
00:04:50
Speaker
Clearly, i mean, just one month, 50 billion dollars of export from China to Europe says it all. ah It's not just cars, it is the party batteries, it's ah it's definitely machinery and chemicals. So in a way, it it it used to be socks and bras and toys and stuff like this. All of a sudden, it hits our economic soft spot, high end technologies. And so There are, of course, ah associations that are trying to position themselves in order to get a safeguard mechanism going, ah to come up with protectionist items.
00:05:23
Speaker
I think it will happen. It will not go down well in Beijing, of course. But I guess ah Europe has a strong interest to safeguard economic heartland. And that's going to happen because China is not consuming enough. It is obvious that this overcapacity, which is now labeled involution,
00:05:38
Speaker
ah is something which hurts not only our trade relationships, but definitely also our industrial heartland. so But partly as a result of US tariffs, obviously impacting indirectly also also Europe. but But I wanted to ask you, Chris, we often talk about tariffs being front and center, and that obviously makes the headlines. But we also had over the years other tensions around export of technology, for example,
00:06:07
Speaker
restrictions, however, this has there been a shift in the policy a little bit. We had the Biden administration, now the Trump administration. Is there maybe more openness to export technology to China or less so?
US and European Investments in China
00:06:19
Speaker
Where do we stand there? There seems to be. I mean, I think what we're seeing is has surprised a lot of people, right? You know, when Trump came back, I think there was a general assessment that we would largely see a repeat of the first Trump administration, which obviously put a lot of those initial export controls in place.
00:06:32
Speaker
And those were enhanced and and strengthened by the Biden administration. Instead, what we're seeing is a relaxation on certain of these issues. And I think you know a lot of analysts fail to recognize the fundamental shift in the US position, i believe it was coming out of the London talks when suddenly US longstanding position had been export controls are national security, therefore they're not part of trade negotiations.
00:06:54
Speaker
And for the first time the Trump administration said, we're willing to put this stuff on the table. And I think if you're the Chinese, you say that's different. And so we're gonna try to, you know play for our advantage there.
00:07:05
Speaker
And so we're testing the limits of it now. I think what's intriguing is you have a situation where the US side agrees to relax and a key export control on NVIDIA's H20 chip.
00:07:16
Speaker
And the Chinese say thank you, but no thank you, you know ah in terms of importing these into China. And is it because they're trying to bolster their domestic industry? Is it because they think maybe they could get a more advanced chip than the H20?
00:07:28
Speaker
you know These things are all in play and we're gonna test all these theories. I think what we can say for sure is that The China hawks in this administration seem to be struggling to find their footing, whereas the tech bros, as we might call them, um and their allies in Silicon Valley seem to be winning the day with Trump in terms of the case that, you know, and we see the NVIDIA CEO and other people make this case. so you know Ideally, there would be one future tech stack and wouldn't it be great if it's the US tech stack, we should do everything we can to make sure that's the result. Maybe a slight tilt towards pragmatism there over the years in the US approach. um
00:08:03
Speaker
Jörg, you said something about the fitness center, China. and you know When we hear about Europe facing import competition from China, European industry being under pressure,
00:08:14
Speaker
How do European companies looking about investing in China the reverse? Have they given up on the Chinese market, given how competitive it is? Are they doubling down? Where do we stand with European engagement, European company engagement with the Chinese market?
00:08:28
Speaker
Well, it is rather solid so far. We have seen still about 7 to 8 to 9 billion euro invested into China by by companies, but it became more top heavy. So it's more multinationals. The SMEs are basically putting everything on hold. For them, the market is difficult.
00:08:46
Speaker
And then it became more German. you know, 70% of investment is done by German companies, primarily car and chemicals. And the reason for them is simple, that they have to catch up. They're driving behind their Chinese competitors. So they have to be in this digital wonderland of China, ah where they have an incredible deep bench of engineers, which we don't have in Germany anymore.
00:09:07
Speaker
The only way how to catch up with the Chinese is being in China. And that's, I think, the awareness. Hence, we've seen 10 German companies putting up really big bucks and the others are putting it one hole. So, yes, but I see nobody leaving China for sure.
