The German government has adopted its first ever China strategy with a focus on “de-risking” its relationship with its largest trading partner, which it says is increasingly emerging as a “systemic rival” to the west.
“Germany has changed and so we have to change our China policy too,” said foreign minister Annalena Baerbock. Beijing had become “more repressive internally and more aggressive externally”, she added, and while it remained a partner, its role as “systemic rival” was beginning to “dominate”.
The milestone strategy, which was long delayed by disagreements between Olaf Scholz’s chancellery and Baerbock’s foreign ministry, rejects the notion of “decoupling” from China but stresses the need for Germany to “de-risk” — that is, diversify its supply chains and export markets away from the country and so reduce its vulnerability to external shocks. The EU labelled China a systemic rival in 2019.
In particular, the 64-page document aims to make German companies more aware of the risks they face in doing business with China and make clear that Berlin will not bail them out if they get into trouble.
“Companies that are dependent on the Chinese market to a large degree will in future have to bear more of the financial risk themselves,” Baerbock said.
She said the responsibility for “risky corporate decisions” must become clearer. “The approach of trusting the invisible hand of the market in good times and demanding the strong arm of the state in times of crisis doesn’t work in the long run,” she said. “Even one of the strongest economies in the world can’t stem that.”
Noah Barkin, a Europe-China expert at the US-based research firm Rhodium Group, said the strategy sent an important signal.
“There was a lot of confusion about where Germany stood,” he said. “Now Berlin has made clear that China is no longer just seen as a lucrative one-way economic bet but that it poses threats to the west on multiple levels.”
Since Russia’s full-scale invasion of Ukraine, which revealed how reliant Germany had become on Russian gas supplies, Berlin has sought to reduce its dependence on other problematic countries, particularly China.
China is Germany’s largest trading partner, with the volume of bilateral trade reaching a record €300bn last year. The relationship was long seen as a pillar of Germany’s economic success and a model of globalisation in practice.
Former chancellor Angela Merkel’s frequent trips to Beijing, often accompanied by a huge entourage of German industrial bosses, symbolised the strength of the relationship, one not particularly encumbered by concerns about Chinese human rights abuses in places such as Xinjiang and Hong Kong.
But Germany’s misgivings have gradually grown since the ascent of President Xi Jinping, China’s most powerful leader since Mao Zedong, who this year started an unprecedented third term.
The country’s increasing authoritarianism, its crackdown on civil rights and ethnic minorities, its sabre-rattling over Taiwan and aggressive posture in the South China Sea have forced Berlin to undertake a fundamental rethink of the relationship, one that accelerated when the China-sceptic Greens entered government in late 2021.
The strategy notes that China is pursuing its own interests “far more assertively and is attempting in various ways to reshape the existing rules‑ based international order”. “This is having an impact on European and global security,” it adds.
Germany is particularly alarmed at the prospect of a Chinese invasion of Taiwan, a move that would throw global supply chains into disarray and potentially shut off the Chinese market to German companies.
Baerbock noted that a military escalation over Taiwan would represent a “danger for millions of people all over the world and for us, too”, noting that half of all the globe’s container traffic moved through the Taiwan Strait.
Tensions over Taiwan have come at a time of growing doubts about German companies’ future prospects in the Chinese market, as Beijing pursues plans for global technological dominance.
Even companies such as Volkswagen that have been present in China since the late 1980s have reason to be worried. China is still VW’s largest market, accounting for 50 per cent of its total sales in 2021. But it has fallen down the sales rankings when it comes to electric vehicles, a market that is dominated by local producers such as BYD, Chery and Nio.
German companies in China are also increasingly concerned about the operating environment, pointing to moves such as a new counter-espionage law that they say hugely increases the risks of doing business there.
The strategy also insists that China remains a partner for Europe and Germany, particularly on climate change. Baerbock said Germany wanted to “expand our co-operation with China — because we need it”. She noted that while China produced a third of global CO₂ emissions, it was now generating more solar energy than the rest of the world put together.
That the German government was able to agree on a common strategy is in itself a huge achievement. Scholz’s three-party coalition between Social Democrats, Greens and Liberals is divided on how it should deal with Beijing, with Baerbock’s Greens insisting on a tougher course and Scholz’s SPD advocating a more cautious approach.
Differences over China have occasionally caused open cabinet rifts. Scholz supported Chinese state-owned shipping conglomerate Cosco’s investment in a container terminal in Hamburg port, triggering a damaging row with the Greens who opposed the deal on grounds of national security.
Source: Economy - ft.com
