Germany plans to take a tough stance towards China

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The German government has adopted its first China strategy, focusing on “de-risking” its relationship with its biggest trading partner, which it says is increasingly seen as a “systemic rival” to the West. emerging.

Foreign Minister Annalena Baerbock said, “Germany has changed and therefore we have to change our China policy as well.” Beijing, he said, has become “more repressive internally and more aggressive externally”, and while it remains a partner, its role as a “systemic rival” has begun to “dominate”.

The landmark strategy, which was long-delayed because of disagreements between Chancellor Olaf Scholz and Bierbock’s foreign ministry, rejects the notion of “isolation” from China, but calls for Germany to be “risk-free”. That is, diversifying its supply chains and exports. The markets are further away from the country thus reducing its sensitivity to external shocks. The European Union labeled China a systemic rival in 2019.

Specifically, the 64-page document aims to make German companies more aware of the risks involved in doing business with China and to make it clear that Berlin will not bail them out if they get into trouble.

“Companies that are heavily dependent on the Chinese market will have to bear more financial risk themselves in the future,” Baerbock said.

He said the responsibility for “risky corporate decisions” should be clear. “The approach of relying on the invisible hand of the market in good times and demanding the strong hand of the state in times of crisis does not work in the long run,” he added. “Even one of the strongest economies in the world can’t stop this.”

Noah Barkin, Europe-China specialist at 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. “Berlin has now made clear that China is no longer seen as a one-sided attractive economic bet, but poses a threat to the West on multiple levels.”

Since Russia’s full-scale invasion of Ukraine, which showed how dependent 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 bilateral trade volume reaching a record €300bn last year. The relationship was long seen as a pillar of Germany’s economic success and a model of globalization in practice.

Frequent visits to Beijing by former Chancellor Angela Merkel, often accompanied by a vast entourage of German industrial bosses, were a sign of the strength of the relationship, which was not deterred by concerns about Chinese human rights abuses, particularly in places like Xinjiang and Hong Kong .

But Germany’s fears have gradually grown since the coming to power of President Xi Jinping, China’s most powerful leader since Mao Zedong, who began an unprecedented third term this year.

The country’s growing authoritarianism, its crackdown on civil rights and ethnic minorities, its aggression on Taiwan and its aggressive stance in the South China Sea have forced Berlin to radically rethink the relationship, which has intensified following the admission of the China-sceptic Greens. It is done. At the end of 2021, the government.

The strategy states that China is pursuing its interests more vigorously and is making efforts in various ways to reshape the existing rules-based international order. “It is having implications for European and global security,” it said.

Germany is particularly worried about the possibility of a Chinese invasion of Taiwan, a move that would disrupt global supply chains and potentially close the Chinese market to German companies.

Bierbock said a military escalation on Taiwan would “represent a danger to millions of people around the world and to us as well”, noting that half of all the world’s container traffic moves through the Taiwan Strait.

The tensions over Taiwan come at a time when doubts are growing about the future prospects of German companies in the Chinese market as Beijing plans for global tech dominance.

Even companies like Volkswagen that have been present in China since the late 1980s have reason to be concerned. China is still VW’s biggest market, accounting for 50 percent of its total sales in 2021. But it has slipped down the sales rankings when it comes to electric vehicles, a market dominated by local producers such as BYD, Chery and Nio.

German companies in China are also concerned about the operating environment, pointing to steps such as a new counter-espionage law that they say significantly increases the risk of doing business there.

The strategy also emphasizes that China should remain a partner of Europe and Germany, especially on climate change. Bierbock said that Germany “wants to expand its cooperation with China – because we need it”. He said that while China produced a third of global CO₂ emissions, it was now generating more solar power than the rest of the world combined.

The German government being able to agree on a common strategy is a major achievement in itself. Scholz’s three-party coalition between the Social Democrats, Greens and Liberals is divided over how it should deal with Beijing, with Barebock’s Greens pushing for a tougher path and Scholz’s SPD advocating a more cautious approach .

The differences over China have sometimes led to open rifts in the cabinet. Scholz backed Chinese state-owned shipping conglomerate COSCO’s investment in a container terminal in Hamburg port, triggering a damaging dispute with the Greens, who opposed the deal on grounds of national security.

