Germany’s new China policy

Andrew Small: Now that the new coalition government in Germany is officially in place, I’m hoping you can make sense of what we can expect on China policy for observers who don’t understand all the intricacies and details of German politics. Why do you anticipate that, on China, this government will be different from its predecessor?

Janka Oertel: First and foremost, the new German government’s China policy will be different because times have changed – and the coalition treaty reflects this well. With its reference to the systemic competition that we find ourselves in, Germany is catching up to and defining the new reality that has emerged over the last few years. If you zoom out from the China question, the agreement puts a shared understanding of this new reality at its centre. While the foreign policy chapter of the coalition agreement may be comparatively brief, the international dimension of German policymaking is referenced and reflected throughout the text. This will be important if the new coalition really wants to drive forward a foreign policy that is more active, values-based, and centred on human rights. There is an acute awareness that most issues this foreign policy will touch on – from digitalisation to climate change and the energy transition – now have a serious China dimension. Business as usual is not the right answer for that – and this seems to be the consensus between all the parties that will chart Germany’s political course over the next few years.

AS: But isn’t the coalition treaty just a paper agreement? Why do you think it will matter once the governing really begins? How does this compare to the last coalition agreement? And what actually happened in the last few years?

JO: In German, there is a saying “Papier ist geduldig” – which roughly translates into “paper is patient”. But this new government does not seem patient. It wants to do things; it also wants to prove that it is possible to modernise Germany – “dare more progress” is its motto, after all. It will want to move to put words into action. In this sense, the language agreed on in the coalition treaty is very important because these were hard-fought compromises. And, at the same time, it will be difficult to go back on them. If you look at the coalition treaty from eight years ago, China was lauded as an important strategic partner for Germany. The last coalition treaty, from four years ago, still mainly refers to the economic dimension of the relationship, which it frames as a strategic partnership. Now, systemic competition is referenced in the introductory section of the coalition agreement. In the few sections that are allotted to foreign policy directly, the situation in Taiwan, China’s human rights violations in Xinjiang, and its policies vis-à-vis Hong Kong are prominently mentioned. That’s not only new. That is surprisingly clear.

AS: But, on China, won’t the real decisions be taken in the chancellery? How much power can the Greens really exercise from the ministries they hold? And where are Olaf Scholz and the Social Democratic Party on this? There have been reports of them trying to water down the language on China in the coalition negotiations and send signals of policy continuity to Xi Jinping. Is that not indicative of where their instincts are likely to be?

JO: I am not sure why there is this obsession with trying to find dividing lines between Scholz and the rest of the government. Yes, he has been less outspoken on China, but his party agreed on a position paper on China last year that leaves very little doubt about the direction of travel. The Social Democrats were very clear, for example, when it came to restrictions on Chinese vendors for 5G telecommunications infrastructure. This is not about party preferences; this is about a realistic assessment of the world we live in. And when it comes to the “real decisions”, well, I guess that depends on what you define as the “real decisions”. The Greens, holding the foreign office and the economics and climate ministry, will have a pretty “real” portfolio. And the Free Democratic Party – with the education and science ministry, and the finance ministry – is going to have a handle on the key policy decisions about the future relationship with China, including with regard to research and innovation cooperation. I find bemusing the idea that the chancellor – and one who is new in that job – should be able to pursue a policy that would be in full opposition to them and to the coalition positions that were just agreed on. That seems highly implausible. Obviously, there will be nuances and disagreements about concrete policy questions and, sometimes, about the tone that is struck. But what no one has explained to me so far who has been trying to make the case that “everything will stay the same” with Scholz is: who would be interested in that? German business? Well, they have changed their positions on China quite substantially over the last two to three years. The public? That seems unlikely given that less than 10 per cent of the German public, according to recent polling by the Körber Foundation, regard China’s growing international influence as a positive dynamic. Germany is not in for a China policy revolution, but certainly a significant recalibration. And this course correction seems like a highly pragmatic policy decision.

