Germany is struggling to redefine its relationship with China, after many years in which its political establishment and industrial leaders viewed the country as a lucrative market and little else. The reassessment began half a decade ago, as the Chinese Communist Party, under the leadership of Xi Jinping, began tightening its grip on the domestic economy and Chinese companies were able to transform themselves into formidable competitors, aided by forced technology transfers at home and strategic acquisitions abroad. Germany’s exposure to the world’s second biggest economy had long been seen a vital strength – and a model for other European countries to replicate – but, in the span of a few years, it started to look like a potential weakness. Many of Germany’s biggest companies, its carmakers in particular, found themselves reliant on a Chinese market that was becoming increasingly difficult to navigate. This dependence gave China leverage with German politicians and with the country’s most powerful CEOs, who embraced Beijing’s red lines as their own, even at the risk of embarrassment at home.
China is no longer a one-way bet for Germany. The costs of doing business there have risen, not only because of Beijing’s more aggressive policies in the context of the COVID-19 pandemic, but also in light of the US’s increasingly confrontational stance with China across a range of issues – from trade and technology to security and human rights. These factors have triggered a broader debate in Germany about the relationship with China.
There are rising concerns among Germany’s politicians about being forced to choose sides, as some see it, between China, the country’s biggest single trading partner, and the US, the post-war ally that has guaranteed its security for nearly three-quarters of a century. Even with a new administration in Washington, following Joe Biden’s victory in the November 2020 US presidential election, the trauma of the Trump years lingers, affecting Berlin’s calculus as it navigates a dangerous new world of great power competition. Polls show growing public scepticism in Germany towards China, but also weakening trust in the US as an ally and a conviction that Germany and Europe should become more independent from Washington. Chancellor Angela Merkel has steadfastly refused to pick a side, and together with French President Emmanuel Macron has set Europe on an uncertain path towards strategic autonomy. In the final days of 2020, as Germany’s presidency of the Council of the EU came to an end, Merkel led the push to conclude an investment agreement with China, despite requests from the incoming Biden administration to hold off on a deal. This underscored Germany’s desire to stay engaged with China and push back against the notion of a new, zero-sum world of US–China confrontation that is seen by German politicians and industry as antithetical to the country’s interests. As Merkel told an audience in January 2020: ‘My plea is that we don’t descend into a new bipolarity, but rather try, based on our achievements, our experiences with multilateralism, to involve China and at a minimum to treat them equally.’
Whether this balancing act will be sustainable over time seems at the very least questionable. China’s robust reaction, in March 2021, to sanctions imposed by the EU and other countries in response to human rights abuses in Xinjiang shows that European efforts to compartmentalize the relationship with Beijing – strongly condemning China on human rights while continuing to pursue closer economic engagement – will be an increasingly precarious undertaking. The Biden administration is expected to press Germany and its EU partners to work more closely with Washington on China. Saying no to Biden will be more difficult than rebuffing Trump.
China’s robust reaction, in March 2021, to sanctions imposed by the EU and other countries in response to human rights abuses in Xinjiang shows that European efforts to compartmentalize the relationship with Beijing will be an increasingly precarious undertaking.
Merkel’s fourth and final term as chancellor will come to an end later this year. Her successor may find it more challenging to resist domestic and international pressure to adopt a tougher line towards Beijing. China’s initial handling of the COVID-19 outbreak, its security crackdown in Hong Kong and the repression of its Uighur minority in Xinjiang have led to a hardening of positions among Germany’s closest allies outside the EU – from Australia and Canada to India, Japan and the UK. But there are also influential forces in Germany that will continue to push back against a more confrontational stance towards Beijing. Some of Germany’s biggest companies remain highly dependent on the Chinese market, the allure of which has been burnished by the early recovery of China’s economy from the impact of the pandemic. As the Biden administration gears up for ‘extreme competition’ with China, a not insignificant part of the German political and corporate establishment still supports what former World Bank chief Robert Zoellick has called a position of ‘benign neutrality’ vis-à-vis Beijing and Washington.
