The German government is deceiving Europe

The US is calling on its European allies to increase pressure on China over Russia’s war of aggression in Ukraine. China is helping Russia continue the war in a way that threatens the whole of Europe, the US Secretary of State said on Thursday on the sidelines of the G7 foreign ministers’ meeting. By “creating an industrial base, Beijing will expand Moscow’s ability to produce equipment and ammunition,” he added.

Another Sonderweg

Indeed, for a few months it still seemed that Berlin had learned the right lessons from Russia’s aggression against Ukraine and its wider implications for Eurasia. Last July, Germany published its China strategy, a 64-page document that seeks to recalibrate relations with its most important trading partner while reducing supply chain vulnerabilities and critical dependencies. The document reflected a general tightening of German policy towards China, clearly acknowledging that China had changed.

The Russian invasion resulted in a German awakening, which also extended to the country’s relations with China in the broader “Zeitenwende“ as part of. Gone are the days when Berlin allowed Chinese state-owned companies to acquire significant stakes in critical infrastructure such as Hamburg’s port terminal. At least that was what could be assumed.

But then we arrive at the sobering present. On April 14, Chancellor Scholz made a four-day tour of China – visiting Beijing, Shanghai and Chongqing. He was accompanied by his three ministers and powerful executives from Siemens, BMW, Mercedes-Benz, Volkswagen and Bayer, among others.

Scholz will visit China for the first time since taking office in 2021 in the fall of 2022, making him the first Western leader to visit the country after Chinese President Xi Jinping consolidated power and the first G7 leader to visit the country following the pandemic. he did. His current visit comes at an even more critical juncture, as China supports Moscow’s war effort by supplying it with dual-use technology and causes countless tensions in EU-China trade relations.

Risk reduction or even more risk taking?

The EU’s trade deficit with China amounted to 291 billion euros last year. The EU has launched an anti-subsidy investigation into China’s electric vehicle industry, which is flooding European markets and stifling local production, amid concerns over state-backed Chinese overproduction. The investigation has been expanded to support other critical green technologies, such as Chinese solar panels and wind turbines, and the next step is to procure medical devices.

A recently published survey of 150 German companies operating in China shows that two-thirds of these companies feel they face “unfair competition”, further strengthening the EU’s call for better conditions for European companies in China. And while Germany’s auto industry faces stiff competition from cheaper Chinese imports, fears of Chinese retaliation are also affecting their exports, given the stagnant German economy, where GDP shrank by 0.3 percent last year.

The chancellor called for equal competition and fair market access for the 5,000 German companies operating in China “without dumping, overproduction and infringement of intellectual property rights”. At the same time, fearing Chinese retaliatory tariffs hindering German exports, he urged the EU not to act for “protectionist motives”, directly echoing the propaganda of Chinese Trade Minister Wang Ventao, who recently accused the EU of protectionism.

Although bilateral trade between Germany and China will decrease by 15.5 percent in 2023 compared to 2022, a report by the German Economic Institute reveals that German foreign direct investment in China will rise to a record level of 12 billion euros in 2023. In addition, Berlin’s dependence on China for the import of key goods such as chemicals, computers and raw materials central to the Green Transition has not decreased.

On the contrary, its dependence on China has increased in areas such as rare earth metals and pharmaceuticals, despite an overall 20 percent decline in Chinese imports in 2022-2023. So if there is any German risk reduction, it certainly seems to be very slow.

As for Huawei – while several European countries have gradually withdrawn from the Chinese telecommunications giant – the company has a 59 percent stake in Germany’s 5G network. On the other hand, German companies such as the chemical manufacturer BASF and the car manufacturer BMW are establishing new plants in China.

However, despite the fact that Berlin is more dependent on the Chinese market than previously on Russian gas – and managed to escape from this dependence -, according to a report by the Kiel Institute for the World Economy, the German economy would shrink by 5 percent in the short term, similar to what was experienced during the COVID crisis. in the case of a significant separation, it would stabilize in the medium term, and even these costs would be avoided if trade were gradually reduced. For Berlin, the lack of political will seems to be the bigger problem.

Berlin’s naivety

Also on the agenda of the trip was to persuade Xi to exert his influence on Russian President Putin and mediate to end the war, in response to which the Chinese president asked the West not to “add fuel to the fire” by sending weapons. Two years after the war and the signing of the Russian-Chinese unlimited partnership, Berlin’s expectation that China will be a benevolent international actor and Xi an ambassador of peace – while actively supporting Putin behind the scenes – is naive.

Back to the Merkel era

Berlin’s re-friending with Beijing has broader implications, given the wider context of Brussels and Washington’s tensions with China.

Scholz’s trip casts a serious shadow over whether Germany agrees with the EU’s increasingly assertive stance on China. As the bloc’s economic powerhouse, Germany is essential to the success of the EU’s China strategy. A visit with an apparent focus on expanding business opportunities undermines EU cohesion.

In addition to the US being Germany’s second largest trading partner, Berlin is highly dependent on US security; the peaceful pictures of Scholz and Hsz walking will probably not appeal to the Americans.

At the same time, the uncertainty of transatlantic relations in the event of a possible return of Trump to the White House, as well as his threats to raise general tariffs, act as an incentive to balance trade relations with Beijing. This was evident from Scholz’s note on his communication with President Macron before the visit, where the two leaders “agreed to defend the rebalancing of European-Chinese trade relations”. Xi’s upcoming visit to France in May will reveal whether Macron will choose Scholz’s game in the midst of the intensifying US-China competition.

Unsurprisingly, the visit was well-received in China, where Xi, aware of Germany’s role as one of the weakest links in the Western alliance, hailed German-Chinese cooperation as an “opportunity, not a risk” in the face of wider problems with the EU.

Beijing’s recent rhetoric – ahead of Trump’s return, which could prevent Europe from aligning closely with Washington in the future – is aimed at winning Europe over. China’s economic slowdown and the 5 percent growth target for this year gives the continent some leverage over China, given that the European market plays a central role in Chinese exports.

However, Scholz’s cautious approach missed the opportunity to use this influence for European interests, opting instead to strengthen ties with Beijing in favor of German corporate interests. Beijing has thus successfully played the “divide and conquer” tactic in the EU.

Berlin’s bow to a more assertive EU strategy shows that German national policy continues to be dictated by a few industries in the country. Above all, the priority of trade profit in Germany’s China policy – similar to the Merkel era – justifies the challenges of the EU’s path towards becoming a global strategic player.

While we are living in a period of geopolitical escalation in the world, the German government has yet to catch up and look outside the bubble of corporate lobbies.

(Author’s page of Csaba Káncz available here.)