How Beijing’s dirigisme inspires Brussels and Berlin

Security, explains the Green politician, not only includes the “ability to defend oneself in a military sense”, but also a “strong economy”. Only: It is increasingly uncertain how long Germany will continue to be characterized by a strong economy. The business basis for success as an export nation collapses. The international market is becoming the playing field for politics, the world is becoming more protectionist.

Berlin and Brussels are faced with the question of how to adapt the European prosperity model to a new era – that is what it is about when we talk about “economic security”. The answer leads to China.

The communist dictatorship studied the West in the 1990s and integrated entrepreneurial freedoms into its system. Now it’s the West, the Chinese recipes for success.

Dependent and blackmailable

The Europeans have recognized that they have become dependent and open to blackmail – Chinese methods of all things are supposed to help correct this. State support for key industries, strategic production targets and the targeted reduction of trade policy “vulnerabilities”: all of these elements can now be found in strategy papers in Brussels and Berlin.

The EU Commission made a start: “As geopolitical tensions are increasing and global economic integration is deeper than ever before, certain economic flows and activities can pose a risk to our security,” the Brussels authority warned in June in its “concept for improving economic security”.

There would be no energy transition without China – this is the main concern that drives the EU. When it comes to rare earths, China has effectively established a monopoly. 97 percent of lithium imports also come from the People’s Republic – an important raw material for car batteries. Since the decline of European photovoltaics, eight out of ten solar panels installed in Europe have been Chinese-made.

The federal government responded with the China strategy that Baerbock presented shortly before her summer trip and which focuses on “derisking”: the gradual reduction of precarious economic dependencies.

Derisking is far less economically disruptive than decoupling, which would come close to breaking off trade relations. Economists are still concerned. You warn against too much trust in industrial policy. Jeromin Zettelmeyer, director of the Bruegel think tank in Brussels, fears a drift towards “economic nationalism” and “deglobalization”.

This much is clear: neither politics nor business are prepared for the politicization of the economy in Germany. Globalization has brought high profits, especially to export-oriented companies in Germany, the government stayed out – only to suddenly realize how vulnerable the country had become.

From the Chinese point of view, it is a matter of course: the economy is a political instrument, if only because the Communist Party does not tolerate any centers of power next to it. Trade relations therefore not only serve to increase prosperity, they are also a potential means of exerting pressure.

>> Read here: Berlin’s new China plan – These are the most important points for the economy

China has created an authoritarian capitalism that exploits the openness of trading partners to gain political, economic and technological advantages, and which is being copied by powers like Russia. A system alternative to liberal democracy. State and party leader Xi Jinping proudly calls his model of rule: socialism with Chinese characteristics for a new era.

economy as a weapon

Europeans felt the power of the Chinese in the pandemic as China used supplies of masks and protective clothing to launch an influence campaign. It was much harder on Japan, which ten years earlier had the experience of being punished by China with a delivery freeze for rare earths because of a foreign policy dispute.

“In some areas, China is already a market leader achieved,” states the federal government in its China strategy. The state leadership strives to “create economic and technological dependencies in order to then use them to implement political goals and interests”.

At the same time, Beijing is working “with reference to security interests to make itself less dependent on foreign contributions and supplies”. At least this goal is now being adopted by Germany and Europe. One could speak of a social market economy with Chinese characteristics.

Annalena Baerbock has meanwhile arrived in the French border town of Lauterbourg with the Foreign Office coach. After attending vocational school, a performance with her counterpart Catherine Colonna marks the end of her summer trip.

Baerbock recalls the energy crisis and Russia’s plan to blackmail Europe by withdrawing natural gas. “We Germans in particular,” she says, did not want to realize for a long time, despite warnings from neighboring countries, “how vulnerable we are if we make ourselves unilaterally dependent on autocratic societies.”

Derisking in practice

Baerbock is serious about derisking, as is EU Commission chief Ursula von der Leyen. Brussels has proposed the “Raw Materials Act”, with which Europe wants to establish new raw material partnerships, mine its own mineral resources and improve the recycling of valuable resources.

The “Net Zero Industry Act”, on the other hand, is intended to enable the EU to produce 40 percent of its annual requirement for emission-free technologies such as solar panels and batteries itself.

Finally, the “EU Chips Act” is already in force, and a contract for an Intel factory in Magdeburg has already been signed. The federal government is paying almost ten billion euros for the settlement.

Such major industrial policy projects are intended to make Europe more economically resilient, but they remain controversial. The change of course in economic policy shakes the EU’s self-image. It represents a break with the principles of rules-based world trade to which the Union has been committed up to now.

EU diplomats gossip about “Ursula’s Gosplan” – in the style of the central planning committee of the Soviets. In Berlin, opposition leader Friedrich Merz grumbles about a “green planned economy”.

>> Read here: subsidies for Intel’s Magdeburg plant is to rise to 9.9 billion euros

The Americans find the transition easier. President Joe Biden’s administration has broken with the economic beliefs that have underpinned US foreign and economic policy since the early 1980s.

The Secret of Bidenomics

Biden’s national security adviser Jake Sullivan has called for a “new Washington consensus” to gain the upper hand in the conflict with China. Free trade, deregulation and spending discipline, the original Washington consensus, have been replaced by interventionist policies that set limits on the free market, guide corporate decisions with subsidies and do not shy away from protectionist regulations.

The “bidenomics” put the EU under even more pressure. With the “Inflation Reduction Act”, their XXL subsidy package, the Americans are not only contesting market shares from the Chinese, but also from the Europeans. “Big, green and mean” is how the “Economist” describes Biden’s America – big, green and mean.

It’s hot and stuffy in the Lauterbourg town hall. Baerbock has finished her remarks. But France’s Foreign Minister Colonna would like to make one more point. Germany’s China strategy fits in well with the ideas of the EU and the French government, she praises. But: “We must also protect our sovereignty over democratic states.”

Anyone familiar with the French debate knows who is meant: America. In Paris, derisking is understood differently than in Berlin – as a mandate to become more autonomous, not to say more protectionist, and to distance oneself more economically from the USA. Baerbock is silent. No fundamental debate now, cool sparkling wine and Alsatian tarts are waiting in the courtyard, the minister is about to say goodbye to her vacation.

But the dissonant final chord of the summer tour makes clear the dimension of the challenge facing Europe. Internationally, the biggest economic upheaval since the Reagan revolution 40 years ago is taking place. Europeans are developing a new model of prosperity without having clarified what exactly they want to achieve with it.

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