A tall order: Germany’s comprehensive China strategy
A tall order: Germany’s comprehensive
China strategy
WRITTEN BY CHRISTIANE HEIDBRINK
24 October 2022
For the first time in history, the German government is drafting its own China strategy. As per the current coalition treaty: “to be able to realise our values and interests in the systemic rivalry with China, we need a comprehensive China strategy in Germany within the framework of the joint EU-China policy”. In their respective election campaigns, the coalition partners the German Social Democrats (SPD), the Greens (Alliance 90/The Greens), and the liberal Free Democratic Party (FDP) promised to rethink Sino-German relations. Although much is still up in the air, it is becoming apparent that Chancellor Olaf Scholz is trying to strike a balance between cooperation and tough-talking.
Partner, competitor, and systemic rival
The new framework of Sino-German relations is designed along the EU ‘triad’ of perceiving China simultaneously as a partner, a competitor, and a systemic rival. Too often, the debate lapses into reducing the complexity of the issue by pigeonholing China into one role rather than examining the ‘triad’ simultaneously. An effective strategy should embrace the ‘triad’ of partner, competitor, and rival from all angles in order to formulate sophisticated policies on China. To illustrate this, in environmental and climate protection, China is often assigned the role of ‘partner’. Simmering below the surface, there are conflicting goals which arise that a German-China strategy has to react to.
To date, there has been no response from the German government regarding China’s Green Belt and Road Initiative (BRI). The Green BRI provides opportunities to advance international climate goals, but there are concerns that it will serve greenwashing purposes. Beijing’s preferred approach of voluntary participation contrasts with the Western model of binding commitments in terms of climate action and environmental protection. To ensure that ‘green’ does not remain a mere rhetorical label, Berlin could actively promote third-party market projects. Criticism of the BRI, such as the lack of transparency, insufficient reporting, or poor stakeholder involvement, could be addressed in tandem by leveraging German experiences and mutually agreed project standards.
For the first time in history, the German government is drafting its own China strategy. Although much is still up in the air, it is becoming apparent that Chancellor Olaf Scholz is trying to strike a balance between cooperation and tough-talking.
With regard to the BRI in general, Germany seems to be pursuing a strategic ambiguity to retain as much leeway as possible. However, implicitly, the Scholz administration has curtailed Berlin’s manoeuvrability by underlining that the EU’s Global Gateway Initiative is an important instrument for promoting high-quality infrastructure development. The Global Gateway is seen as an alternative or competition to the BRI. The G7 Partnership for Global Infrastructure and Investment, launched in June 2022, presents the latest rival of the BRI. While the BRI is already materialising on the ground, Western initiatives still need to live up to their promises. The upcoming China strategy should chart an approach toward the BRI that provides German civil society and economic actors with sufficient political guidance but also the freedom to explore synergies.
Tightening domestic oversight
Currently, much of the German debate revolves around reducing vulnerabilities vis-à-vis China. This concerns the security and transparency of supply chains, as well as foreign investment. Even before the COVID-19 pandemic and the new German government, the country’s policy had tightened control in these areas. For instance, in 2021, the parliament passed the Supply Chain Law. This law requires companies to ensure compliance with human rights and environmental protection among their entire supply chain as of 2023. The law is political ‘dynamite’, particularly considering the Xinjiang human rights situation. Companies such as Adidas, Puma, Bosch, BMW, Volkswagen, Siemens, and BASF will have to review their economic links to the region. Even before the law, public pressure had led some companies, such as Adidas, to change suppliers. As a result, calls to boycott Adidas were issued in China.
In terms of foreign investment, the German Foreign Trade and Payments Regulation has seen a major overhaul over the last few years. Acquisitions by non-EU stakeholders of more than 10 per cent of a company’s shares or assets operating in critical infrastructure must be reported and reviewed by the Federal Ministry of Economic Affairs and Energy. Defence and IT security companies are required to report any foreign acquisitions of 10 per cent or more of their shares or voting rights to the ministry for review. Both regulatory adjustments demonstrate how Germany wants to safeguard its position, not only vis-à-vis China, but in terms of global competition. The government is on the right track in terms of balancing a tougher regulatory framework at home while maintaining transparent conditions for foreign investments and trade as a bedrock of power.
