Economy Minister of Germany Robert Habeck stated on November 9, 2022 that the country had to protect its key industries from potential security threats and announced that they did not allow Chinese investors to buy the German chip factory Elmos. At the end of October 2022, the coalition partners of Chancellor of Germany Olaf Scholz rejected the request of China Ocean Shipping Company (COSCO), which also offers logistical services, to purchase 35% of shares in one of the terminals at Port of Hamburg, a major trading port. Despite this, German Council of Ministers approved sale of 25% of the largest port in Hamburg to COSCO on October 25, 2022. In fact, recent developments have raised expectations that the new government will adopt a different Chinese policy. In this context, it is necessary to outline the general framework of bilateral relations to understand whether Germany will adopt a new Chinese policy.
German-Chinese political relations began on 11 October 1972 with a declaration signed by Foreign Minister of China Ji Pengfei and then Foreign Minister of Federal Germany Walter Scheel. Economic relations between the two nations began under Helmut Kohl and have deepened under former Chancellor Angela Merkel. In this process, pragmatic connections have formed in Germany’s China policy, and an approach that influences the EU’s China policy has been adopted. As a matter of fact, it is known that Merkel took an active role in the process leading to the EU-China Comprehensive Investment Agreement signed on 30 December 2020.
Germany’s China policy, which is ruled by a coalition government comprised of the Social Democratic Party, the Greens, and the Free Democratic Party, is expected to change in the post-Merkel period. Because Liberals and Greens promote a values-based approach that criticizes Merkel’s China policy and believes it should be stricter. Furthermore, China’s “pro-Russian neutrality” in the Russia-Ukraine War reinforced the assumption that Berlin’s approach to Beijing would differ from that of Merkel.
So, are German-Chinese relations capable of varying according to policies of governments; or are there ties that will keep the two countries together independent of governments? Based on this problematic, although there are fundamental differences of opinion between two countries on issues such as human rights, individual freedoms, validity of international law and international order, there is an economic and mutual interdependence. China is both an important market for Germany and a source of cheap and quality goods imports.
Germany, on the other hand, is seen as a key European partner for China in the economic and political arena. As a matter of fact, the trade volume between the two countries increased in 2021 compared to the previous year and exceeded 245 billion Euros. In the first half of 2022, Germany mostly imported products such as computers, electric batteries, semiconductor devices, telephones and transformers from China, while exporting automobiles, motor vehicle parts and accessories, packaged medicines, copper powder. In addition, Germany has various investments in China, especially in automotive sector. China, on the other hand, has investments in the machinery, automotive and chemical industries as well as in the telecommunications and green energy sectors in Germany.
As it is understood, commercial relations ensure continuity and sustainable relations between the two countries. For example, Volkswagen, the first major initiative in China, conducted 1/3 of its sales in China in 2021. Similarly, Mercedes-Benz and BMW officials stressed that China has a key place in its global strategies, explaining that they want to expand their presence in China at the World Smart connected Tools Conference held in n Beijing in September 2022. Example of BASF outside the automotive sector is significant. As a matter of fact, the German chemical giant, BASF launched the largest overseas investment project in Zhanjiang in September 2022. On the other hand, BASF CEO Martin Brudermueller said the war in Ukraine has increased gas prices in Europe and is negatively reflected in sales.
From this perspective, it is understood that it is inevitable for German investors, who have a significant market share in China, to exert strong pressure on the continuation of relations with Beijing. As a matter of fact, on November 4, 2022, Scholz made his controversial visit to China accompanied by a delegation consisting of the top executives of BASF, Siemens, Deutsche Bank, BioNTech, Adidas, Merck and German automotive manufacturers Volkswagen and BMW. In reality, Scholz stated before the visit, in response to criticism, that China remains an essential commercial and trade partner for Germany and Europe, but that the supply range would be expanded in circumstances where there could be harmful dependencies. From this, it is seen that Scholz wants to maintain economic relations with China with caution, while remaining sensitive to the coalition partners’ expectations.
On the other hand, continuation of bilateral economic relations constitutes an important area of movement for Beijing. For example, a decision was taken to limit Chinese 5G equipment manufacturer Huawei across Europe on the grounds that it engages in illegal activities such as espionage. Germany, however, does not comply with this decision. In fact, there is a law in Germany that authorizes ministries to intervene in telecommunications contracts, including Huawei. This law was expected to be implemented during the Scholz period, but no interference has yet taken place with telecommunications companies. For this reason, Germany has been warned by European Commission that the bloc must follow common 5G safety guidelines.
In this context, for China, the continuation of partnership is important not only in terms of bilateral relations but also in terms of its presence in Europe. However, in addition to their continued partnerships, Germany and China’s relationship has a systemic competitive character. Especially since the Russian-Ukrainian War, which began on February 24, 2022, Berlin’s systemic competitor emphasis to Beijing has increased due to both the US influence and the understanding of the extent of damage that dependencies would cause to Germany. Russia’s response to the policies of the Western alliance with energy caused many problems in Germany, which supplies 55% of its natural gas consumption from Russia. With the sudden increase in energy prices, production started to decrease and inflation started to increase.
Adding to all of these public protests, the government is left with an energy bomb ready to explode due to its dependence on Russia. Many short and long-term plans are being discussed, including returning to Russian gas to destroy this bomb before it explodes.
Given the devastating consequences of Germany’s dependence on Russian gas, it is better understood why the opponent’s emphasis on rivalry stands out. Because, German Foreign Minister Bearbock said, “We should no longer make ourselves dependent on any country that does not share our values. Economic dependence exposes us to political blackmail,” adding that economic relations with China should be shaped by taking lessons from energy relations with Russia. The presence of the opposition against COSCO or prevention of acquisition of the chip factory can be considered a consequence of this approach.
Despite all criticism, why COSCO was given a share can be explained by China being more successful in providing energy supplies in comparison to Europe in the current conjuncture. German companies, seeking to mitigate the impact of the supply problem that was endangered by the energy crisis, have begun to increase their investment in China. It is estimated that trade traffic between Asia and Europe will intensify due to increased investments and with the cooperation provided in Port Hamburg, the problems that may arise in managing this density can be reduced.
In conclusion, the economic bond formed between China, a rising power by adhering to its own rules, and Germany, the largest economy in Europe, determines the course of bilateral relations. Although there are politicians in Germany who wish to limit Chinese investment and reduce German industry’s reliance on the Chinese market, financial interests provide the glue that holds China and Germany together and prevents a major shift in Germany’s China policy.
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