Why Germany is at odds o­­ver Scholz’s trip to China

As German Chancellor Olaf Scholz prepares for his inaugural visit to Beijing, there are major disagreements in Berlin about how to deal with China.

While some view the visit as key for Germany to shore up economic ties with its top trading partner, others fear the country could become over-reliant on yet another authoritarian state, leaving Europe’s largest economy strategically vulnerable.

Just like his predecessor, Angela Merkel, Scholz will be accompanied by executives from large German companies when he arrives Friday in Beijing for a one-day state visit, where he is expected to meet with top Chinese officials, including leader Xi Jinping and Premier Li Keqiang.

The agenda for the inaugural visit will encompass the full spectrum of bilateral issues, including economic relations, Russia’s invasion of Ukraine, climate cooperation, human rights and even messaging on Taiwan.

But unlike Merkel, Scholz will have to walk a fine line in Beijing as the circumstances surrounding this trip are anything but usual, with Germans growing wary of doing “business as usual” with an increasingly assertive China — a significant shift from just a few years ago when Merkel’s government was pursuing ever-closer economic ties.

‘The coalition is in open dissent’

This sensitivity was highlighted in a dispute that broke out last month within Germany’s three-party coalition over whether to allow Chinese shipping giant Cosco to buy a 35% stake in a terminal at Germany’s main port of Hamburg.

Although the Green and Free Democrat parties — coalition partners to Scholz’s Social Democrats (SPD) — rejected the plan over security concerns, the chancellor ultimately defied calls to veto the sale, allowing the Beijing-based firm to buy a reduced 24.9% stake in the terminal.

Although this does not give Cosco any say in management or strategic decisions, the move — made against the advice of not only Scholz’s coalition partners but also several ministries and German allies — has heightened concerns about the risks of granting Beijing access to critical German infrastructure and becoming too reliant on Chinese money.

Scholz’s actions have put him at odds with many in the ruling coalition, and even members of his own party, who have called on him to learn from policy mistakes made with Russia and diversify away from China, instead of continuing with the familiar business-first line.

“The coalition is in open dissent on how to deal with China, and European and trans-Atlantic partners have raised eyebrows regarding the visit,” said Roderick Kefferputz, a China expert at the Berlin-based Mercator Institute for China Studies.

Foreign Minister Annalena Baerbock, of the Greens, has warned that Germany, which is reeling from an overdependence on energy imports from Moscow, should not make the same mistake of becoming dependent on a single market with authoritarian rulers.

“Complete economic dependence based on hope leaves us open to political blackmail,” she told the Süddeutsche Zeitung newspaper.

Warnings have also come from German President Frank-Walter Steinmeier, of the SPD, who is currently visiting Japan.

“For the future, it means we have to learn lessons, and learning the lesson means we have to reduce unilateral dependencies wherever possible, and that applies especially to China,” he told German broadcaster ARD, urging companies to focus more on China’s neighbors, particularly in Southeast Asia.

German firms continue investing

One of the key issues is that, despite fears over a possible Taiwan conflict, “COVID zero” policies crimping China’s economy and Beijing’s relations across the globe seemingly in free fall, some German companies have continued investing heavily in China.

According to data by research firm Rhodium Group, companies from four European countries — Germany, the Netherlands, the U.K. and France — have made up 87% of Europe's foreign direct investments in China over the past four years, with German firms accounting for 43% of the total over the past four years and 34% in the previous decade.

However, the concerns also encompass national security, with the head of Germany’s BND foreign intelligence service urging the country’s leaders to be vigilant when dealing with Beijing because “economic levers could be used to enforce Chinese ideas.”

“Should there be differences in the political views of Germany on the one side and China on the other, then these (economic) means will also be used," BND chief Bruno Kahl said last month.

But perhaps the most controversial aspect of the upcoming China trip is the timing.

Scholz will be the first Western leader and Group of Seven member to visit the country since the COVID-19 pandemic erupted. His trip will also come on the heels of a twice-a-decade Communist Party congress that saw Xi secure an unprecedented third term as China's leader, prompting many in Germany to say the visit could be seen as a political endorsement of Xi.

“There is a bureaucratic argument advanced by the chancellery in Berlin that the trip needed to take place before the Sino-German government consultations early next year,” said Andrew Small, a China expert at the German Marshall Fund of the United States. “But there is also a sense that this visit has been pushed by a handful of German companies that have been worried about the downturn in bilateral relations.”

Building personal relationships

Timing issues aside, experts note an often-overlooked element of the visit — namely the importance of Scholz delivering messages directly to China’s leader at a time when Xi’s authority is greater than ever.

“The isolation during the pandemic has moved any kind of dialogue to the virtual sphere and this has contributed to worsening relations between China and the West,” said Angela Stanzel, a China expert at the German Institute for International and Security Affairs.

Mercator’s Kefferputz agreed, saying that Scholz has yet to have a longer one-on-one with Xi.

“He wants to build a personal relationship and have an essential exchange of views to better understand each other’s thinking.”

Moreover, Scholz will want to signal that he is not in favor of a fundamental change in economic relations, let alone a decoupling from China. The chancellery believes that — even though there is a need to rebalance economic ties — there are still areas where the two sides can upgrade trade relations.

With significant economic hurdles on the horizon, some German companies are saying that Berlin shouldn’t rock the boat with China.

“Decoupling from China would damage the German economy very much at a time where we already face stagflation,” said Horst Lochel, co-chairman of the Sino-German Center at the Frankfurt School of Finance & Management.

Lochel also warned of making comparisons with Moscow.

“China is not Russia and the so-called dependency on China is much lower,” he said. “Germany highly depended on Russian gas but the business with China is much more diverse. So far, there are no major Chinese investments in so-called critical infrastructure.”

But what does China hope to achieve with the visit?

For Beijing, Germany is not only an important trading partner but also key to its Europe strategy, helping ensure there isn’t a united front in the West — particularly the European Union — against the Communist Party, according to Small from the German Marshall Fund.

Brussels has hardened its approach toward Beijing for many of the same reasons the United States has, including some of China’s political and economic policies through the Belt and Road initiative — which also extend into parts of Europe — as well as mounting concerns over Beijing’s trade practices and increased assertiveness in the Indo-Pacific region.

Policy changes on the horizon

Against this backdrop, “Xi will want to keep Berlin peeled as far away from the Western alliance as possible and encourage distancing from the United States — and many other Europeans — on political, security, economic and technology policies,” Small said.

“The sense is that a couple of favors to Germany can ensure that Europe doesn’t go too fully into the U.S. camp,” he added.

However, this might be easier said than done, given the mounting concerns in Berlin, as analysts expect Sino-German ties to become more fraught, competitive and prone to rivalry in the future.

“China has changed, and the relationship is entering a new geopolitical era with a changing world order," said Kefferputz.

Indeed, Germany’s first-ever China strategy — expected to be released in the first quarter of next year — will focus on reducing strategic dependencies from China, diversifying economic ties and expanding partnerships with other Asian states such as Japan and India, he said.

“What is certain is that the next 50 years of Sino-German relations will not be the same as the last 50 years."