Diversifying instead of decoupling
As a response to economic challenges, the media frequently debate decoupling from China. Supply chain disruptions in the COVID-19 pandemic exposed great interdependence, leading to calls for diversification in order to bolster resilience. At the 13th Mechanical Engineering Summit on 11 October 2022, Olaf Scholz emphasised that he believes diversification rather than decoupling is the right way forward. According to him, business should explicitly continue to be conducted with China. While the Chancellor’s statement was welcomed by China, it still holds the risk of introducing decoupling policies under the milder term of ‘diversification’. In fact, as economic dependencies between Germany and China are highly sector-specific, broad-based decoupling is neither needed nor does any good. Some studies even predict major supply chain disruptions as a consequence of decoupling obligations. In light of recent events, such as COVID-19, the China-US trade war, and the Ukraine war, German companies have already reacted and shifted towards diversification of suppliers and stockpiling. This has led to greater sensitivity to exogenous shocks among firms, citizens, and politicians alike.
Reportedly, the German Foreign Office is seeking to nudge companies in the desired direction to set incentives instead of resorting to prohibitions or sanctions. What these incentives might look like is not yet known. For example, tax breaks for reshoring measures or tariff relief for supplies from alternative sourcing countries could be options at hand. To this end, the federal government would be well advised to support the steps that domestic companies have taken to promote their resilience, as already happened in the past. Regarding a China strategy, this includes 1) formulating sector-specific objectives, 2) balancing economic interests against political ambitions, and 3) formulating short-, medium-, and long-term goals for Sino-German economic relations. Any goals should take into account the Chinese Dual Circulation Strategy, which has received little attention in Germany’s political discourse until now.
Germany in the Indo-Pacific
What has gained momentum in discussions on China is the security debate over the importance of the Indo-Pacific. In September 2020, during Chancellor Angela Merkel’s last term in office, Germany published its Indo-Pacific Guidelines. It indicates focal points for a future China strategy, such as securing open shipping routes through maritime choke points, protecting the environment, engaging in arms control, improving market access, and conflict mediation. Berlin’s approach is to promote security, trust, and cooperation through multiple dialogue channels. Traditionally, Germany has relied on its formidable diplomatic and economic ties to China and Asia. The outbreak of war in Ukraine and Olaf Scholz’s promise of a special defence fund of EUR 100 billion have intensified debates about Germany’s future military engagement in the Indo-Pacific. But to avoid a spiralling security dilemma in the region, it seems advisable to deal with military issues like arms control and conflicts in the South China Sea with increased diplomatic efforts.
Even before announcing the special defence fund, Germany had increased its military spending in recent years — although it still falls short of the NATO goal of investing 2 per cent of its GDP. Its military modernisation raises the expectations of Germany’s security allies, first and foremost the USA and France. Related considerations will be incorporated into Germany’s new national security strategy, which is also currently being prepared. Most likely, the content of these security guidelines will be based on the NATO 2022 Strategic Concept. Based on points 13 and 14 of the NATO strategy, the future China strategy should develop proposals for strengthening international regimes in the space, cyber, and maritime domains.
Reducing systemic rivalry
According to Jens Plötner, foreign and security policy advisor to Chancellor Olaf Scholz, Germany's goal should be to reduce systemic rivalry. It is to be expected and also welcomed, that Germany’s China strategy will focus on mitigating tensions in times of great power competition. Being itself an export power, Germany has benefitted from China’s economic opening. But Chinese sanctions against Lithuania and Australia have raised concerns about the exploitability of economic ties. As an economic powerhouse, Germany is stuck in a middle between the US and China. Although this creates vulnerabilities, it enables Berlin to arbitrate between the parties. Consequently, the Scholz government should devise a China strategy that takes advantage of its own strengths in the role of a ‘broker of interests’.
This brokering role has characterised the entire course of relations with China, in which Germany always walked the tightrope between economic pragmatism and values-oriented foreign policy. Accordingly, the intricate balance will be reflected in Germany’s comprehensive China strategy, which will likely appear in the first half of 2023. When Chancellor Olaf Scholz travels to China in early November, it will be interesting to observe which topics he puts on the agenda. Although this year marks the 50th anniversary of diplomatic relations between Germany and China, there is little sign of celebration. The coalition treaty was even described as “tough-talking”, so it is likely that Chancellor Scholz will stay on this course in the forthcoming China strategy and during his trip to Beijing.
DISCLAIMER: All views expressed are those of the writer and do not necessarily represent that of the 9DASHLINE.com platform.
Author biography
Christiane Heidbrink is a research fellow at the Center for Global Studies (CGS) at the University of Bonn. As the project manager of the Bonn Power Shift Monitor (BPSM), she explores the political implications of global power shifts, especially China's international rise. She is now pursuing a PhD in security discourses on China's Belt and Road Initiative and conducts research in the field of security policy. Image credit: European Union, 2022 Copyright.