Germany Has a New Consensus on China

When the Angela Merkel era ended in late 2021, and a new German government took power and promised to overhaul Berlin’s policy toward China, there were good reasons to be skeptical. New Chancellor Olaf Scholz had promised foreign-policy continuity during the election campaign. And his Social Democrats, the largest party in a three-way coalition with the Greens and Free Democrats, had a history of putting business über alles when dealing with authoritarian states such as China and Russia.

Scholz’s actions since taking power have done little to dispel the concerns. He rushed to Beijing with a business delegation in tow after Chinese President Xi Jinping tightened his iron grip on China’s Communist Party and the country at the 20th Party Congress last year. He overruled half a dozen of his own ministers to ram through a deal by Chinese shipping giant COSCO for a stake in a terminal at the Hamburg port. And just last month, he rolled out the red carpet for Chinese Premier Li Qiang, echoing his message that companies, not governments, should determine how to de-risk from China.

Crucially, unlike other members of his government and party, Scholz has never seen China as part of Germany’s Zeitenwende—the foreign- and security-policy revolution launched by the chancellor after Russia’s invasion of Ukraine. In a Foreign Affairs article written by the German leader last year, entitled “The Global Zeitenwende,” China was treated almost as an afterthought, and its deepening relationship with President Vladimir Putin’s Russia received barely a mention.

Against this backdrop, the German government published its first China strategy earlier this month, delivering on a coalition promise that Scholz appears to have accepted through gritted teeth, under pressure from hawkish Green ministers in his cabinet.

The expectations for the document were low. After a toughly worded draft from Annalena Baerbock’s foreign ministry was leaked to the German media last November, the months ticked by with no strategy in sight. The Chancellery, I was told, did not want to publish it before Li’s visit to Berlin, out of fear that it would limit Scholz’s room for maneuver with China. As a result, publication of the strategy was pushed back to the latest possible date before the summer break, after members of the Bundestag had already left Berlin on holiday.

As expected, the final version is softer in some places than the leaked draft from last year. But the big surprise is not what was removed from the document, but what has remained. The 40-page strategy (or 61 pages in the more elegantly formatted German version) is tougher than many in the Berlin bubble had expected. It includes lines such as this: “China is leveraging the political, military and economic weight it has gained to pursue its interests on all continents and in international organisations, and it is working to reshape the existing rules-based international order according to its preferences.”

I suggest reading through Chapter 4, entitled “Strengthening Germany and the EU.” It lays out plans to diversify supply chains, reduce the risks of German firms’ exposure to the Chinese market, strengthen investment screening and export controls, and tackle Chinese disinformation. De-risking, the document says, is “urgently needed.”

Words, of course, are just words. And we should reserve final judgment on the strategy until we see proof that the government is implementing what it has spelled out in black and white. But words do carry special meaning in a country like Germany, and it would be wrong to downplay the importance of the rhetorical shift we are witnessing in Berlin.

Is Germany prepared to turn its back on China? The answer to this question is a clear no. “The cow is still giving milk. We are not ready to slaughter it just yet,” a German official close to Scholz said in a private conversation recently.

To understand this stance, it is important to consider the economic and political context. Scholz and his team are deeply concerned about the state of the German economy, which entered a recession in the first quarter of the year. An abrupt stop to cheap Russian gas has hit energy intensive industries across the country. Some of Germany’s largest firms are shifting investment abroad, lured by massive green technology subsidies offered under the Inflation Reduction Act in the United States. In recent months, the far-right Alternative for Germany has vaulted above Scholz’s Social Democratic Party in national surveys. In Germany and across Europe, there is deep anxiety about a potential return of former U.S. President Donald Trump. All of this has made a German leader known for his caution even more risk averse.

The new strategy is a sign that, amid all the challenges the country faces, the German consensus on China has shifted in important ways. A survey published by the Pew Research Center last year showed that 74 percent of Germans have a negative view of China, the same level as Canada. Importantly, the “win-win” narrative that has surrounded economic cooperation between Germany and China in recent decades is beginning to crumble, as Chinese electric carmakers such as BYD and Nio surge past staid German rivals that bet on combustion engines for too long.

Scholz is not in a position to stand in the way of this shifting tide—even if he and his team remain determined to avoid confrontation and conflict with Beijing. What signposts should we be looking for in the months ahead when assessing whether Germany is prepared to deliver on the plans laid out in its China strategy?

The first test will be on 5G, where Germany’s disregard for the EU security guidelines forced the European Commission to issue a rare public warning last month. After years of inertia, the government is expected to make a decision on the fate of Huawei soon. Anything short of an immediate ban on new components from the Chinese telecommunications group and an accelerated phaseout would run counter to the core messages of the China strategy.

Looking beyond the summer, Berlin will need to do all it can to support European Commission President Ursula von der Leyen’s nascent push for an EU economic security strategy. In the new China strategy, the government affirms its determination to prevent cutting-edge technologies from being used to further the military capabilities of geopolitical rivals, and to constructively engage in European discussions on an outbound investment regime that could restrict EU firms from deploying capital to China in a narrow set of sensitive national security-relevant sectors.

Berlin must demonstrate over the remainder of 2023 that these are not empty promises. As Europe’s largest economy and the EU country with the closest economic relationship with China, Germany should be leading this policy debate, not acting as a brake on Brussels, as it has so often in the past.

As it begins to draw red lines in its technological relationship with China, Germany shouldn’t shy away from pushing Washington toward a more ambitious trade agenda.

One of the most interesting lines in the German China strategy was this one: “We are campaigning for a transatlantic trade agreement that would eliminate industrial tariffs and mutually recognise transformative technologies.” The flip side of de-risking from China is doubling down on trade and investment with allies. On this, the ball is in the Biden administration’s court.