Berlin Despite the geopolitical tensions, China wants to work more closely with Germany. Both countries should “bring relations to an ever higher level,” said Chinese Prime Minister Li Qiang after the German-Chinese intergovernmental consultations in Berlin. Germany and China could play a “role as a stabilizer” in the global economy. For his part, Chancellor Olaf Scholz (SPD) emphasized that the federal government had “no interest in economic decoupling from China”.
Unlike the last consultations in 2018, however, this time there was no joint statement. Only a few cooperation agreements remained of the usual multi-billion euro economic agreements. The federal government wanted to avoid the impression that relations with China were simply going on as before – the differences with the Chinese leadership are too great.
But not only the political risks are increasing, China is also increasingly becoming an economic risk. German companies in the People’s Republic currently rate the country’s fragile economic situation as their greatest risk. At the same time, companies are increasingly exposed to Chinese economic espionage, the intelligence agency warns in a new report. Because of this aggressive approach, the EU Commission is also calling for more distance from China in a new strategy for “economic security”.
The seventh joint German-Chinese government consultations were the first face-to-face meeting in this format since the corona pandemic. It was also the first overseas visit of the new Premier Li Qiang. He immediately sent a sign of strength. Questions from journalists were not allowed for the first time in German-Chinese government talks – under pressure from China. Under Chancellor Angela Merkel, involving the press was a condition that had always been wrested from the Chinese.
Scholz said they talked about “opportunities for cooperation on global issues” and about “economy and trade”. Germany and China had agreed on a climate and transformation dialogue, and declarations of intent on electric and hydrogen mobility were also signed on Monday.
China’s role in the Ukraine war
The talks also discussed China’s role in the Ukraine war. Since the beginning of the war, Beijing has supported Russian President Vladimir Putin, which caused serious irritation in Berlin. According to Scholz, he once again appealed to the Chinese government “to exert even greater influence on Russia in this war”. On the other hand, the Chancellor did not address the conflict over Taiwan – apparently out of consideration for his guest.
Scholz: “No interest in economic decoupling from China”
Relations between Berlin and Beijing have deteriorated significantly since the last meeting in 2018. Restrictions on civil liberties in China and Beijing’s threats to invade Taiwan have raised major concerns in Berlin. The shock of the war of aggression against Ukraine and the halt to Russian gas deliveries have also meant that the German government does not want to make the same mistake twice – and wants to reduce economic dependence on China.
The federal government actually wanted to slim down the consultations. But here, too, the Chinese ideas prevailed. Around 20 ministers took part in the meeting of the two governments under the motto “Acting sustainably together”, a similar number as in the past.
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The day before, the Chinese prime minister had invited the heads of well-known German companies to a “tea talk”. China retained total control: At the beginning of the meeting, only Chinese media were admitted, as can be seen from the letter of invitation to German companies. In China, pictures were shown of Li greeting the 11 CEOs lined up one by one and then sitting them down at the square table.
Secret agreements with big corporations
Unlike in 2018, no deals worth billions were signed this time, but general “Memorandums of Understanding”, i.e. declarations of intent, between Beijing and Airbus, Mercedes, Volkswagen, BMW and Siemens.
These declarations of intent came about under pressure from the Chinese, as people familiar with the processes confirmed to the Handelsblatt. Li said in the press statement that more than ten cooperation agreements had been concluded, including political ones, for example on climate protection.
Discussions are mainly about the strong fixation of large German corporations on the Chinese market. BASF recently invested ten billion in the People’s Republic, and other companies such as Merck, Siemens and BMW also want to strengthen their presence there. The inflow of German direct investments into China reached an all-time high of 11.5 billion euros in the previous year. With a trade volume of almost 300 billion euros, China was Germany’s largest trading partner for the seventh year in a row. In EU circles, it is said ironically that German industry is “disconnecting from the government” with regard to China.
Because the federal government has slowly but steadily tightened its China policy since last year. Economics Minister Robert Habeck (Greens) and Foreign Minister Annalena Baerbock (Greens) in particular are committed to a new, tougher approach to China and are putting pressure on Scholz.
In his typical manner, the chancellor is proceeding cautiously, also out of concern – given the challenge of breaking free from dependence on Russian gas imports – that he will not open up a second economic flank with China at the same time.
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In the meantime, however, Scholz has also made “risk minimization” the mantra of his China policy. He also follows a sentence he once said about himself: “I’m liberal, but not stupid.” Last fall, the federal government prohibited the takeover of the chip manufacturer Elmos by a Chinese company.
Further steps could follow
In the spring, the federal government rejected an application from VW for state guarantees for investments in China with reference to the human rights situation in the province of Xinjiang – a procedure that was unique up to that point. A few months later, the federal government withdrew upper limits for state guarantees for investments in China.
In the future, companies will be able to report investments in China to the government – and politicians can ban them if governments see their own security interests affected.
(Photo: IMAGO/Jürgen Ritter)
Further steps could follow. At their summit in May, the G7 states decided to tighten controls on foreign investments by domestic companies in China.
According to this, companies should report investments in China to the government in the future – and can be prohibited by politicians if governments see their own security interests affected. Economics Minister Habeck has already spoken out in favor of such a “screening” of foreign investments.
The issue of investment restrictions is said to have been raised with concern by the Chinese side at the government consultations. Likewise, the expected restrictions on the use of Chinese technology in the fast 5G mobile network.
The German economy appears to be relatively unimpressed by the federal government’s new course towards China. She also wants to reduce risks and produce more “in China for China” in order to protect herself against the interruption of supply chains – and possibly also against sanctions.
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However, not a little has changed in the basic “Go East course”. Agatha Kratz, China expert at the Rhodium Group, observes that the interests of German business and German politics are becoming more and more divergent when it comes to China. “Times have changed for everyone. But of course that doesn’t mean that the German economy is no longer interested in China – it is very much interested.”
Decoupling the economy from politics
According to Sebastian Heilmann, China professor at the University of Trier and co-founder of the China think tank Merics, the change from “decoupling” to “derisking” is understood in the economy as “license to give” for the intensified localization of the China business. “Large listed companies will also ignore official China policy as long as there is no binding government regulation due to the short to medium term time horizon of company managements.”
Confidence in the Chinese market has suffered greatly in recent years.
(Photo: Getty Images)
The attitude of the companies suits the Chinese leadership very well. As far as risk assessment is concerned, companies should “take control” themselves again, Premier Li also demanded on Tuesday, according to the state news agency Xinhua. The biggest risk is not cooperating, according to Li. The discussion about dependencies should not be “artificially exaggerated”. China expert Manoj Kewalramani from the Indian think tank Takshashila commented that the statements were an attempt by Beijing to resist calls for derisking.
But despite all the appeals from the Chinese government, trust in the Chinese market has suffered greatly in recent years. The hopes that China would quickly regain its former strength after the end of the pandemic and get German exports booming again have not been fulfilled so far.
In 2022, as a result of the corona lockdown, the world’s second largest economy had grown more slowly at three percent than it had in decades. For this year, too, the government in Beijing has set itself a rather moderate growth target of five percent by Chinese standards. However, the latest interest rate cuts show that there is now concern in China that this target may also be missed. Important leading economic indicators were worse than expected in May, and industry in China has recently lost strength.
>> Read more here: Anti-espionage law worries German companies
Although the economic recovery has lost momentum, Li expressed optimism about future developments on Tuesday. The head of government assured that Beijing would push ahead with the policy of opening up to the outside world and modernizing – even though China is increasingly focusing on independence.
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