GET FREE GERMAN ECONOMY UPDATES

we will send you one myFT Daily Digest Latest Email Rounding German economy News every morning.

The German government has adopted its first China strategy, focusing on “de-risking” its relationship with its biggest trading partner, which it says is increasingly seen as a “systemic rival” to the West. emerging.

Foreign Minister Annalena Baerbock said, “Germany has changed and therefore we have to change our China policy as well.” Beijing, he said, has become “more repressive internally and more aggressive externally”, and while it remains a partner, its role as a “systemic rival” has begun to “dominate”.

The landmark strategy, which was long-delayed because of disagreements between Chancellor Olaf Scholz and Bierbock’s foreign ministry, rejects the notion of “isolation” from China, but calls for Germany to be “risk-free”. That is, diversifying its supply chains and exports. The markets are further away from the country thus reducing its sensitivity to external shocks. The European Union labeled China a systemic rival in 2019.

Specifically, the 64-page document aims to make German companies more aware of the risks involved in doing business with China and to make it clear that Berlin will not bail them out if they get into trouble.

“Companies that are heavily dependent on the Chinese market will have to bear more financial risk themselves in the future,” Baerbock said.

He said the responsibility for “risky corporate decisions” should be clear. “The approach of relying on the invisible hand of the market in good times and demanding the strong hand of the state in times of crisis does not work in the long run,” he added. “Even one of the strongest economies in the world can’t stop this.”

Noah Barkin, Europe-China specialist at 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. “Berlin has now made clear that China is no longer seen as a one-sided attractive economic bet, but poses a threat to the West on multiple levels.”

Since Russia’s full-scale invasion of Ukraine, which showed how dependent 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 bilateral trade volume reaching a record €300bn last year. The relationship was long seen as a pillar of Germany’s economic success and a model of globalization in practice.

Frequent visits to Beijing by former Chancellor Angela Merkel, often accompanied by a vast entourage of German industrial bosses, were a sign of the strength of the relationship, which was not deterred by concerns about Chinese human rights abuses, particularly in places like Xinjiang and Hong Kong .

But Germany’s fears have gradually grown since the coming to power of President Xi Jinping, China’s most powerful leader since Mao Zedong, who began an unprecedented third term this year.

The country’s growing authoritarianism, its crackdown on civil rights and ethnic minorities, its aggression on Taiwan and its aggressive stance in the South China Sea have forced Berlin to radically rethink the relationship, which has intensified following the admission of the China-sceptic Greens. It is done. At the end of 2021, the government.

The strategy states that China is pursuing its interests more vigorously and is making efforts in various ways to reshape the existing rules-based international order. “It is having implications for European and global security,” it said.

Germany is particularly worried about the possibility of a Chinese invasion of Taiwan, a move that would disrupt global supply chains and potentially close the Chinese market to German companies.

Bierbock said a military escalation on Taiwan would “represent a danger to millions of people around the world and to us as well”, noting that half of all the world’s container traffic moves through the Taiwan Strait.

The tensions over Taiwan come at a time when doubts are growing about the future prospects of German companies in the Chinese market as Beijing plans for global tech dominance.

Even companies like Volkswagen that have been present in China since the late 1980s have reason to be concerned. China is still VW’s biggest market, accounting for 50 percent of its total sales in 2021. But it has slipped down the sales rankings when it comes to electric vehicles, a market dominated by local producers such as BYD, Chery and Nio.

German companies in China are also concerned about the operating environment, pointing to steps such as a new counter-espionage law that they say significantly increases the risk of doing business there.

The strategy also emphasizes that China should remain a partner of Europe and Germany, especially on climate change. Bierbock said that Germany “wants to expand its cooperation with China – because we need it”. He said that while China produced a third of global CO₂ emissions, it was now generating more solar power than the rest of the world combined.

The German government being able to agree on a common strategy is a major achievement in itself. Scholz’s three-party coalition between the Social Democrats, Greens and Liberals is divided over how it should deal with Beijing, with Barebock’s Greens pushing for a tougher path and Scholz’s SPD advocating a more cautious approach .

The differences over China have sometimes led to open rifts in the cabinet. Scholz backed Chinese state-owned shipping conglomerate COSCO’s investment in a container terminal in Hamburg port, triggering a damaging dispute with the Greens, who opposed the deal on grounds of national security.