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Business as Usual? Chancellor Scholz’s visit to China
The visit marks a point of tension in Germany’s stance of seeing China as “a partner, a competitor, and a systemic rival”.
The year 2022 marks the 50th year of the establishment of Germany-China diplomatic relations. While the partnership has gone from strength to strength, in the past few years, a change in the German outlook towards Beijing has become visible. This has largely been driven by Berlin’s concerns over its economic dependencies, Beijing’s increasingly aggressive posture, and Beijing’s expanding relations with Russia. With his visit on 3-4 November 2022, Chancellor Olaf Scholz becomes the first G7 leader to visit China since the beginning of the COVID-19 pandemic, and the first Western leader to meet President Xi after the party Congress which granted him an unprecedented third term. This article looks at the trajectory of Germany-China relations and the outcome of the visit.
Snapshot of relations
For a long time, Germany-China relations were driven by what is called, ‘Wandel durch Handel’, i.e. change through trade. Under this, Germany pursued a policy of economic engagement to influence and bring China into the democratic and liberal fold. The Foreign Ministry of Germany describes relations with China as ‘multi-faceted and intense’ and goes on to call Beijing ‘a partner, a competitor, and a systemic rival’. This finds similarities with the 2019 EU-China – A Strategic Outlook, which identified China as “a strategic competitor for the EU while failing to reciprocate market access and maintain a level playing field” and noted Beijing as “an economic competitor in the pursuit of technological leadership, and systemic rival promoting alternative models of governance.”
"The Foreign Ministry of Germany describes relations with China as ‘multi-faceted and intense’ and goes on to call Beijing ‘a partner, a competitor, and a systemic rival’."
China is Germany’s largest trading partner with an annual trade exceeding €245 billion in 2021. While, in 1990, China accounted for one percent of Germany’s total trade, it represents 9.5 percent in 2021. In terms of investments, major German investment in China is done by multinational companies like Volkswagen, BMW, Mercedes-Benz, and German chemical industries. These companies have significantly expanded their investments in China representing up to almost 29 percent of total investments made in 2019. In the first six months of 2022, German investments rose to a record €10 billion, the highest since 2000 when the investments amounted to €6.2 billion. German companies have further announced that they will continue to increase investments in China. For example, Siemens has plans to expand in the digital industry; BMW to expand its production capacity; and BASF’s has plans to invest €10 billion by 2030 to build a new site in the country. Together, the four biggest multinationals (BASF, BMW, Volkswagen, and Mercedes-Benz) have contributed 34 percent of total European FDI into China between 2018 and 2021. On the other hand, Chinese investment in Germany between 2014 and 2019 amounted to approximately $40 bn, highlighting German investments outweighing Chinese investments in Germany.
In terms of political relations, Germany is in the process of reassessing its relations with China. While the economic partnership remains the cornerstone of relations, Germany also considers China a vital partner on issues such as climate change. Nonetheless, in the past few years, there has been strategic rethink in its outlook towards China, largely driven by concerns over its economic dependencies, Beijing’s increasingly aggressive posture in its neighbourhood and in international relations, concerns over human rights, and now Beijing’s expanding relations with Russia in the aftermath of the Ukrainian crisis.
Another key issue driving the re-assessment is the dynamics of US-China relations. The hardening of the American position on China and the former’s adoption of a “democracy vs authoritarian” narrative is not shared by the Germans. Thus far, Chancellor Scholz’s government has followed the policy laid down by Angela Merkel of not taking sides in the conflict, which involves its most important ally on one side (the US) and its most important economic partner (China) on another. However, the coalition is working towards formulating a coherent German policy outlook towards Beijing. This has been visible in Foreign Minister Annalena Baerbock’s announcement of the development of a China strategy under the larger German national security strategy, and Economic Minister Robert Habeck’s announcement of a new trade policy, ‘promising no more naivety in trade dealings with Beijing’. Apart from this, Berlin is also increasing its diplomatic outreach to Asia, especially in the Indo-Pacific region, as part of its re-assessment policy. The adoption of the Indo-Pacific Guidelines followed by the sending of its frigate ‘Bayern’ to the region highlights Berlin’s attempts to increase its engagement with the countries here.
"The hardening of the American position on China and the former’s adoption of a “democracy vs authoritarian” narrative is not shared by the Germans."
As Berlin tries to diversify its relations, domestic public opinion also remains critical of China. In a Pew Research Survey released in August 2022, 71 percent of Germans viewed China unfavourably as compared to 37 percent in 2001. Similarly, according to Deutschland trend survey released in early November, 87 per cent of those surveyed would like the Federal government to become economically independent of non-democratic countries; 49 percent believed that the government should reduce economic cooperation with China; and 63 percent believed that China posed threat to world security.
