Germany treads a delicate path towards China

Welcome back. Last July, Chancellor Olaf Scholz’s government announced Germany’s first comprehensive China strategy. “China has changed. As a result of this and China’s political decisions, we need to change our approach towards China,” the 64-page document says.

Has Germany’s China policy changed significantly, or has it remained the same? I’m at tony.barber@ft.com.

This year did not get off to a smooth start for Scholz’s three-party coalition government. This week, the National Statistical Office reported that Germany’s gross domestic product (GDP) will contract by 0.3% in 2023, the worst performance among the world’s major economies.

In addition, strikes and protests have broken out across the country, and the popularity of the government’s three parties – Scholz’s Social Democrats, the Greens and the liberal Free Democrats – has plummeted.

Germany, like its European allies, seeks to maintain financial and military support for Ukraine in its war of self-defense against Russia. Finally, Germany is concerned about the impact if Donald Trump wins the US presidential election in November.

China: Competitor, threat, partner, or all three?

This situation makes it a difficult time to recalibrate Germany’s China policy, especially given the close economic ties between the two countries. China became Germany’s main commercial partner for the seventh consecutive year in 2022, with around 300 billion euros worth of goods traded between the two countries.

Indeed, as this graph from BNP Paribas shows, Germany’s bilateral trade balance with China was in a large deficit (China’s exports to Germany in 2022 were 192 billion euros; 107 billion euros).

However, German companies are deeply involved in the Chinese market in terms of investment, manufacturing, sales and import of essential products and materials. Germany’s direct investment into China in 2021 was 102.7 billion euros, compared to only 4.6 billion euros from China.

China’s far-right friends in Germany

In some respects, Germany’s political establishment increasingly views China not only as an economic rival and security threat, but also as a desirable and even necessary partner with which to continue cooperation.

However, the far-right party Alternative for Germany (AfD), which has risen to second place in the poll, has a different view. Foreign policy spokesman Petr Bistrone last year described Germany’s China strategy as “an attempt to implement Green Awakening ideology and US geopolitical interests under the guise of a German foreign policy strategy.” he accused.

It is important to keep in mind that AfD co-leader Alice Weidel knows China well. She is a former employee of the investment bank Goldman Sachs, where she lived for six years on a scholarship, and she speaks Chinese.

Therefore, it is not entirely accurate to say that there is a solid German consensus behind the New China Strategy, both in political and business circles.

However, German public opinion began to view China with skepticism. In an ARD DeutschlandTrend poll released in March 2023, approximately 83% of respondents said China was not a reliable partner, while 8% said it was trustworthy.

This makes China almost as unpopular as Russia in the eyes of the German public.

business wings fly german eagle

Resetting Germany’s China policy is no easy task, as a conference held this month by Germany’s public policy foundation, the Hans Seidel Foundation, and the Center for Geopolitics at the University of Cambridge made clear.

On the other hand, there is a classic view of large German companies, summed up by one conference participant who said, “The German eagle flies because German industry gave it wings.”

This meant that after World War II, West Germany, and then (after 1990) reunified Germany, entrusted its security to the United States and NATO. It has not developed its own strategic culture. Instead, it relied primarily on its industrial and commercial capabilities, channeled in part through her EU, to gain international influence and prestige.

However, some of this has changed since Scholz’s groundbreaking book. Seitenwende The speech was given in February 2022, shortly after Russia invaded Ukraine, and promised that Germany would strengthen its defense and security.

And in June last year, ahead of the release of the China document, the government released Germany’s first national security strategy. He also spoke of the need for Berlin to strengthen its international role beyond the economic sphere that it is well-versed in.

clinging to the status quo

But the document is a political compromise between Germany’s three ruling parties and is filled with “vague and deliberately imprecise language,” in the words of Ben Schrier, writing for the International Institute for Strategic Studies. It attracted criticism.

Germans specialize in security and defense, not business. Seitenwende Taken together, the speech, national security strategy, and China strategy will result in substantive changes in the country’s policy, particularly toward Russia and China.

Another conference participant said: “Germany clings almost delusively to a status quo that no longer exists.”

Seen from this perspective, Germany’s traditional dependence drive Handel’s Wander The idea that benign change in authoritarian regimes like China can come about through increased trade remains active.

Is that too harsh? The language of Germany’s China strategy document is balanced, but harsher in places than past government announcements.

For example, Germany has stated that it is concerned about:

China seeks to influence the international order in line with the interests of its one-party dictatorship. . . China’s actions and decisions have increased the element of conflict and competition in bilateral relations in recent years.

Regarding economic relations, he states the following:

While China’s dependence on Europe is constantly decreasing, Germany’s dependence on China is gaining greater importance. . . There is no intention to hinder China’s economic development. At the same time, risk aversion is urgently needed.

German business and “risk avoidance”

It’s an ugly word, but what does “risk aversion” really mean for German business? In this case, China).

In this important article for the Cologne-based German Institute for Social Research, Jürgen Matthes and Thomas Pals write that while “the first signs of risk aversion on the import side are emerging,” German industry’s input into China is He said that dependence on goods remains high.

This is not surprising. Large companies in sectors such as automobiles, chemicals, mechanical engineering, and electrical equipment cannot suddenly switch their supplies from China to other countries.

In fact, as the German business association BDI has stated, Germany is now more dependent on China for rare earths and other raw materials than it is on Russia for oil and gas.

“We are seeing inputs from China across the value chain when it comes to sourcing materials, semiconductors and batteries, but it will take years to find alternative suppliers,” said one London conference participant. I commented.

India and Southeast Asian countries are sometimes mentioned as potential alternatives both as markets and suppliers, but they lack China’s market size and mature infrastructure.

China: Is it good for innovation and jobs in Germany?

The example of the German automobile industry is easy to understand. China is the world’s largest car market, generating significant profits for German manufacturers, but also being highly competitive.

In the so-called “fitness center debate,” those who support keeping or even extending operations in China argue that the Chinese situation means that companies like Volkswagen and BMW make better cars and are as innovative as possible. They claim that this is because they are stimulating them to become.

Another defense against investment and production in China is that the revenues and profits of some German companies in China are so high that it is affordable to maintain high-wage jobs in Germany.

protect national security

That said, German policymakers have rightly argued that business and academic ties with China should not be treated separately from national security considerations.

As a result, the government has begun to more rigorously screen visa applications from Chinese researchers wishing to study or work in Germany.

This is why Germany’s Interior Ministry in September recommended that carriers restrict the use of equipment made by China’s Huawei and ZTE.

As German Foreign Minister Annalena Birbock said in July, China has become “more repressive domestically and more aggressive externally,” making China a “systemic rival.” Their role is starting to overshadow their role as partners.

Learn more about this topic

Germany’s China strategy signals a new approach to EU-China relations – commentary by Lily McElwee and Ilaria Mazzocco of the Center for Strategic and International Studies

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