This past year has been extremely dynamic when it comes to China’s evolving role in the world, as it has become more and more emboldened to assert its position in the context of many forums - from BRICS to Asia to the clique of global economic powers. The West has become equally as dynamic in its response to such developments. Germany, in particular, has focused on developing a China strategy tailored to address the Middle Kingdom’s evolving position on the global stage in an attempt to clarify its position vis-a-vis Beijing. Its efforts culminated in its new “Strategy on China”, a sixty-odd page document produced by its current coalition government under Chancellor Olaf Scholz.
Germany’s new strategy demonstrates a trend in Europe at large whereby the need for a reduction in dependence on China, and the recognition of the risks and ambitions the country represents, is coming to the forefront. Germany narrowly made it through an energy bottleneck, induced by its cutoff from Russian energy, in the winter of 2022/23, and has taken lessons from the Russian invasion of Ukraine on how critical dependence on a single other state - particularly an authoritarian one - can be to its own domestic economy. Europe has followed suit in a cohesive ‘de-risking’ narrative and strategy which aims to gradually reduce dependencies of the EU on China without overly harming the economic relationship.
This increased wariness is well-represented in the strategy document, which makes clear its aims and the rhetoric with which it will be approaching China. The past few months have also witnessed a flurry of headlines concerning Sino-German and Sino-EU relations that can be traced back to the document. By examining both the strategy document’s stated aims and actions, as well as the practical realities of the relationship between Germany and China so far, we can glean a clearer picture of how the more vague action items are coming into play, and what we can expect for the future.
A Look Into Germany’s New China Strategy
When it comes to prior engagement with China, the preceding government under Merkel enhanced its cooperation with China as the two established political and economic dialogue formats starting in the early 2000s and intensifying in the 2010s. Germany treated its relations with China in a rather businesslike manner, viewing China foremost as a marketplace. Now, as officials commonly phrase it, “China has changed and so [their] China policy must change too.” Germany’s current Ambassador to the US, Andreas Michaelis, points out the origins of this ‘wake-up call’ in a 2019 ‘China mapping exercise’ which revealed the level of influence China was exerting on all sectors in Germany, and pinpoints this investigation as the time when the federal government became aware of a possible philosophy change on the Chinese side where there was an increased focus on stabilising CCP rule and its ideological basis. This was pursued by increasing China’s autonomy and thus creating greater dependency on China as a manner of insulating China from a perceived “siege from the West”, as European Council on Foreign Relations Director Janka Oertel phrases it. China even shifted the legal conditions domestically by implementing ambiguously-worded anti-espionage and national security laws that concerned European companies.
Contrary to hopes harboured in the early 2000s, economic ties with China did not incite the political and governmental softening Berlin had hoped for - an idea stemming from German trade maxim Wandel durch Handel, or “change through trade”. In essence, the argument is made that establishing stronger economic connections with Western countries will encourage nations like Russia and China to adopt a more democratic and open political system. This trade doctrine arguably saw its full demise in 2022 with the Russian invasion of Ukraine, where it became increasingly clear that Germany's trade agenda has proven to be strategically risky: while Germany expected to appease Russia by committing to the Russia-to-Germany Nord Stream 2 gas pipeline, for instance, the invasion made it clear that Moscow prioritises geopolitical gains over fear of economic repercussions from the West, and that Germany itself had to deal with severe consequences due to its dependence on Russian gas.
Tying this back to China, there is considerable public discourse on whether the dangers of dependence will realise themselves again. The pandemic years have demonstrated the extent to which Beijing can isolate itself while simultaneously becoming more assertive abroad, thus giving greater validity to critics arguing for strategic autonomy and diversification. Furthermore, with an increasingly tense US-China relationship rife with reactionary tariffs, export controls and erosion of mutual trust, Germany found that it was far from isolated from cross-Pacific trade tensions that came to the forefront with the onset of the Trump administration.
