German Chancellor Olaf Scholz’s planned visit to China would make him the first European Union leader to make the trip since the start of the COVID-19 pandemic, and the first G7 leader to meet Xi Jinping since he was confirmed in his role as general secretary of the Chinese Communist Party for a third term. However, if and when he goes, substantial pressure goes with him.
From up high, the U.S. is discussing a loosening of economic ties to China, though for now it says this is not to be called “decoupling.” It is also warning more directly than ever about China’s increased military capability and threat to Taiwan. As corresponding military and economic policy shifts have emerged, so too have attempts to corral allies into the same position, including Germany. In Europe, this has been backed up by Emmanuel Macron. The French president recently questioned the “naive” idea of allowing China to invest in “essential infrastructure,” in what could have been a veiled reference to a Chinese shipping group being allowed to buy up a major stake in the operation of Germany’s largest port. He is also unhappy that Scholz is going to Beijing so soon after the confirmation that Xi Jinping will stay on (a position explicitly shared by Latvia and Estonia). Finally, in Germany itself, similar sentiment comes from Scholz’s more hawkish coalition partners, the Greens and Free Democrats, and even his own Social Democratic Party.
The underlying suggestion beneath much of this — expressed more or less politely — is that Germany has been a geopolitical “freeloader,” benefiting from security sacrifices from allies, while falling short of NATO spending commitments and profiting from arrangements with autocratic rivals Russia and China. Justification for this criticism comes in a wide variety of different forms (where it is actually offered rather than taken as a given). Mixed in alongside the idea that Germany’s positioning is morally wrong — one must pick a side after China failed to condemn Russia’s war in Ukraine, or was guilty of large-scale human rights abuses, or threatened Taiwan — is the idea that it has been revealed as a tactical error post-COVID-19, and post-Russia’s war in Ukraine, both of which exposed the weakness of relying on Russia and China for trade. Alternatively, often implied rather than outlined directly, there is the idea that China is a “threat to that rule-of-law-based capitalist globalization,” founded on a history of intellectual property theft and fraudulent market manipulation via state intervention. And finally there is the battle for global hegemony via military and economic rivalry between the U.S. and China.
The concrete basis for asserting that Germany is falling on the wrong side of these lines currently comes in two parts. First: Increasing rather than decreasing economic interconnectedness (or “dependence”) with China. A report from the German Economic Institute seen by Reuters noted an increase in German investment within China to $10 billion for the first half of this year, exceeding any half-year peak recorded since the start of the millennium. It also recorded China’s share of German imports rising to 12.4 percent in the first half of 2022, compared to just 3.4 percent in 2000, creating a trade deficit with China of $41 billion. And second: Symbolically “bad optics.” As already mentioned, Scholz’s visit to China, off the back of sanctioning the port deal against the wishes of six of his ministeries, is seen as an endorsement of Xi’s third term. That, plus traveling with a business delegation that includes car manufacturer Volkswagen and vaccine giant BioNTech, has been taken as an indication that Scholtz wishes to express “autonomy” in Germany’s relations with China, perhaps separating economic policy and national security.
However, there are major complications among all of that. Whatever one’s position on what position Scholtz should take up — for decades politicians at the top of level politics asserted that economic interconnectedness was necessary for peace, with equal confidence to those now stating the opposite, and that substantial sanctions on Russia have been “slow to bite” — considerable omissions are required to paint the simple picture of a “freeloader” that is “weak” or “naive” on China.
A non-comprehensive list includes:
First, the original sin of low defense spending is overstated, because Germany does not have nuclear arms of its own. That means if it is spending as much as its NATO allies on defense, it is likely spending far more on conventional forces. Indeed, this is the situation that now exists, as in response to Russia’s invasion of Ukraine, Germany created a special fund of around $100 billion to top up existing defense spending, pushing it up the 2% of GDP that NATO requires. According to Wolfgang Streeck, German economic sociologist and emeritus director of the Max Planck Institute for the Study of Societies in Cologne, an order of 35 F-35 fighter jets from the U.S., licensed to carry U.S. nuclear bombs, was prioritized.
Second, just as Adam Tooze, a professor of history at Columbia University, has convincingly challenged the idea that German industrial success has been substantially built on competitive advantages gained by backroom energy deals with Vladimir Putin, Germany’s wider economic reliance on trade with China is contested. Speaking to Deutsche Welle, Jorg Wuttke, president of the European Chamber of Commerce in China, explained that “dependence on China is fundamentally different from reliance on Russian energy,” because: “We have a pipeline with oil and gas from Russia. But from China, we have a ‘pipeline’ with toys, furniture, sports equipment, clothing, shoes. Most of those products — I would say 90% of them — are easily replicable elsewhere.” What’s more, Jurgen Matthes, an economist with the German Economic Institute explained to the same outlet that while around 3% of German jobs depend on exports to China, which accounts for over 1 million jobs, “over 45 million people are employed in Germany today,” which means that: “On a macroeconomic level, the dependence on China as an export market is relevant, but it’s not as huge as media reports often make it out to be.” Others disagree about the importance of these figures and the degree to which they represent dependence, but the point is: The massive level of complexity that goes into predicting the exact effects of economic policy as wide reaching as any kind of “decoupling” puts it well beyond the vast majority of people who will offer fervent opinions on it. The more definitive answers tend to come from those with other political agendas, rather than comprehensive calculations.
Third, plans to rein in German government support for companies investing in China are also being discussed (though this process has been led from Scholtz’s coalition partners and has not been smooth). This is going on alongside the outlining of a new national security strategy and China strategy to be published next year, as well as stated plans to diversify relations. Admittedly, these are incremental steps, perhaps symbolized clearly by the reduction of the proposed stake that the Chinese shipping company COSCO was ultimately allowed to take in the operation of the port in Hamburg — from the 35% originally proposed, down to 25%. But so is a meeting with Xi Jinping that is “unlikely to yield substantial results.”
Fourth, sanctions on Russia were, in part, designed as a pre-emptive deterrence for China, and Germany responded in line with the direction laid out by the U.S. It agreed to a huge array of sanctions, and has stood by them since, despite massive hits to its economy resulting in large rises in costs of living after Russia severely limited gas supplies to it.
These commitments blast beyond bad optics. And we can add in the fact it sent its first warship in almost 20 years to the South China Sea last year, and in August sent 13 military aircraft to joint exercises in Australia, to get a sense of where Germany’s loyalty ultimately lies. Business’swarnings clearly affect Scholz’s positioning, and Germany looks internally conflicted. But the way that’s playing out right now looks more like tepid economic commitment to a grand economic decoupling with China, with much clearer signals in defense posturing pointing to getting in line with the U.S. That’s in line with Scholz’s public statements. And a long way from a freeloader.