Treading a Fine Line - Chancellor Scholz's Complex China Visit Amid Rising Economic Ties

Chancellor Olaf Scholz (SPD) making a statement on the situation in Israel and the trip through China. picture alliance/dpa

What is the current status of Sino-German relations?

Given the full agendas of Chinese President Xi Jinping and Chancellor Scholz, the timing and length of the visit warrant no criticism. Despite Iranian drone attacks on Israel, the Chancellor maintained his most important appointments, including a visit to Bosch’s hydrogen factory in the Yangtze metropolis of Chongqing. Only the tourist points of the program were cancelled.

China has been Germany’s largest trading partner since 2016. However, the trend suggests that China’s economic ties with Germany are diminishing, while Germany’s dependencies on China have gained importance over the years. Bilateral trade reached nearly €299 billion ($324 billion) in 2022, but decreased to about €251 billion ($272 billion) in 2023 due to a reduction in German exports. The trade deficit with China was €58.4 billion ($63 billion) in 2023. The value of computers and other data processing devices imported from China now exceeds the value of German automobile exports to China. New dependencies are emerging in raw material-based components for future fields such as e-mobility and renewable energy.

The Sino-German relations and thus the Sino-German cooperation have been reoriented by the adoption of the China strategy by the federal government, which was published by the German Bundestag in July 2023. China is described in the strategy as a “partner, competitor, and systemic rival.” The strategy articulates the desire to make economic and trade relations with China “fairer, more sustainable, and reciprocal.”

However, political aspects are also coming more into focus with the German China strategy. China’s close relations with Russia are a particularly sensitive issue in the context of Russia’s war of aggression against Ukraine. However China is not the only state resisting Germany’s and its allies’ call to reconsider economic cooperation with Russia and possibly join sanctions.

India and South Africa, two other states that are cooperating with Russia as part of the BRICS group, are also not participating in the sanctions. China’s peace plan for Ukraine has met with relatively strong resonance in the countries of the Global South, while it has found little appeal in the Western capitals. China has now once again strongly advocated for a negotiated solution, and this initiative may have a greater chance of success this time, given the military developments to Ukraine’s disadvantage. China has also made proposals on how to settle the war between Israel and Hamas.

How is the German China strategy viewed in China?

The China strategy was designed under the leadership of the Federal Foreign Office. It does not bear the signature of Chancellor Scholz. The strategy was criticized by some German and international China experts. However the picture here is not uniform. The Berlin-based Mercator Institute for China Studies (MERICS), which was placed on an official Chinese sanctions list by the Chinese government following EU sanctions against China in March 2021, supports the strategy and goes even further in its criticism of China.

The term “systemic rival” in the German China strategy has led to diplomatic tensions in China. In Germany, under the traffic light coalition, the political discourse on cooperation with China has evolved towards reducing risks (de-risking), although the positions of individual politicians have not yet been able to prevail, especially on the part of the Greens and the FDP, towards decoupling from China (de-coupling).

Generally speaking, the statements of German Chancellor Olaf Scholz and the SPD are less critical of China than statements from politicians from the other governing parties, including the foreign minister and the German finance minister. The federal government emphasizes that the repeated formulation of “systemic rivalry with China” in the strategy does not mean that cooperation is not possible. On the contrary, the federal government emphasizes that it is seeking cooperation with China on fair terms and rejects decoupling.

It is therefore not surprising that the China strategy has been criticized in Germany from business circles, although the picture here is not the same all over. The Federation of German Industries (BDI) already described China in a basic paper in January 2019 as a partner and systemic rival (BDI 2019). The BDI is not accompanying Chancellor Scholz on his trip to China this time. Some companies and other business associations, like the Federal Association for Foreign Trade (BDA), view such formulations more critically and complain that they could cause confusion among Chinese partners and increase investment risks.

What role does the German China strategy play during the Chancellor’s visit?

During Chancellor Scholz’s visit, it is not or not directly about implementing the China strategy, as this is a unilateral strategy announced by Germany. It is more of a political declaration of intent that does not include a specific strategy for implementation. Therefore many economic and also political dynamics of cooperation are not directly influenced by the official China strategy. At the level of the European Union (EU), the EU Commission is, however, in the process of filling this keyword with content following the announcement of the de-risking strategy in March 2023 and identifying and concretizing areas of action and initiatives to strengthen the EU’s economic security.

