Germany says Chinese trade could create a risky dependency

The German government approved its first national strategy on China on Thursday, identifying the Asian superpower as a “partner, competitor and systemic competitor” and calling for significantly less dependence on Chinese goods while maintaining economic ties worth hundreds of billions of dollars.

The new policy It calls for export controls and scrutiny of investments by German companies doing business in China to protect the flow of sensitive technology and knowledge.

Chancellor Olaf Scholz’s government adopted the 64-page document on Thursday, after months of discussions and delays stemming from disagreements within his three-party coalition over how difficult their position should be. The strategy echoes themes from the European Union urging “de-risking” relations with China.

We don’t want to separate from China, but we want to reduce our risks. “This includes strengthening our European economy as well as reducing dependencies,” said Annalina Berbock, Germany’s foreign minister. “The more diversified trade and supply chains are created, the more resilient our country will be,” she added.

The strategy takes a tougher line on China than the governments that lead it Chancellor Angela Merkel, who saw China as a huge growth market for German goods.

This push created a close relationship with China, with more than a million people German jobs Which directly depend on China, and much more indirectly. Almost half of everyone European investments In China from Germany, and Almost half Many German manufacturers rely on China for part of their supply chain.

But supply chain problems sparked by the coronavirus pandemic have revealed how dependent Germany and Europe are on China for goods, from medicines to processed minerals essential to green technology. Russia’s invasion of Ukraine last year also raised fears that Beijing could abuse its economic dependencies in similar ways to the way Moscow weaponized Germany’s reliance on its natural gas exports.

Under the strategy, companies are called upon to “stronger grasp” the geopolitical risks of doing business in China, to prevent the need to tap into state funds in the event of a crisis. The government said it was working on incentives to encourage German companies to diversify outside of China.

“We understood that it was in our national interest to take care of our economic security,” Ms. Berbock said, adding that Germany could not find itself needing to “pay more than 200 billion euros out of dependence”. , as happened when Russia cut off the flow of gas to Western Europe.

But whether and how companies will support the policy remains a question. Some mid-sized, family-led firms said geopolitical risks complicated their business in China, but leading industrial firms, such as BASF and Volkswagen, have responded to calls to “de-risk” by doubling their investments in China, but localizing them.

“The Volkswagen Group will continue to invest in China,” Ralf Brandstätter, Volkswagen China President and member of the board, said in response to the policy announcement.

“China is a dynamic growth market and a major driver of technological innovation,” he said, adding that “ultimately it is crucial to the global competitiveness of Volkswagen and the entire German auto industry.”

The strategy will now pass to parliament, where lawmakers are expected to begin debating it when they meet again in September. The policy is intended to guide companies, government agencies, universities and other institutions in their dealings with China and serve as a response to Beijing’s foreign policy.

Last month, Germany unveiled its first National Security Strategy, calling for “strong” defense and other policies, as part of an effort under Schultz’s leadership to coordinate the country’s foreign, domestic and economic policies. But the government has cut China out of the overall strategy, given its importance as Germany’s largest trading partner, with bilateral trade last year amounting to nearly 300 billion euros, or about $334 billion.

The strategy makes it clear that Berlin has no intention of changing the “One China” policy, which urges that only “peaceful means and mutual consent” can resolve Beijing’s claim over Taiwan. “Taiwan is important to Germany as a location for German companies and as a trading partner,” she said.