With this background in mind, the strategy document came out soon after Chinese Premier Li Qiang’s visit to Berlin in June - his first stop in Europe where he was warmly received. This is a testament to the strong economic bonds that link the two countries, with China being Germany’s largest trading partner at bilateral trade volume of nearly 300 billion euros in 2022. However, the document (published several days after the visit) offers a suddenly stark and severe change of tone, highlighting Germany’s dissatisfaction with its growing asymmetrical trade dependency on China - as we can see in the figure below.. These two surprisingly different attitudes coexisting in a short time-frame are demonstrative of the multifaceted position beholden by Germany toward its economic partner, competitor and strategic rival.
Fig. 1: Germany’s trade balance with China by products group
In this vein, Germany aims to ‘de-risk’ from China - a stance echoed by the European Union. With notably frank discussion and outright accusations against China concerning espionage, dual-use technologies, human rights abuses, and attempts to coerce third countries into alignment through economic might, there is a strong pivot from the Merkel-era’s approach to China.
This is perhaps why the strategy document assumes such a brisk tone, stating its manifold aims as “to present” and “to assert” its values and interests in “the complex relationship with China.” It also aims to provide a framework and means for implementing a coherent German and European China policy, which as MERICS puts it, is more ambiguous and “understandably more elusive”.
To give a brief overview, the document begins by reasserting its own values, focusing on concepts such as liberal democracy, the preservation of a social market economy, human rights and the “principles of the international order”, including implicit and explicit snubs at Chinese narratives and activities. Notably, it stresses on the importance of working with the EU on a joint, coherent China strategy - with a mention of strengthening the EU internal market to compete with China and withstand future crises. With an overall conclusion of increased competitiveness and strategic rivalry with China, Germany maintains that it strives for cooperation in certain areas such as climate change, and lays out what reads as behavioural ‘fixes’ that China could engage in - such as cessation of “economic and academic espionage”, “illegitimate interference” and even giving up its status as a developing country in the World Trade Organisation, to name a few. The consistent switch of language between partner, competitor and rival lays out Germany’s discontents while also keeping a door open for continued trade and cooperation within preferred parameters and in areas of mutual interest.
The type of language used to present the federal government’s views on China and the risks the latter poses unequivocally demonstrates its position while also leaving room for Chinese economic, foreign and domestic policy to change course in a direction more favourable to the West. These expressions are starting to cause deep discontent in Beijing, where some have felt that much of the blame for economic issues that the West deals with is laid thick onto China.
The Impact of the Strategy on Current Sino-German Relations
With the aims laid out in full, the question of implementation remains more mysterious, which arguably leaves room for manoeuvre. However, a look into cases and actions taken since its publication can help to see what this strategy looks like in concrete terms.
Data from August shows that after peaking in 2020 at 7.9%, exports to China accounted for only 6.2% of total German exports in the first half of 2023, marking the lowest share since 2016. By May 2023, Germany had a negative trade balance of €4.53B with China, with a 5.34% decrease in exports from the previous year. Of course, this is due in part to China’s own faltering economic growth, as well as its greater self-reliance in production of high-tech goods it previously imported from Germany. The reasoning and data give a more tangible backing to Berlin’s claim that China is “working to make itself more independent from foreign contributions and supplies.”
Foreign minister Annalena Baerbock (from the Green Party, which is renowned for its more idealistic policymaking and harsher stance on China) echoed this rather pessimistic rhetoric by stating that China challenges the "fundamentals of how we live together in this world”. Along with her more recent labelling of President Xi Jinping as a “dictator”, her statements confirm the increasingly larger significance that calling China a ‘systemic rival’ has taken on, and also corroborates much of the accusations within the strategy document declaring China’s wish to “re-shape the existing rules-based order”. Germany is particularly critical of the Beijing-Moscow relationship, calling it “an immediate security concern for Germany” - perhaps especially in light of investigation results that showed that China was selling “dual-use technology” (with both civilian and military purposes) to Russia.