AS: But the standard line from critics is that German business will weigh in to make sure things stay pretty much the same. Can you explain where corporate Germany stands on China right now? On the one hand, we see these very striking papers on China and Asia from the Federation of German Industries; on the other, we see certain industries with huge interests in the Chinese market that seem to be important voices on China behind the scenes.

JO: China is changing. Under Xi, it is growing ever less likely that many European businesses will continue to be successful (or truly European) in the Chinese market. Chinese companies have become formidable competitors in global markets. The German Federation of Industries is pointing very forcefully to this dynamic and is calling on businesses and political leaders to take the necessary steps to ensure the long-term resilience and prosperity of German and European industry, and the broader economy. This does not mean that all German companies will leave the Chinese market. Nor will it mean “full decoupling”, which no one is advocating. It will, however, entail a reassessment of strategic dependencies and the need for diversification. The glory days of German business in China may be over, but that does not mean that the only response is the other extreme. China has global weight, and is a decisive actor on many of the key challenges that we currently face. That requires working with China where possible, but also not underselling European power. As Europeans, we have leverage. It is in our interest to shape the international economic environment together with our partners in a way that allows for our idea of a free-market economy to thrive in the decades to come. At present, that is far from guaranteed.

AS: Critics would still say that a few industries have outsized influence and find ways to prevail on German governments not to upset China, though. They are aware of precisely the issues you describe, but have become dependent on the Chinese market and don’t want the government to create any obstacles to their sales in the coming years.

JO: There are companies that are worried about significant disturbances in their business relationships if there is a massive increase in political tensions between Germany and China. The situation in Lithuania is an indication of the forms of economic coercion that Beijing can exercise. But a full breakdown of all trade, as attempted with Lithuania, is not a realistic scenario for Germany. China has far greater dependencies on the German economy – and it will choose its battles wisely. There is another element of this that is changing as China’s push for indigenisation intensifies: for some German companies, there is already a question of how ‘Chinese’ they need to become to retain a significant presence in the Chinese market. This is raising obvious issues about how much Berlin will continue to provide political support to German companies that are increasingly innovating in China, providing most of their jobs in China, using Chinese supply chains, paying taxes in China, and reinvesting in China.

AS: The language in the agreement is unusually clear on Germany’s external partnerships when it comes to China – particularly notable in its reference to transatlantic cooperation but also in its suggestion of an even stronger European flavour. There have been accusations that Germany has a privileged bilateral relationship with China that doesn’t always take wider European interests sufficiently into account. How do you expect the new government to deal with Washington differently, and how might it reblance its approach to EU strategy on China?

JO: The coalition treaty tasks the government with formulating a new China strategy, which is supposed to be much more deeply embedded in German policy on the EU. That includes the controversial bilateral consultations between the German and Chinese governments, which have been criticised in many other European capitals. This new German government is pro-European at its core – and that could infuse greater energy into a lot of the current initiatives in Brussels designed to make Europe a global actor that is stronger and more capable. The transatlantic agenda will continue to be challenging. A lot of damage has been done to this crucial relationship over the last few years – so, we are still in the process of rebuilding. But the aim here, too, is to “build back better”. Transatlantic China policy has to be put on a new footing. The EU-US Trade and Technology Council is a good start for that; it will serve as a key forum for all the difficult debates that are about to take place. But just to bring this back to where we started: it was striking that, in the press conference presenting the coalition treaty, Scholz singled out France and the United States as Germany’s key partners. The transatlantic relationship is a core interest for this new government. And it is no accident that the China section of the coalition treaty refers to Germany’s partnership with the US. Germany will need the US to help secure its long-term interests. But the US will also need Germany. There is a real opening now for a self-confident European approach that embraces the China challenge to invest in Europe’s strengths and competitiveness. So far, the new German government seems ready to take on this task.