Russia’s war in Ukraine has woken Germany up to the risk of having an economy that is too reliant on raw materials provided by an autocratic strongman. But as the German chancellor, Olaf Scholz, heads to Beijing at the end of this week, there are questions as to whether he would rather leave lessons from the recent past at home in Berlin.
Scholz is the first representative of a liberal democracy to be granted a state visit to China since the outbreak of the coronavirus pandemic in Wuhan in 2019, and will be the first major political leader to meet Xi Jinping since the Chinese president consolidated his power with a shake-up at the top of the Communist party.
He will make a one-day visit to Beijing on Friday as a representative of a government that has vowed to turn a page from the Angela Merkel era, when Germany pushed for closer economic cooperation in the wake of the 2008 financial crisis and cemented its relationship over 12 state visits to China in Merkel’s 16-year tenure.
The current German three-party coalition government, by contrast, has announced its intention to reduce its economic dependence and strengthen relations with democratic states in Asia. In the coalition deal signed at the end of last year, it labelled its relationship with China as a “systemic rivalry” and emphasised the need to address “geopolitical and security policy questions together with the United States and critical Indo-Pacific partners such as Japan, Australia and India”.
Such China-sceptic noises are echoed by Germany’s intelligence community, with the head of the domestic spy agency warning at a recent parliamentary hearing that China represented a greater threat than Russia. “If Russia is a storm, China is climate change,” said Thomas Haldenwang.
Unlike his predecessors Merkel and Gerhard Schröder, Scholz in April made Tokyo, not Beijing, the destination of his first official trip to Asia. Allies claimed at the time that it was symbolic of a reassessment of Germany’s geopolitical priorities.
In an op-ed published in Frankfurter Allgemeine Zeitung on Wednesday, Scholz said China was becoming more preoccupied with questions relating to national autonomy and security. “If China changes, our dealings with China have to change too,” he wrote.
But until now, the chancellor has given few clues as to what this reassessment will mean in practice. Worse still, there are fears that the reassessment has been reassessed once more. Last week, Scholz’s chancellory pushed through a deal that allows the Chinese state-owned shipping company Cosco to buy a 24.9% stake in three terminals in Germany’s largest port, in Hamburg, against vocal criticism from his Green and liberal party coalition partners.
This week, Scholz will travel east, much like Merkel used to, with a delegation of CEOs in tow. They represent, among others, the chemicals firm BASF and the carmakers Volkswagen and BMW – the three companies that dominated European investment in the Chinese market last year, even as other business sectors on the continent grew more wary of pouring money into the country.
“The decision to travel to Beijing with a delegation of industry leaders is problematic,” said Noah Barkin, an expert in Chinese-German relations at the US research firm Rhodium Group. “It’s difficult to deliver tough messages on Russia, Taiwan and human rights while your CEOs are sitting in the room next door wanting to talk about investment.”
He added: “It’s understandable that Merkel stuck to a policy of engagement with China at the end of her tenure. It’s less understandable that Scholz is returning to that strategy after less than a year in power.”
One explanation is that Germany’s government, whose three-party stakeholder structure makes the slow work of consensus-building more essential than ever, is still uncertain about what exactly its China strategy is meant to be.
At a recent foreign policy debate in Berlin, Scholz’s chief of staff, Wolfgang Schmidt, expressed deep scepticism about the idea “that we should decouple” from China. “Yes, there is a danger that China might do that,” he said. “But that would impoverish the whole world, including China.” A straw man argument, critics say, since no political figure in the west has argued for completely severing economic ties with China since the end of Donald Trump’s term in the White House.
“Systemic rivalry” may be written into the Scholz’s coalition agreement, but how deep that rivalry is meant to go has yet to be fully debated. “Does ‘systemic rivalry’ only refer to a conflict in the geopolitical arena, or is it about a rivalry between fundamentally opposed political and economic beliefs?” asked Tim Rühlig, a China expert at the German Council on Foreign Relations (DGAP). “I suspect Scholz’s team in the chancellory is still trying to figure that out.”
With the German government facing a populist backlash over spiralling energy bills this winter, and business associations nervously agitating over gas rationing scenarios, it may seem wise for Scholz to take his time. Pivoting on decades of military and energy policy is already such a costly and politically risky undertaking that Germany’s leaders will be tempted to leave the China question dangling for a bit longer.
Scholz wrote in his op-ed this week that the painful experience of the cold war meant that his country had no interest in global power structures once again coalescing around two blocs.
Rühlig said: “There’s an argument to be made that the fallout from the Ukraine war is already putting a lot of existential strain on the German economy, and that the chancellor’s focus for now has to be on keeping the ship on course. If that is the view, then it may make sense to continue making some deals like the Hamburg port terminal one.”
Scholz’s allies point out that under the Cosco deal, the Chinese company will obtain a smaller stake than previously debated, of a few terminals rather than the entire port, and with a bar on the investor obtaining veto rights on strategic business decisions.
“But the key question for Scholz then is how long it is until there will be a major military conflict involving China,” said Rühlig. “Personally, I think an escalation of the Taiwan situation within the next five years isn’t that unlikely.”
An escalation in tensions between Beijing and the west, potentially involving sanctions on European companies active in China, would not only hit Germany’s car and chemicals industry. Goods worth €246.1bn were traded between Germany and China in 2021, making China the most important trading partner of Europe’s largest economy for the sixth consecutive year. But with China accounting for only about 8% of German products shipped abroad, the country’s export dependence is less than that of the US, Japan or Australia, all of which send higher proportions of their exports to China.
When it comes to raw materials that are key for the digital economy and renewable energy technologies, however, Germany and the rest of Europe are still heavily reliant on China’s capacity for mining magnesium, rare earths and bismuth, or refining lithium, manganese and nickel. A Chinese invasion of Taiwan could kibosh German plans for expanding in electric cars, wind and solar farms.
With such a scenario in mind, analysts such as Rühlig say reducing Germany’s strategic vulnerabilities in China should be a matter of utmost urgency. “You may be able to wean yourself off Russian energy within two winters,” Rühlig said. “Opening up new mines to unearth raw materials we currently get from China takes a decade.”
