Germany has a China Problem

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Olaf Scholz has faced frequent scrutiny during his tenure as German Chancellor. However, few policy decisions have caused as much uproar as his support for the Chinese shipping company Costco’s acquisition of a stake in a container terminal in Hamburg in October. Despite later agreeing to reduce the ownership stake from 35 to 25 percent, Mr. Scholz’s controversial position saw firmly united opposition within the German Bundestag, both from members of his own ‘traffic light’ coalition (consisting of the Greens and the liberal Free Democrats) and the opposition. The Green Party’s Chair Ricarda Lang tweeted that she had “no understanding” for why Scholz would push ahead with the deal, while FDP General Secretary Bijan Djir-Sarai asserted that the “Chinese Communist Party must not have access to our country’s critical infrastructure”, which would constitute a “mistake and a risk” (DW). In fact, six German ministries publicly came out against the planned acquisition, including the Foreign Ministry. Regardless, Scholz maintained his position and the contract went through as planned.

In addition to causing political turmoil in Berlin, the conflict illustrated a broader policy debate: is Germany in the midst of once again becoming dependent on a competitor? The war in Ukraine having exposed the issues with the country’s decades-long reliance on Russian gas, experts have become concerned that it may now fall into even greater economic dependence on China, a vital market for German machinery, cars, and chemical products. As Yuan Yang of the Financial Times put it, “China’s lurch towards one-man rule, combined with the economic disruption caused by its zero-Covid policy, saber-rattling over Taiwan and tacit support for Russia’s war in Ukraine have turned a country that was once one of the most exciting markets for German business into one of its biggest risk factors.“ (FT).

As one of the major export economies in the world, German policy has long been “Wandel durch Handel” (“Change through Trade”). As such, it has embraced diplomacy grounded in the belief that economic ties can be effective in enticing partnership and international cooperation. It is now, however, feared that Germany’s economic approach to China may have gone too far insofar as it has now become increasingly reliant on exports into the Chinese market. Mr. Scholz himself argued “it’s a basic lesson you’re taught in the third term of business school … that you don’t put all your eggs in one basket” (FT).

Germany’s conciliatory political approach to China has become increasingly at odds with that of its allies, above all the United States. The American government has displayed bipartisan support for more combative policy towards China, most recently approving the “House Select Committee on Strategic Competition between the United States and the Chinese Communist Party” (CNBC). President Biden’s choice of words, calling President Xi Jinping a “thug” and claiming that China has “both the intent to reshape the international order and, increasingly, the economic, diplomatic, military, and technological power to do it”, stands in stark contrast to Mr. Scholz’s description of China as an “important business and trading partner” (POLITICO).

This can be explained by the fact that Germany has historically been one of the countries that profited from China’s economic expansion the most, with Chinese demand for German consumer and industrial goods seeming insatiable. Consequently, the country continued to expand economic ties with China. Volkswagen, Germany’s largest car manufacturer, has come to sell up to 40 percent of its cars in China. Siemens and BASF, two large industrial and chemical manufacturing companies, have also come to depend on China for up to 15 percent of their revenues. Further, the Ifo think-tank recently published data suggesting that 46 percent of German industrial companies rely on intermediate inputs from China (FT).

Despite such alarming trends, German industrial giants have so far avoided addressing this dependency concern directly. Risks of EU sanctions, especially in the case of a Chinese invasion of Taiwan, are considered “distant enough” for them to resist pressures to pull back from the world’s second-largest import market (FT).

Ultimately, however, it is critical for Germany to reevaluate its existing policy and seek to reduce its economic dependence on China. Having learned the perils of depending on adversaries first-hand as a consequence of Vladimir Putin’s brutal invasion of Ukraine, the country must not give in to temptations of making short-term profits at the expense of long-term economic autonomy. German policymakers ought to act accordingly.