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Time to end German-China love affair

Ashutosh Pandey
Ashutosh Pandey
September 7, 2021

For years Berlin has mollycoddled China in the hope that billions of euros in investments would prompt it to shun its authoritarian ways. Beijing's belligerence shows the tactic has backfired, says DW's Ashutosh Pandey.

German Chancellor Angela Merkel with Chinese President Xi Jinping
German Chancellor Angela Merkel didn't know when to stop courting BeijingImage: Michael Kappeler/dpa/picture-alliance

German Chancellor Angela Merkel can't be faulted for not giving her all to bring about a change of heart by Beijing. Her dozen trips to China during her 16 years in office are a testimony to her conviction in the principle of "Wandel durch Handel," or change through trade.   

German firms invested billions of euros in China, bringing with them critically needed manufacturing know-how to a rapidly advancing country. Heavily subsidized Chinese firms were allowed a free run in European markets for the longest time with many of them ending up acquiring strategically important local firms. The hope was that deep economic ties would prompt Beijing to give up its authoritarian politics and adopt liberal, democratic values.

Merkel's pampering, however, has failed miserably with Beijing turning for the worse under President Xi Jinping. It has been carrying out human rights abuses against the Muslim Uyghur minority in Xinjiang with impunity, clamping down on pro-democracy activities in Hong Kong, building illegal islands, bullying governments with trade wars, and trapping poor nations with debt.

DW Nachrichten TV | Ashutosh Pandey
DW business editor Ashutosh PandeyImage: DW

Keeping Beijing in good humor

Merkel's big failure lies in the fact that she didn't know when to stop courting Beijing, when to draw a red line. She sought to boost trade ties even on her last official trip to China, carrying with her a large delegation of German business leaders even as pro-democracy protests roiled Hong Kong.

In 2019, the Federation of German Industries (BDI), whose interests Merkel had been promoting in Beijing, described China as a "systemic competitor," concluding that it "will not develop into a market economy or embrace liberalism in the foreseeable future." 

Still, Merkel carried on with her pro-engagement policy even if it meant bulldozing through an investment pact between the European Union and China despite the latter not ratifying International Labor Organization conventions on forced labor, something human rights groups had sought amid alleged use of slave labor in Xinjiang.

Stronger China policy

With Merkel on her way out, Berlin should seize the opportunity and adopt a forceful position on China. Germany with its own harrowing history of Nazi crimes must seek to build an alliance with like-minded countries, including the United States and Japan, to make Beijing pay for suppressing human rights.

Maintaining the status quo is not an option. The new government will face increased pressure to strongly condemn and act against Beijing.

Berlin's tough stance against practices contrary to the EU's core values is likely to rally members who have been left frustrated by Merkel's business-at-any-cost approach and help the bloc finally adopt a common policy toward the Asian powerhouse.

The costs of dealing with China

Calling China's bluff

Much of Merkel's strategy was driven by a fear of a possible Chinese backlash against German firms active in one of the most lucrative markets. Perhaps she didn't realize that Germany has more leverage over China than it thinks it enjoys. That leverage increases manifold when Berlin works in tandem with its allies.

While China is Germany's biggest trading partner for goods with an annual trade volume of more than €200 billion ($237 billion), it's not the biggest destination for German goods. In other words, Germany buys more products from China than China buys from Germany. German companies employ more than a million people in China.

A 2015 study on Germany-China trade relations by the Bertelsmann Stiftung concluded that "Germany is not — as is generally assumed — significantly more dependent on China than China is on Germany." The Chinese consumer goods industry, whose low-cost products have made the country a global export powerhouse, is largely powered by German machinery. Germany could easily replace most of the products it buys from China with imports from other countries.

It's also important to realize that the Chinese economy, which has benefited immensely from globalization, is today more integrated with other economies than ever. This means that any pain inflicted by Beijing on a trading partner is likely to be felt even at home.

China is not done with siphoning off intellectual property from Western firms and acquiring critical technology know-how. In fact, it needs them even more as it realizes President Xi's goal of becoming a high-tech superpower. It can't afford to pick a fight with the EU whose technologies and capital have underpinned the Chinese growth story, especially as relations with the US and Australia sour.

Economic interests have taken precedence over values for far too long thanks to Merkel's obsession with keeping Beijing in good humor. It's time that changes.

Ashutosh Pandey
Ashutosh Pandey Business editor with a focus on international trade, financial markets and the energy sector.@ashutoshpande85