Chancellor Scholz traveled to China with three cabinet members. Environment Minister Steffi Lemke (Greens), Agriculture Minister Cem Özdemir (Greens) and Transport Minister Volker Wissing (FDP) as well as a larger delegation of companies. Foreign Minister Baerbock and Economics and Climate Minister Habeck were not present. However, Habeck is planning to travel to China from June 17 to 21, 2024, accompanied by a business and press delegation.

Germany insists that Sino-German climate policy should not be negatively affected by the German China strategy. On the contrary, under the traffic light government, Germany is seeking to intensify climate policy cooperation with China. In view of China’s high greenhouse gas emissions and thus the relevance of China for global climate protection at the international level, the federal government can only credibly advocate for climate protection issues in Germany if it also pushes for more climate protection in dialogue with China.

However, it would be naive to believe that the Chinese tensions relating to the German China strategy and the EU and Germany’s accusations against China for human rights violations would not affect cooperation in the field of climate protection. However, China has not directly mentioned this, in contrast to the USA. Overall, despite criticism of the German China strategy and diplomatic rejection of accusations from the field of human rights, China has behaved pragmatically in bilateral relations and has not discredited Germany’s offers of cooperation.

Where are the major economic challenges in dealing with China?

So far, German industry has not been able to reduce its dependence on China. On the contrary, it has increased. For example, the German energy transition would be doomed to failure without products from China, especially solar panels and raw materials for wind turbines.

But also 85 percent of laptops, 75 percent of bicycle frames and 87 percent of imported strollers come from China, as do many medical precursor products.

German companies complain about unfair competition in China. China’s trump card is the market access of German companies, which continue to invest in China. In 2023, direct German investments in the People’s Republic of China exceeded the €100 billion ($108 billion) threshold for the first time and account for 7.2 percent of direct German investments abroad. The figures published in China, which also include Taiwan and Hong Kong, go even further. Even the figures are therefore politically sensitive.

Shortly before Chancellor Scholz’s visit, VW announced that it is investing another €2.5 trillion ($2.7 trillion) in the province of Anhui. This investment goes back to the efforts of former Chinese Premier Li Keqiang. The economically liberal ex-premier died unexpectedly on October 27 last year.

How is Chancellor Scholz’s trip being evaluated?

In China, the visit is seen positively and the opportunity is being used to illustrate the breadth and depth of good relations with Germany. However, it is also known in China that the poll ratings of the Chancellor are currently at a very low level. The fact that Scholz was accompanied by three federal ministers and that German companies are planning further investments in China was well received. China is already planning Xi Jinping’s trip to Europe in early May, where he will visit France, Hungary, and Serbia, among others.

In the Chinese media, the topics critically discussed in the EU and also by Germany, such as human rights and differences in geopolitical issues, are not openly addressed. If at all, this takes place within the framework of other dialogue formats, e.g., conferences where think tanks and experts from both sides are allowed to explore the different perspectives.

In Germany, the visit is evaluated very differently, which is no longer a surprise. In the question of China’s position, there is little uniformity in Germany and this is unlikely to change, more the opposite, in fact.

While critical attitudes towards China are emphasized in the media and in large parts of politics, the economy and, to a large extent, also science are still interested in close cooperation with China. Many people who have direct contact with China and are interested in Chinese culture see China much more positively than the media.

China therefore wants to promote “people-to-people exchanges” and even waives the requirement for a visa for trips of up to two weeks.

The political systems, however, differ fundamentally. Conflicts in China are fought within the party and are as concealed as possible from the general public, whereas in Germany many political issues are characterized by openly fought party-political conflicts.

Journalism in Germany and China is completely different. In China, the media are under state supervision and their task is to prepare and distribute information from politics, economy, culture, and sports for different target groups. Critical reporting is rare.

In science and among companies, the differences are also great, but by no means as fundamental. And the Chinese private sector was left on a long leash for a long time and developed very dynamically. In production, the price-performance ratio and reliability are still hard to beat today, so that supply chains can only be moved away from China with major losses. And last but not least, the Chinese market is extremely important for export-oriented Germany.

Anyone who works in the field of environmental and climate protection will also have to recognize the necessity of cooperation with China. China is not only the largest emitter of CO2, but also the world’s largest investor in renewable energies and has a lot of influence in international climate negotiations through its close relations with countries of the Global South. The major global sustainability and climate protection agreements, especially the United Nations’ global sustainability goals and the 2015 Paris Agreement, would not have been adopted by the community of almost all states without China’s constructive role.