The China factor in the German election

Lead time: How Germany should move on from Merkel | China Policy by ECFR ON AIR

Germans are known for their fondness for the status quo. The mere fact that Chancellor Angela Merkel has been in office for 16 years speaks volumes about their desire for fundamental change.

But, while consistency in personnel has been a defining feature of the chancellery, the world around Germany has changed massively during this period. And it has not developed in the direction that most Germans would have preferred. This holds particularly true for China, Germany’s largest bilateral trading partner.

In the last few years – especially since the beginning of the pandemic – the relationship between Germany and China has been increasingly fraught. Beijing has not only become even more aggressive internally in its dealings with Hong Kong and Xinjiang but, by using its greatly enhanced economic power, has also started to lash out fiercely in the Indo-Pacific region beyond its own borders using new forms of economic coercion to pursue political interests. In this context, Europe has also increasingly become the target of assertive diplomacy and predatory business practices.

These shifts in Beijing’s approach – designed to secure the rule of the Communist Party of China (CPC) for not only for the next few years but decades to come, and to shape the world in accordance with the CPC’s interests – are so pronounced that it requires all those who interact with China to rethink their response. And these changes are palpable not only for political elites; they have now caught the attention of European voters, including Germans.

According to data compiled by the European Council on Foreign Relations’ Re:shape Global Europe initiative earlier this year, a staggering 47 per cent of Germans regard China as a rival or outright adversary that is in conflict with Europe. This is in line with public perceptions in other EU member states: across the union, Europeans who see China as a true partner that has shared interests and values with Europe are becoming marginalised. Those who define partnership with China as necessary in certain areas still form a plurality in many member states, but no longer do so in Germany (or France).

Additionally, while German policy vis-à-vis China is often accused of being too focused on their economic relationship, German voters seem quite principled about the kind of approach Europe should take. Fifty-two per cent of Germans say that the European Union should strongly criticise China’s violations of human rights, democratic values, or the rule of law, exceeding the EU average on this question.

But ECFR’s polling data indicate that, in Germany, the trade-off between trade and human rights is still a commonplace argument. The German chancellor has continued to follow a highly cautious approach vis-à-vis China, which implies that being clearer about European interests and values will come at an economic cost – that, in other words, if Germany was to call out China’s policies on Xinjiang more forcefully, this would automatically cost jobs at Volkswagen in Wolfsburg. However, Berlin has been less clear about the empirical basis for these assumptions. What are the direct costs and benefits that are actually measurable? How much are German jobs dependent upon German companies being successful in China, reinvesting in China, and innovating and creating jobs in China? And what are the longer-term economic costs of not changing tack?

Despite all the changes that have led the EU to revisit its approach to Beijing on various fronts – from investment screening to the 5G security toolbox and processes to handle market-distorting foreign subsidies – the union’s current policy remains an eclectic mix of the various eras of interaction with China. The EU is ahead of the curve and more hawkish in its approach on some issues, such as its planned measures on competition policy. But, in other key areas, it remains stuck in old path dependencies of incentivising trade and cooperation that are based on false assumptions about China’s political and economic trajectory.

The Chinese leadership has defined its own decoupling and autonomy agenda, which is enshrined in President Xi Jinping’s speeches and the party’s latest five-year plan. China is focused on enhancing indigenous technological and production capabilities, as well as its global market dominance in key sectors.

In the past few years, China’s strategic repositioning has become ever more apparent. In a nutshell, China now aims to make itself less dependent on the world, while making the world more dependent on China – to deter any coercive measures or undesirable policies of other states. The CPC is aggressively pursuing its interests and enhancing its control over the economy. At times, the party even acts against China’s clear economic interests, as demonstrated by the recent blows it has dealt to various Chinese tech companies – from Alibaba to Didi.

The long-term prospects of European business in and with China look far from rosy, particularly in the high-tech and advanced manufacturing sectors

For German industry, which is heavily invested in China, this shift is bad news. In the coming years, China’s regulatory environment will become even more complex, due to Beijing’s desire to squeeze international companies out of the market or to make them more Chinese. The long-term prospects of European business in and with China look far from rosy, particularly in the high-tech and advanced manufacturing sectors.

Europe and China cannot end their mutual dependencies quickly. Nor would doing so be in either side’s interest. But a slow and conscious disentanglement from China in key industries, and greater diversification away from the country in others, is likely the most sensible European policy. Systemic rivalry is looming larger and is now conditioning the way in which economic competition plays out and the scope of necessary cooperation even in areas that once seemed less controversial, such as climate policy.

So, what does this mean for Germany’s China policy after the Bundestag election in September? Arguably, the status quo in Germany is still very good in comparison to that in many other EU member states, which have gone through significant economic and political turmoil since the euro crisis, particularly during the pandemic. But one thing is becoming increasingly clear: even if Germans remain interested in defending this status quo, it will be increasingly hard to maintain their current level of prosperity – and security – without charting a new course on China.

The policies of the Merkel era that focused on enhancing and deepening trade relations with China, while hoping that the country would slowly adapt and integrate into the rules-based international order, made sense at the time. There were significant opportunities for European, particularly German, companies; there was a spirit of reform, particularly among Chinese economic elites; and there was huge momentum for building closer relations. But, as with the chancellorship of Merkel, that time is gone. Yet, Xi Jinping and the CPC are here to stay.

Policy adjustments will, therefore, be necessary not least to achieve the key economic objectives of enhancing German companies’ business opportunities, protecting the industrial base, retaining an innovative edge, and providing jobs at home and abroad. China policy and Europe’s broader response to Chinese policies in cooperation with partners across the Atlantic or in the Indo-Pacific – which one could frame as “because of China” policy – has moved to the centre of the political discourse in Berlin. In the election campaign, it has received particular attention from the Greens’ chancellor candidate, Annalena Baerbock, but is also increasingly acknowledged in Germany’s conservative and social democratic circles. It seems that there is an emerging consensus that things will have to change. The good news is that, at least on China, the German public seems ready for it.