00:09:21
Speaker
Yeah. and And Chris, you talk a lot to American companies, a lot of American CEOs among your clients and and people you meet. um Do you get a sense that American businesses are pulling back from China ah wholesale because of the trade uncertainty? Or are they really saying this is an important market, we have to get engaged? I think we're not seeing the exodus that you might think and the size of the market is still tempting. you know I think a lot of it depends on what sector you're in and also how viable of a Chinese national champion competitor, if you want to put it that way, do you have? you know If you're in an industry where you already have either a peer competitor that's Chinese or a near peer competitor,
00:09:59
Speaker
you're going to have a very different experience than if you're doing something that literally the Chinese system, at least not yet, can't produce on its own.
China's Innovation and Technology Appeal
00:10:06
Speaker
So, but listening to you, there's also an interdependence here. no We're talking to on and on and trade on the one hand trade tensions and on the other hand also the opportunities at Beckham still in China.
00:10:16
Speaker
um Just to to round up, ah last question, Jörg, you've been here since the 1980s in China. You're an expert on the Chinese economy. You've you've advised businesses here. You represented businesses.
00:10:29
Speaker
What makes you most optimistic about this country? There's a lot of negative headlines. But what do people misunderstand sometimes about the Chinese economy? I think that's again the the fitness club angle. Again, the largest pool of engineers, be it in chemical, civil instrumentation, is in China.
00:10:48
Speaker
To the point where actually now kids in China don't want to study finance and marketing anymore. They want to go into more technology because they see... that there are the paying jobs. ah The second is just the the learning effect, meaning you have the most illoyal and ah difficult customers globally. They're here.
00:11:07
Speaker
You mean you have to be really on your toe in order to get faster. The car in Germany used to be remodeled every four years, in China two years. And now Volkswagen and Stellantis are down to three years, they're aiming at two years.
00:11:19
Speaker
So if you want to go, if you want to unlearn how to build cars and build mobile phones on wheels, you have to be in this ecosystem here. And that's why the company is still going on. So in a way, ah it's lesser of an export market. In many ways, it's not the market that we wished it would be.
00:11:34
Speaker
But for us in many areas in particular, also in engineering demanding jobs like chemicals, ah you'll find the pool here that can do stuff in Chengdu and you can actually utilize it in in Cary in
Future of US-China Relations
00:11:47
Speaker
North Carolina. So a vital market, dynamic, innovative, competitive. It's the brains.
00:11:54
Speaker
um Chris, lastly, when you think about US-China relations, there's a lot of dark clouds in the horizon, trade, security, geopolitics. What makes you perhaps more hopeful that we're not seeing a complete break, that actually there might be a way to steady their relationship? I think, to what we were discussing earlier, we saw a fundamental test of what it might look like if there was a break, right? When both sides escalated to these sky-high tariffs that were just ruinous, right? And also, the US administration decided- You're talking about the 150% that we had a few months ago. Yeah. And basically, all trade ceased, right? And when you look at that, you say to yourself, this is ruinous for my economy.
00:12:34
Speaker
Also, when the US decided that it was going to, at least temporarily, employ some of these critical ah choke points, aircraft parts, support to China, visas for Chinese, you know, these sort of things.
00:12:45
Speaker
The Chinese, I think, also said to themselves very clearly, oh, I see, you know, they still have a lot of power. So I think going through that exercise causes both sides to say to themselves, hey, wait a minute, you know, we don't want that. And let's rethink this a little bit and see if there's a way where we can find that equilibrium that you were describing earlier.
00:13:03
Speaker
Yeah. Well, here Chris, thank you very much. I've come away with a bit more optimism. are There's certainly a lot more pragmatism in the relationship to the US s and China. Some guardrails maybe because the interdependence keeps us on the right track. And China for all this competitiveness is also an enormously attractive market still for global companies to stay fit, as you say, Jörg.
00:13:25
Speaker
ah Thank you for joining us. and Thank you, ladies and gentlemen, for joining us here on the HSBC Perspectives podcast series. And please stay tuned for further episode wherever you get your podcasts.
00:13:37
Speaker
Thank you for joining us at HSBC Global Viewpoint. We hope you enjoyed the discussion. Make sure you're subscribed to stay up to date with new episodes.