The German government approved its first national strategy on China on Thursday, defining the Asian superpower as a “partner, competitor and systemic rival” and calling for a significant reduction in dependence on Chinese goods while continuing to maintain economic ties worth hundreds of billions of dollars.
The new policy requires export controls and screening of investments by German companies doing business in China to protect the flow of sensitive technology and know-how.
Chancellor Olaf Scholz’s government adopted the 64-page document on Thursday, after months of discussions and delays stemming from disagreements within its three-party coalition over how tough their position should be. The strategy echoes themes from the European Union, which encourages “de-risking” ties with China.
“We don’t want to decouple from China, but to minimize our risks. This includes strengthening our European economy and also reducing dependencies,” said Annalena Baerbock, Germany’s foreign minister. “The more diverse trade and supply chains are established, the more resilient is our country,” she added.
The strategy takes a harder line towards China than that accepted by governments led by Chancellor Angela Merkel, who viewed China as a huge growth market for German goods.
That push created a strained relationship with China, with more than a million german jobs which depend directly on China, and many more indirectly. Almost half of all European investments in China is from Germany, and almost half of German manufacturing companies depend on China for some part of their supply chain.
But supply chain problems fueled by the coronavirus pandemic have revealed the extent to which Germany and Europe depended on China for goods ranging from medicines to processed minerals essential for green technology. Russia’s invasion of Ukraine last year also raised fears that Beijing could abuse economic dependencies in ways similar to how Moscow weaponized Germany’s dependence on its natural gas exports.
According to the strategy, companies are called upon to “more strongly internalize” the geopolitical risks of doing business in China, to prevent the need to tap state funds in the event of a crisis. The government said it is working to provide incentives to encourage German companies to diversify their businesses beyond China.
“We understood that it is in our own, national interest to take care of our economic security,” Ms. Baerbock said, adding that Germany cannot afford to “pay more than 200 billion euros to get out of dependency.” ,” as happened when Russia cut off gas flows to western Europe.
But whether and how companies will support the policy remains a question. Some medium-sized and family-owned businesses have said geopolitical risks have made it difficult to do business in China, but major industry players such as BASF and Volkswagen have responded to calls for “de-risking” by doubling their investments in China, but localizing them. .
“Volkswagen Group will continue to invest in China,” said Ralf Brandstätter, head of Volkswagen China and a member of the board, in response to the policy announcement.
“China is a dynamic growth market and a key technological innovation,” he said, adding that it is “ultimately crucial for the global competitiveness of Volkswagen and the entire German auto industry.”
The strategy will now move to Parliament, where lawmakers are due to begin debating it when they reconvene in September. The policy aims to guide companies, government agencies, universities and other institutions in their dealings with China and serve as a response to Beijing’s foreign policy.
Last month, Germany unveiled its first national security strategy, calling for “robust” defense and other policies, as part of an effort under Mr Scholz to coordinate foreign, domestic and economic policies. But the government has singled out China from the overall strategy, given its importance as Germany’s largest trading partner, with bilateral trade volumes last year reaching nearly 300 billion euros, or about $334 billion.
The strategy makes it clear that Berlin has no intention of changing its “One China” policy, which insists that only “peaceful means and mutual consent” can resolve Beijing’s claim to Taiwan. “Taiwan is important for Germany both as a location for German companies and as a business partner,” it said.