Chancellor Scholz’s visit to China has exposed the division within the coalition partners over the future direction of Germany’s China policy. In the run-up to the visit, the division within the coalition government was visible over Hamburg Port. Cosco’s bid to buy 35 per cent stakes in the operation of a terminal at the port of Hamburg became a critical issue with over six ministries calling for the rejection of the deal over concerns of exposure of critical infrastructure to China’s influence. However, the deal was approved by the Cabinet with an investment capped at 24.9 percent, which will ‘prevent Cosco any formal say’. Moreover, both foreign Minister Annalena Baerbock and President Frank-Walter Steinmeier questioned the timing of the visit.
Chancellor Scholz justified his trip in an Op-Ed in Politico on 3 November 2022, where he wrote that ‘as China changes, the way that we deal with China must change too’, emphasising that ‘China remains an important business and trading partner for Germany and Europe — we don’t want to decouple from it’. While the government has acknowledged the challenges posed by China, there is division on how to build an assertive China policy and to reduce the ‘lopsided dependencies’. Chancellor Scholz also acknowledged that there continues to be critical dependencies on China in some sectors; however, Germany was aiming to ‘dismantle one-sided dependencies in the interest of smart diversification’. He further elaborated that the ‘German policy on China can only be successful when it is embedded in European policy on China’.
"Chancellor Scholz also acknowledged that there continues to be critical dependencies on China in some sectors; however, Germany was aiming to ‘dismantle one-sided dependencies in the interest of smart diversification’."
There were four key outcomes from the visit. First, was the statement with President Xi Jinping jointly opposing ‘the use or threat of use of nuclear weapons…[and] advocate that nuclear weapons cannot be used and that nuclear wars must not be fought, and prevent a nuclear crisis in Eurasia’. This was critical as it is the first time the Chinese leadership has shown its opposition to Russia’s nuclear threats. Second, is the agreement to use the COVID-19 vaccine from Germany’s BioNTech for expats in China. Third, is China’s announcement regarding the signing of a bulk agreement worth US $17 bn for 140 Airbus aircraft, including 132 A320s and eight A350s. However, it needs to be noted that many of these agreements were already in the negotiating process before the visit. Fourth, both agreed to establish bilateral climate and transformation dialogue and to begin the preparatory work for a global biodiversity agreement.
In his speech outlining his government’s policies to the Bundestag in December 2021, Chancellor Scholz said, “We must align our China policy with the China we find in real terms”, calling for a pragmatic approach towards the country. His visit comes against the backdrop of him balancing a fine line between continuing economic relations with China on the one hand, and taking a critical stand on issues such a Beijing’s assertive diplomacy, its rhetoric over Taiwan and human rights, amongst others.
This trip highlighted the uncertainty within the German coalition over the type of China policy they want to formulate. While the Chancellor has emphasised on cooperating with China by pointing out that ‘decoupling’ form Beijing is not possible, several of his coalition leaders are in favour of adopting a hard line towards the country. Even during a German parliamentary hearing with the presidents of the Federal Intelligence Service (BND), the Federal Office for the Protection of the Constitution (BfV) and the Military Counterintelligence Service (MAD) on 17 October 2022, the three service chiefs warned that, ‘In the long run, a significant threat is also to be feared from an autocratic China that is rising to become a global power’. The briefing continued to call that ‘Business, society and politics in Germany have also been too trusting in this respect and have become painfully dependent on a power that suddenly no longer seems well-disposed’ Adding that, ‘in the long run, the far greater threat to German security and German interests would come from China.’
"Given high inflation and rising cost of living, it would be unrealistic for Germany to push for ‘de-coupling’ from China and Chancellor Scholz has insisted that this will not be possible."
What can be concluded is that first, Germany will continue to engage with China while acknowledging the challenges it poses. This stream of thought was visible in Chancellor’s op-ed, where he wrote, “We will seek cooperation where it lies in our mutual interest, but we will not ignore controversies either.” This is primarily the acknowledgement that there are concerns within Germany regarding the unprecedented growth of Chinese power along with the challenge it poses to the international order, however, isolating the country is not an option as Beijing remains a partner on various global issues. Second, the economic relations between the two countries remain the cornerstone of their partnership. Given high inflation and rising cost of living, it would be unrealistic for Germany to push for ‘de-coupling’ from China and Chancellor Scholz has insisted that this will not be possible. The message from this visit is clear, in the short-term, the economic relations are expected to stay strong as Berlin continues to rethink its ties with Beijing through its trade and national security policies.
Ankita Dutta (ORF)
9 December 2022
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