A case which exemplifies many of the precepts of the document, as well as how they have been turned to reality, is that of Huawei in Germany. Germany’s Interior Minister Nancy Faeser declared in August that Germany would cut back on Chinese telecoms providers Huawei and ZTE, citing potential “serious security risks” that Berlin was evaluating. It is important to note that this comes after pressure from the EU months before for Germany to fully implement the EU's toolbox of security measures for 5G networks - an area which the country was moving relatively slowly in. Faeser’s assertion that she will not “let the cost argument fool [her]” is demonstrative not only of Germany falling closer in line with EU strategy, as it asserts in the strategy document’s second chapter, but also of the country taking de-risking seriously and placing security over economic interests. It defines this in the document as “protection of critical infrastructure”, where it makes reference to Chinese security legislation which obliges “Chinese individuals, companies and organisations at home and abroad to cooperate with Chinese authorities and intelligence services”.
The Huawei case (as well as other controversial examples such as Cosco’s acquisition of a section of the Hamburg port) can be viewed under the larger umbrella of foreign investment screenings. German Economy Minister Robert Habeck announced that an investment screening law, which happens to align with the strategy document’s ‘Dealing with Investments’ section, was being considered. The proposed law includes auditing investments where an investor gains access to domestic company goods or technologies through contracts, rather than through acquiring voting shares. Additionally, the ministry is considering assessing the security impact of new foreign-built factories in Germany and scrutinising security-critical research collaboration agreements. The scheme ties directly back to de-risking, which is the overarching European and by extension, German strategy.
On the geopolitical side, Germany has recognised that if it wants to de-risk from China, it needs to improve its ties with other Indo-Pacific nations. The government made an explicit point of this when it sent troops to Australia this summer to participate in a joint military drill with Indonesia, Japan and South Korea, among other states. Army Chief Alfons Mais said it most plainly: "It is a region of extremely high importance for us in Germany as well as for the European Union due to the economic interdependencies… We aim to demonstrate that we are reliable and capable partners that contribute to stabilising the rules-based order in the region.” It is noteworthy to mention that European Commission President Ursula von der Leyen made a rare visit to the Philippines a few short weeks later in the context of a more assertive China in the region. This could signify a still-nascent amplification of focus, dependency and alliance to surrounding countries.
Looking Forward and into Taiwan-Germany Relations
Looking forward, it is clear that Germany is seeking partnerships elsewhere, from Latin America and Africa to the Indo-Pacific, the latter being an area that Europe has a renewed sense of interest in. When it comes to Taiwan, Germany does stand by the ‘One-China Policy’, but has also made it plain that it is against any unilateral change of the status quo, especially by force. Moreover, any sort of Taiwan Strait escalation would lead to extreme disruptions of supply chains and will run contrary to German and European interests. The document describes “close and good relations with Taiwan”, demonstrated in practice by the Taiwan Semiconductor Manufacturing Company’s 3.5 billion euro investment into a chip plant in Dresden, Saxony - marking its first in Europe. Linking this back to Germany’s desire to diversify its trading partners, this window may be the ideal opportunity for trade and diplomatic relations between Taiwan and Germany to grow. While China still far overshadows any of its Asian counterparts as a German trade partner, the government is putting the onus of risk-aversion on the companies themselves - a headache which may make them turn to surrounding nations to avoid unilateral dependence on China.
With all of this in mind, it can be concluded that the momentum following the release of the strategy is rising fast. The continuation of ‘de-risking’ trends as it relates to Germany’s New China Strategy is already facing backlash from China due to fear of it being a facade for full decoupling. Domestic leadership, coordination with partners in NATO and the EU and response from China will greatly influence the course of events both in the short and longer-term. As the EU’s largest country and economy, Germany’s strategy strongly influences the greater European approach. On the flip side, Berlin has ceded its sovereignty within the key economic areas where Germany and the EU interact with China, and relies on the European internal market to keep its economy healthy. This makes coordination with the EU on foreign policy strategy crucial, so that national interests can be pursued within existing frameworks rather than potentially be threatened.
This article was previously published on The News Lens International on October 16, 2023.
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