China and Germany: A balancing act

The latest round of high-level government consultations in Berlin were friendly in tone but tough in substance. Germany needs China, but also wants to minimise its dependency

Chinese Premier Li Qiang and Chancellor Olaf Scholz held talks in BerlinDeutsche Welle

Chinese Premier Li Qiang came to Berlin with ten of his Cabinet ministers, he was received by Germany’s head of state, President Frank-Walter Steinmeier, and then by its head of government, Chancellor Olaf Scholz, and nine federal ministers.

At least in terms of the size of the delegations, these intergovernmental consultations were no different from those the German government has held in recent months with India and Japan, with Spain and the Netherlands. But that is where the similarities end.

Relations between Berlin and Beijing have deteriorated in recent years. Whether it is Beijing’s “rock-solid friendship” with Moscow despite Russia’s invasion of Ukraine, the growing tensions in the Taiwan Strait, or the repression of the Uyghur minority in China, the number of disagreements is growing. And is further intensified by the geopolitical rivalry between China and the US.

An almost symbiotic relationship

Still, China is and remains Germany’s most important trading partner, ahead of the US. In the last ten years, the exchange of goods with China has practically doubled to around €300 billion ($327 billion). The full contradictory nature of the relationship can be seen in the fact that official German documents now regularly refer to China as a partner, competitor, and strategic rival all at the same time.

German government consultations with China began in 2011, initially emphasising the partnership. In 2014, the relationship was even elevated to the status of a “comprehensive strategic partnership. But since then, the mood has turned.

“We need to examine how sustainable the format of government consultations with China still is, which is actually only intended for particularly close strategic value partners,” says Michael Roth from Chancellor Scholz’s center-left Social Democrat Party (SPD) and the chairman of the Foreign Affairs Committee in the federal parliament, the Bundestag.

No de-coupling, but rather de-risking

Scholz is more diplomatic. “De-risking yes, de-coupling no,” he says, describing his position — which he shares with the major Western industrialised nations. “We have no interest in economic de-coupling from China,” Scholz reiterated after talks with Li Qiang in Berlin.

“Let’s continue the dialogue to understand each other well and face global challenges together,” Scholz said, addressing Li Qiang.

He said it was “a special concern” for the German government that Germany and China work closely together in the fight against climate change. The two countries are among the largest emitters of greenhouse gases and therefore bear a particularly large responsibility in the fight against global warming, he said.

China’s Premier Li Qiang described the government consultations as “practical and highly effective” and spoke of “fruitful results.” Ten joint projects were agreed upon, he said: Among them was a three-year action plan for regular exchanges in areas such as climate and species protection and the fight against hunger and pandemics.

The two countries had exchanged views “quite openly and in-depth,” said Li Qiang, who again agreed to put cooperation forward “for mutual benefit” despite all differences. The two countries should look for common ground and “work hand in hand to help each other succeed,” he said. “If we strengthen cooperation in science, industry, and business, we will contribute to the stability of the world economy.”

But Germany has become wary of cooperation with China. German companies are in the process of reducing dependencies: “Companies are intensively diversifying their sales and procurement markets strategically and building new partnerships,” says Siegfried Russwurm, president of the Federation of German Industries (BDI).

German companies’ special plans for China

Nevertheless, China remains an exceedingly important market. More than 5,000 German companies with 1.1 million employees produce in the People’s Republic. In addition to the big names such as Volkswagen and BASF, these also include countless medium-sized companies. They all benefit from cheap labour and China’s huge domestic market.

The European Union is developing concrete proposals for tougher action against China. For the German economy, this sounds alarming. But the Chancellor has been taking pains to reassure business leaders. At a major gathering this week, he emphasised that only business deals in the area of defence and armaments would have to be scrutinised very carefully.

Meanwhile, the German business community is already preparing for a degree of “de-coupling.” Many have made plans to split companies into two separate business units: one for China and one for the rest of the world. The China division would then produce only for the Chinese market and become a purely Chinese company. Some US companies are also already planning to do this.