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Scholz's China challenges

DW's Clifford Coonan
Clifford Coonan
November 4, 2022

German industrial giants have grown reliant on China in the same way that the country became dependent on Russian gas. The consequences, DW's Clifford Coonan writes, could be just as potentially devastating for Germany.

Men before flags in red, black and gold; one flag is striped, the other starred
Scholz met with President Xi in China, where German companies have invested heavilyImage: Kay Nietfeld/dpa/picture alliance

Chancellor Olaf Scholz's visit to China illustrates Germany's dependency issues. Domestic industrial giants such as BASF, Siemens and Volkswagen have grown reliant on China in the same way that Germany became dependent on Russian gas — with devastating consequences.

Though global trade flagged in the past three years because of the pandemic, there appears to have been no effort by German firms to diversify elsewhere. 

Man in black shirt, black jacket and red tie looks at the camera
DW's Clifford CoonanImage: DW

A recent survey by the Ifo think tank found that nearly half of German industrial firms rely on significant inputs from China. German companies make up 43% of the European Union's foreign direct investment in China over the past four years. Chinese trade with Germany was worth a combined €245 billion in 2021 — up 15% on the year before. 

The defining moment of Scholz's visit to Beijing, the first by a Western leader since the outbreak of the coronavirus pandemic, came shortly after the chancellor met with Chinese President Xi Jinping.

In October, Scholz had pushed through the sale of a 25% chunk of Hamburg port to Chinese state shipper COSCO, despite opposition from state intelligence services and even his own coalition allies — including six Cabinet ministers.

Asked by reporters after his meeting with Chinese leader Xi Jinping and Premier Li Keqiang if the Chinese had appreciated his pushing through the sale of the port stake, Scholz snapped back frostily: "They didn't mention it. And neither did I."

For all his talk about reciprocity after meeting Xi, Scholz did not mention what would happen if a German firm were to try to buy a stake in a Chinese port.

Scholz's coalition allies were angry that Germany was encouraging closer links to an authoritarian power, just months after Berlin's wooing of Moscow to secure cheap Russian energy left Germany painfully exposed when relations collapsed following the invasion of Ukraine in February.

Friendly nations such as France and the United States were frustrated by what they saw as Berlin's going it alone, seeming to put Germany's economic well-being ahead of broader EU interests

And ordinary Germans are skeptical, too. An Infratest dimap opinion poll found that nearly 70% of Germans were disappointed by the sale of the Hamburg port, and nearly half wanted to roll back China ties.

'Change through trade'

Superficially at least, Scholz's visit was different. Politically, he was more outspoken than Merkel ever was. He pressed China on the government's tacit backing of Russia's invasion of Ukraine, mentioned China's oppression of the Uyghurs in Xinjiang and urged restraint on how Beijing deals with self-ruled Taiwan.

"Addressing human rights is not interfering with domestic sovereignty," Scholz said, referencing China's typical response to Western commentary on its appalling human rights record: Mind your own business!

But, in other ways, Scholz's visit was a straightforward throwback to the days of Angela Merkel and "Wandel durch Handel" — loosely translated as "change through trade."

Scholz, too, was heading a delegation of business leaders to Germany's biggest trading partner. He secured permission for vaccine maker BioNtech to sell its mRNA jabs to expats in China, though not to ordinary Chinese people.

Why Germany can't make up its mind about China

Resetting Germany-China relations

There are growing calls for a reset in economic relations between Germany and China.

Pandemic lockdowns, weak consumption and an ailing property sector have all clouded the investment outlook in China. The economy is growing at its weakest pace in four decades.

News that Xi had consolidated power around himself with an unprecedented third term as Communist Party supreme leader, installing his cronies in key positions, saw the yuan weaken to a 14-year low. Reform and opening up in China look dead in the water.

Tough corporate environment

Social media were abuzz in the past few days with footage of thousands of workers leaving the world's biggest iPhone factory, Foxconn in Zhengzhou, to escape quarantine.

Hazmat-suited pandemic workers, looking for all the world like Star Wars stormtroopers, and some masked police tried to stop them, but to no avail.

What if these were workers for BMW or Adidas voting with their feet? How would German companies defend their being blocked from leaving their workplaces, or explain to shareholders how Xi's repressive zero-COVID policy, which has strangled economic growth, was affecting the supply chain. 

Does China care?

There is a growing sense that China doesn't care what the West, possibly with the exception of the United States, thinks of it.

And Wall Street and the financial markets don't care massively either.

Capitalist bankers are rushing to embrace Xi's reboot of the "socialism with Chinese characteristics" slogan.

As long as Germany is so dependent on China economically, its efforts to encourage reform are doomed. 

Edited by: Milan Gagnon