Trading with the frenemy: Germany’s China policy

In recent years, the focus of Germany’s economic and foreign policy has shifted away from the United States and towards China. While Germany owes seven decades of peace in Western Europe to the liberal international order America championed, its current prosperity derives largely from China. The demand for German exports created by China’s rapid growth helped Germany weather the global financial crisis and reassert its economic dominance in the eurozone.

Today, the countries maintain a lucrative trade relationship and collaborate on global issues such as climate change, aiming to fill the gaps left by America’s withdrawal from international accords such as the Paris Agreement. Recent surveys by Atlantik-Brücke and the German Chamber of Commerce in China show that Germans now consider China to be a more reliable partner than the US, and that most German firms in China plan to maintain or increase their investments in the country despite the Sino-American trade war, respectively.

However, Beijing’s influence in Germany has come under scrutiny since 2016, when Chinese investors snapped up several German technology companies. Officials in Berlin expressed concern that the purchases would compromise Germany’s technological lead in sectors such as industrial robotics and new energy sources. They were angered by the ease with which China could buy high-tech companies in Germany’s open market, then use their newly acquired expertise to create national champions in the protected Chinese market.

Since this uproar over the acquisitions, many journalists and analysts have looked beyond China’s official rhetoric on Sino-German relations to uncover more cases of alarming Chinese interference in Germany. In addition to draining technical expertise from German firms, Beijing has reportedly censored and intimidated critics of the Communist Party of China (CPC) within Germany, used social media to try and recruit German politicians, infiltrated Germany’s parliament and ministries, and used divide and rule tactics to undermine the European Union’s attempts to establish a coherent China policy.

A wake-up call

Now that Beijing’s decade-long influence campaign in Germany has come to light, German political and business leaders have changed their basic assumptions about their far eastern partner’s foreign policy ambitions. German businesses are also beginning to discuss Chinese influence in terms of a systemic rivalry. They once hailed Sino-German trade as highly complementary – but this was at a time when China was the workshop of the world, importing advanced German machinery for use in the manufacture of cheap goods for European consumers. Now that China has begun to develop into a service-orientated, high-tech economy, German and Chinese manufacturers increasingly come into direct competition with one another.

While it is no longer complacent about Chinese influence, Germany has failed to craft a policy that effectively reassesses the balance of opportunities and risks. Germany feels isolated in a world whose two biggest economic players – the US and China – both lack a commitment to the rules-based international order. So far, German Chancellor Angela Merkel has approached this challenge by trying to please both Washington and Beijing. For example, after the US imposed sanctions on Chinese technology firm Huawei for its alleged involvement in espionage, she asked China to agree to a “no spying pact” to address espionage concerns but allowed the telecoms giant to roll out its 5G technology in Germany. Rather than placating both partners, Merkel frustrated the Trump administration – which threatened to reduce intelligence sharing with the Germans – and, by trusting the CPC to stop spying, revealed her naivete. China’s 2017 National Intelligence Law permits Chinese individuals and companies to commit espionage and instructs them to keep quiet about their cooperation with the intelligence services. While it finds itself caught between its two largest trading partners, Germany will only frustrate Washington and unnerve the European community if it continues to waver between east and west.

Germany’s position of strength

Germany needs to defend itself against foreign states’ interference in its major companies, government, and society at large. The country can only begin to do this effectively by paying more attention to China. In Germany, Moscow’s influence and espionage operations still receive far greater public scrutiny than those of Beijing – despite the fact that the latter pose a more serious long-term threat to German politics and society.

Germany is in a stronger economic and geographical position than many other countries targeted by China’s intelligence services.

For years, Chinese President Xi Jinping’s rhetoric on the international stage convinced Germans to ignore his true foreign policy agenda – and to act on a false picture of the CPC by pursuing a policy of Wandel durch Handel (change through trade). Consequently, there is a pressing need for German leaders to reassess Chinese foreign policy and to effectively communicate the knowledge they gain from the process to the public. In this, Germany would particularly benefit from close communication with countries neighbouring China in which the CPC has extended its influence, such as Australia and Japan.

Moreover, Germany needs to avoid becoming too dependent on Chinese infrastructure in critical areas. For instance, Duisburg, in north-western Germany, is the site of the world’s largest inland port and one of the terminals of Xi’s Twenty-first Century Silk Road. It will soon be a Huawei “smart city” that hosts its data in a “Rhine Cloud”. Analysts have generally avoided the term “debt-trap diplomacy” in reference to wealthy countries such as Germany but, given that Duisburg is part of the rust belt and has an unemployment rate four times the German average, it is entirely possible that the city could become too reliant on China. This economic leverage, coupled with the increased risk of data theft that may come with reliance on Huawei equipment, could give leverage to an authoritarian government that seeks to shape Europe.

Nevertheless, as Berlin increases its oversight of Chinese influence efforts, it should take care to avoid a Washington-style escalation of tension with Beijing. As the partnership between China and Germany has brought prosperity to both countries, a rise in tension would ruin Germany’s chances of cultivating a more reciprocal economic relationship – one in which German firms no longer face bureaucratic hurdles and legal uncertainty in the Chinese market.

Policymakers should also remember that Germany is in a stronger economic and geographical position than many other countries targeted by China’s intelligence services. Germany has not become heavily indebted to Chinese companies and, by resisting Washington’s advice, has avoided a hostile economic rivalry with China. Situated on opposite ends of Eurasia, the countries are not competing over territory nor directly clashing in the same waters. Merkel should take advantage of this unique position of strength to lead the EU in a united policy on China and to push for a more balanced bilateral relationship.