Germany’s China Policy: Has It Learned From Its Dependency on Russia?

In Brief

Germany’s China Policy: Has It Learned From Its Dependency on Russia?

The German economy remains heavily dependent on China, its largest trading partner, despite mounting geopolitical tensions between the West and Beijing.

German Chancellor Olaf Scholz’s controversial trip to Beijing in early November—the first by a Group of Seven (G7) leader since the pandemic started—appeared to defy his critics and was more successful than initially expected. However, his visit did little to address the structural problems underlying the country’s China policy, which carries significant risks for Germany, the European Union, and the transatlantic relationship.

What did Scholz achieve in Beijing?

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In his meetings with Chinese President Xi Jinping and Premier Li Keqiang, Scholz reaffirmed that any change in Taiwan’s status has to be peaceful or by mutual consent, called for protecting human rights in Xinjiang, and discussed climate action and COVID-19. However, his most important accomplishment was a joint statement with Xi that both countries oppose the use or threat of use of nuclear weapons. Although this statement cost Beijing little—and there is no certainty that China would dissuade or otherwise influence Moscow’s decision in case of an actual escalation—it is a valuable message in this time of heightened nuclear tension.

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Scholz was accompanied by a business delegation from Germany’s major corporations, which are all heavily invested in the Chinese market. His traveling with the delegation signaled a continuation of Germany’s mercantilist and “business first” approach toward China. Ahead of his trip, Scholz agreed to Chinese investments in the Hamburg harbor, Germany’s largest seaport, against the advice of his ministers, the European Commission, and Germany’s partners in Europe.

Scholz articulated that if China’s policies change, Germany’s relations with it also have to change; thus far, he is sticking to an approach of “prudence and pragmatism” that aims to incrementally reduce Germany’s trade dependence on China. The Chancellery argues that after the Russia energy shock, the German economy cannot abruptly change its trade with China. To critics, this demonstrates a lack of urgency, as trade figures show that the German economy is actually becoming more dependent on the Chinese market.

What are Germany’s economic ties to China?

China has been Germany’s most important trading partner since 2016, with German carmakers at the forefront of that relationship. For instance, Volkswagen relies on the Chinese market for at least half of its profits. The German economy’s stakes in China continued to increase in 2022, with a record ten billion euros in new investments.

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Scholz’s coalition government has labeled China a “systemic rival,” and it recognizes the need for Germany to diversify politically (by focusing on relationships with other Indo-Pacific countries) as well as economically. It also aims to press Beijing to level the playing field for German and European companies doing business in China. Germany’s economic affairs ministry is working on reducing its dependency on China for raw materials, batteries, and semiconductors; it is also reassessing the investment and export guarantees it provides to German companies doing business in China.

What are the risks of this dependency?  

Despite diversification efforts so far, Germany’s asymmetric dependency on China is reminiscent of its previous dangerous energy dependency on Russia. In case of a geopolitical crisis over Taiwan, the fact that German corporations are entangled in the Chinese market raises the political and economic risks for Europe and for transatlantic ties. Germany’s reliance could inhibit its ability to respond together with Western allies to an attempt by China to retake Taiwan by force, for instance by imposing sanctions.

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German Chancellor Olaf Scholz meets Chinese President Xi Jinping in Beijing.
German Chancellor Olaf Scholz meets Chinese President Xi Jinping in Beijing. Kay Nietfeld/Reuters

Meanwhile, Scholz’s trip to Beijing further complicated the prospects of a common European policy on China. Berlin rejected an offer by French President Emmanuel Macron to conduct a joint visit to Beijing, which aggravated bilateral tensions. Also, the timing of the trip—shortly after Xi’s confirmation as party leader for a third term—raised concerns with Europeans.

As long as Germany is unwilling to substantially adjust its China policy and to invest more in a European policy on China, other European countries will not follow Germany’s lead, and it will be easier for Beijing to play them off against each other.

Where is Germany’s China policy headed?

The policy remains in flux, and it is subject to heavy infighting within the governing coalition. The Greens are more hawkish on China than the Social Democratic Chancellery; and they are advocating for more urgency in diversification efforts and a stronger stance on human rights. The foreign ministry, controlled by the Greens, oversees the drafting of Germany’s first national security strategy and its new China strategy, set to be published in the coming months. These will provide opportunities for Germany’s allies in Europe and across the pond to offer input. German-Chinese governmental talks planned for January 2023 will be another such opening.

What should the United States do?

U.S. diplomats should highlight the security dimension of the China relationship, and outline the potential costs to Germany if a conflict erupts over Taiwan. They should avoid discussion of “decoupling” and instead point to Germany’s need for faster diversification. They should also work closely with other European allies to ensure that Europe’s China policy is headed toward convergence with U.S. priorities. Regardless of the tensions around Scholz’s visit, the United States and Europe should coordinate closely to deliver joint messages to China.

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