Germany says Chinese trade could create a risky dependency

The German government approved its first national strategy on China on Thursday, identifying the Asian superpower as a “partner, competitor and systemic competitor” and calling for significantly less dependence on Chinese goods while maintaining economic ties worth hundreds of billions of dollars.

The new policy calls for export controls and scrutiny of investments by German companies doing business in China to protect the flow of sensitive technology and knowledge. But it fails to address how Berlin plans to review Chinese investments in Germany, a point that has been a cause for concern recently.

Chancellor Olaf Scholz’s government adopted the 61-page document on Thursday, after months of discussions and delays stemming from disagreements within his three-party coalition over how difficult their position should be. The strategy echoes themes from the European Union urging “de-risking” relations with China.

The government said that reducing dependence on Chinese producers and consumers would ultimately boost the German economy.

We don’t want to separate from China, but we want to reduce our risks. This includes strengthening our European economy as well as reducing dependencies, said Annalina Berbock, Minister for Foreign Affairs. “The more diversified trade and supply chains are created, the more resilient our country will be,” she added.

The strategy takes a tougher line on China than that of governments led by Chancellor Angela Merkel, who viewed China as a huge growth market for German goods.

This push created a close relationship with China, with more than a million people German jobs Which directly depend on China, and much more indirectly. Almost half of everyone European investments In China from Germany, and Almost half Many German manufacturers rely on China for part of their supply chain.

But supply chain problems sparked by the coronavirus pandemic have revealed how dependent Germany and Europe are on China for goods, from medicines to processed minerals essential to green technology. Russia’s invasion of Ukraine last year also raised fears that Beijing could benefit from the economic dependencies in similar ways to the way Moscow weaponized Germany’s reliance on its natural gas exports.

Under the strategy, companies are called upon to “stronger grasp” the geopolitical risks of doing business in China, to prevent the need to tap into state funds in the event of a crisis. The government said it was working on incentives to encourage German companies to diversify outside of China.

The policy also called for a reassessment of export safeguards to ensure the protection of sensitive technology He stressed Germany’s intention to draw up a list of technology used in areas including cybersecurity and surveillance that would be subject to export controls.

“We understood that it was in our national interest to take care of our economic security,” said Ms. Burbock. She added that Germany could not find itself needing to “pay more than 200 billion euros to get rid of dependence,” as happened when Russia cut off gas flows to Western Europe.

The Chinese government rejected, through its embassy in Berlin, Thursday, how it was described in politics, Insist that it was Germany’s partner, not a competitor.

The embassy said in a statement that it “resolutely opposes” efforts to “interfere in China’s internal affairs, distort and smear China, and even harm China’s core interests.”

The question remains as to whether and how companies will support this policy. Some mid-sized, family-led firms said geopolitical risks complicated their business in China, but leading industrial firms, such as BASF and Volkswagen, have doubled down on Chinese investment in China.

“The Volkswagen Group will continue to invest in China,” said Ralf Brandstätter, Head of Volkswagen China and member of the Board of Directors.

“China is a dynamic growth market and a major driver of technological innovation,” he said, adding that “ultimately it is crucial to the global competitiveness of Volkswagen and the entire German auto industry.”

The strategy will now pass to parliament, where lawmakers are expected to begin debating it when they meet again in September.

Last month, Germany unveiled its first national security strategy, calling for a “strong” defense and other policies. But the government cut China out of the overall strategy, given its importance as Germany’s largest trading partner, with bilateral trade last year reaching nearly 300 billion euros, or about $334 billion.

The strategy makes it clear that Berlin has no intention of changing its opposition to China’s claim to sovereignty over Taiwan. The status quo in the Taiwan Strait can only be changed by peaceful means and mutual consent. A military escalation will also affect German and European interests.”

More than a year after Mr. Schultz decided to take a more critical stance toward Russia after the invasion of Ukraine, said Mikko Hootari, executive director of the Mercator Institute for China Studies, China’s strategy is the latest step in a reset in Germany’s foreign policy. .

“Looking at China from a risk-oriented perspective is a big step in a different direction,” said Mr Huotari. “It’s a big turnaround for Germany.”

Keith Bradshare Contributed reporting from Beijing.