ABRINGING BRANDS always has German economic relations with China in mind when conducting bilateral diplomacy with Asian giants. In the 15 years since he took over as chancellor in 2005, German exports to China doubled, to under € 100 billion ($ 110 billion), around 3% of GDP. Last year China was easily Germany’s biggest trading partner, in the special interests of large companies like Volkswagen, BMW and Siemens. To avoid conflict with the ruling Chinese Communist Party, Mrs Merkel is careful not to side with the hawks in fierce debates last year and this is whether to let Huawei, the Chinese telecommunications giant, bid for a contract to build Germany 5G. network (see article).
His caution is becoming wider. Ms. Merkel was also cautious in her comments about the recent Chinese crackdown in Hong Kong. He stressed the need to “seek dialogue” with the Chinese government based on “relations of trust”. But that means that he is increasingly out of line with the rest of Germany’s political standpoint. Prominent figures in the Christian Democratic Union (CDU) objected to his refusal to directly criticize the Chinese government. Norbert Röttgen, head of the Bundestag foreign affairs committee and competitor for CDU leadership, condemned as a “self-censorship” suggestion recently from the German foreign office to “be very careful” about posting critical Chinese comments on social media. For Nils Schmid, foreign policy spokesman for the Social Democrats, that CDUAs a junior coalition partner, China’s policies in Germany are “out of date”.
Schmid spoke not only to the political elite but also to the many business leaders who used to mercilessly explore China’s potential but had long reduced their enthusiasm. Around 5,500 German companies with production sites in China face obstacles ranging from forced technology transfer to the need to establish joint ventures. Many have lost faith in the possibility of change. “I would now advise Mittelstand companies to stay away from China,” said Frank Klix, who previously represented the Panjin Economic Development Zone in Germany but became frustrated at the lack of an equal playing field.
In early 2019 such concerns culminated in a paper published by the German Industrial Federation (BDI), which states that hopes for convergence in the rules of doing business with China have faded. In January VDMA, a German machinery manufacturer association, said “imbalances” in doing business with China were unacceptable. Last year the German Chamber of Commerce in China found that nearly a quarter of German companies operating in China planned to eliminate all or part of their business.
Challenges at home add to difficulties abroad. When Midea, a Chinese tool maker, bought Kuka, a German robotics company, in 2016, German industry and politicians realized that China had become far more than a loyal customer for its exports. The strategy “Made in China 2025” represents a clear challenge to Germany’s high value-added export model. China is now only second after Germany in global machinery exports.
The German government is responding to this new competition by taking steps towards industrial policy that looks more French. This has tightened the rules on foreign investment and flirted with the idea of protecting “strategic” companies by taking stock. This shift has also moved the European Union’s center of gravity. The club, which now describes China as a “systemic rival”, gives the government more power to filter foreign investment. Germany will push to tighten METhe state aid regime under the president of the European Council, which began on July 1.
However, the idea of German dependence on the Chinese market can be excessive. China overtook America as Germany’s biggest single trading partner in 2016, and it is true that Germany is more exposed to China than other major European economies. But Germany’s trade with China, around € 200 billion last year, only 8% of its total trade. It does more business with the four “Visegrad” countries of central Europe alone. Nearly 2% of German jobs depend directly or indirectly on Chinese exports, Jürgen Matthes of the Institute of Economic Research in Cologne said.
However, high value-added products that are superior in Germany, such as cars, machinery, electrical components and chemicals, account for 70% of German exports to China. Makers include medium-sized but also blue-chip companies that traditionally enjoy hearings at the German ministry. Take Volkswagen, which is with Daimler and BMW has a big office in Beijing. VW entered China in 1985 through a joint venture, and now runs 33 factories in the country. Global carmakers cannot ignore the huge Chinese market, said Stephan Wöllenstein, boss in China, which accounts for 40% of the company’s total sales. Other parts of the German industry remain interested VW to capitalize on China’s growth.
This helps to explain Ms. Merkel’s soft-pedaling of policies to China. Despite strong pressure from America, government colleagues, intelligence agents and from the US MPin the entire spectrum, including hers CDU, he still refused to deter Huawei from building Germany 5G. network. He may fear that the Chinese retaliation imposed on the German carmaker – a threat hanging by the Beijing ambassador in Berlin – will be too much for the fragile economy to crawl out of recession amid tense transatlantic trade.
Mrs Merkel also carries a “political belief” that tries to hold China at more risk than reward, said Thorsten Benner at the Global Public Policy Institute in Berlin. How to accommodate the rise of China is a central feature of the speeches he made during his 12 trips to the capital and interior of the country in recent years (see chart 2). He wants China to help shape the rules of artificial intelligence and genetics to avoid splitting the world into competing technological hemispheres.
Echoing MENew position, Mrs. Merkel has largely abandoned talks about China as a “strategic partner”, describing it as a “competitor” with whom Germany has a “big difference”. But he still hopes to find a field of partnership, especially about climate change and development in Africa, in an area METhe China-Summit in Leipzig in September will be attended by all 27 heads of European governments. In June the summit was postponed, ostensibly because of a pandemic. Mrs. Merkel hopes to revive her.
However, the chancellor’s hopes to include China in the multilateral system have begun to look a little sad. A new generation of analysts and politicians in Germany offers a more skeptical view of China than the ancient synologists. “The chancellor is brilliant, but maybe he still thinks in the pre-Xi world,” said Johannes Vogel, one MP for the liberal Free Democratic Party. Mrs. Merkel will leave the office next year.
None of these “decoupling” signals of the type of Mike Pompeo, American secretary of state, have urged Europe. But Germany needs “significant rebalancing,” said Benner, who advised the country to maintain Europe’s capabilities in critical infrastructure such as 5G., tell companies who bet on China that they will no longer enjoy the guise of politics, and gather alliances with countries that think the same risk of coercion in China’s economy, such as Australia and South Korea. In German business and politics, the winds change. ■
This article appears in the European section of the print edition titled “Expired”
to request modification Contact us at Here or [email protected]