Germany’s China Problem

Berlin is walking a thin line between its strongest ally and its biggest trading partner.
By Anna Sauerbrey

Xi Jinping and President Frank-Walter Steinmeier of Germany with a military honor guard in Beijing last month. German leaders have recently become more worried about the risks of having China as a business partner.

BERLIN — As the trade impasse between the United States and China grinds on, the rest of the world is reduced to being anxious bystanders — and nowhere are leaders more anxious than here in Germany.
Over the last decade, Germany, the largest economy in Europe but still a middle power by global standards, has steadily adapted itself to the realities of Chinese economic dominance.

We have welcomed Chinese investment, and encouraged our companies to play by Beijing’s rules to get access to its markets. 

At the same time, Germany has remained a stalwart member of the Western political and security alliance.
The geopolitical tumult of the last six months has led to a strategic awakening among Germany’s leaders of the risks involved in trying to play both sides. 

Whether Germany has the capacity to rise to those challenges may be the biggest question facing the country over the next several years.
Until now, trade has defined Germany’s foreign policy on China, its single most important trading partner. 

It has sought close relations with China, setting up regular bilateral government consultations.
Like many in the West, Germans believed that growth would push China in a more economically and politically liberal direction. 

But over the last few years, these hopes have been shattered by the increasingly nationalist, expansionist and statist politics of Xi Jinping.
According to analysts like Mikko Huotari, the deputy director of the Berlin-based Mercator Institute for China Studies, Chancellor Angela Merkel has long held a skeptical view of China’s political development. 

But it was not until about two years ago that the rest of the government came around to her way of thinking, and pushed the rest of the government to sign onto a new, multifaceted China strategy.
This new approach begins with the premise that China is not just expanding its economy, but seeking to impose a global agenda that not only promotes its interests but also chips away at the rules-based, multinational order established after World War II. 

In response, Germany needs to be more active, perhaps even combative, in defending its interests.
But it was not until the last several months that the government began to change its public stance, becoming bolder in its talk of a “new great power struggle.” 

In a speech in November, Foreign Minister Heiko Maas argued that Europe had “the most of all to lose” from growing America-China tensions and America-Russia tensions.
In a recent, unusually outspoken paper, the Federation of German Industries, one of the country’s most powerful business associations, declared that there was “system competition” between China and Germany — in other words, that trade between the two countries had become a zero-sum battle. 

While German industry should continue to “take advantage of the opportunities offered by economic exchange with China,” the federation said, the “challenges posed by China cannot be ignored.”
And in December, Germany’s political leaders agreed to lower the threshold at which foreign investment in security-related industries — including energy suppliers, railways and digital infrastructure — prompts government intervention, a step clearly aimed at China. 

This policy was already in place in practice; last year, the German state bank KfW bought a 20 percent share of 50Hertz, a power distributing company, to block a bid by the State Grid Corporation of China. 

The Ministries of Finance and Economy cited security as the reason for the unusual move.
But is all this enough? 

Policymakers and diplomats refrain from speaking of a paradigm shift in Germany’s China politics. “We have carefully adjusted our policy,” said Niels Annen, the minister of state at the Foreign Office. Indeed, unlike Germany’s foreign policy on Russia, the country’s relations with China are under less vigorous and ideological public scrutiny. 

Russia is a passionately divisive topic; most Germans could care less about China. 

And diplomats probably like it that way.
When it comes to China, Germany has to walk a very thin line in a rapidly changing international environment. 

The trans-Atlantic relationship has been rattled since Donald Trump took office; Germany suddenly finds itself agreeing with China more on certain issues, like climate change, than with the United States, its longtime ally.
As a consequence, German diplomats have to play a tricky game: Partnering with an ideological adversary against its close ally on some issues, while sticking with that suddenly difficult ally against its most important trading partner on others. 

And in both cases, it has to stand by its commitment to the rules-based international order when neither of those partners holds the same level of commitment, at least at the moment.
How much longer Germany can continue to walk this line while staying committed to the old trans-Atlantic relationship remains to be seen. 

Mr. Huotari of the Mercator Institute expects Germany to be put on the spot sooner or later. 

“China may be content as long as Germany doesn’t take sides with the United States,” he said. 

“But the United States is expecting us to clearly position ourselves. We are in the middle of the game already — and the pressure is going to increase.”
Germany’s best option seems to be finding safety in numbers by uniting its European allies, not least because part of China’s geopolitical strategy is to divide Europe. 

Six years ago, it established the 16+1 framework, an initiative to engage 16 Central and Eastern European countries, 11 of which are members of the European Union, in closer relations to influence European policies in its favor.
Lately, however, several of those countries have become disenchanted. 

In some, China is having trouble keeping up with its investment promises. 

Others, like Poland, face increasing pressure from Washington to loosen ties with Beijing. 

This could be Germany’s opening, but it has to play it exactly right — and uniting Western, Central and Eastern Europe is no easy task. 

It is the eternal quandary of German foreign policy: Germany can’t go it alone, but Europe is too divided and too slow to step up.