Let’s talk about Germany’s dependence on China

Let’s talk about Germany’s dependence on China
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As Germany prepares to take over the European Union presidency in July – and with Chancellor Angela Merkel due to step down in 2021 – China is set to dominate EU politics over the next few months, culminating in the first ever China-EU summit hosted by the German city of Leipzig this September.

Pre-Covid, this summit was planned as the break-through point in talks over the EU-China investment pact, which have been ongoing since 2013, with the EU hoping to win agreement from Beijing on a raft of issues including climate change.

Being dependent on China will sooner or later do Germany serious harm

Merkel has stated that EU-China relations will be a key focus of the presidency with the objective of “strengthening Europe as an anchor of stability in the world.” While German Foreign Minister Heiko Maas says that Germany wants to help resolve tensions between the United States and China. But the demons of Germany’s past are likely to hamper its ability to effectively play the role of assertive global leader.

Even before the Hong Kong power-grab, 2020 has seen China’s international relationships sour on an unprecedented scale, with the distinct possibility that the world is on the brink of a new Cold War. The Chinese response to the Covid pandemic, combined with their aggressive attempts to realise their global ambitions – both economic and military – on their borders; in the South China Sea; and through the weaponization of trade, has led to re-evaluations by a number of countries, for whom China has previously represented, first and foremost, a lucrative market and a source of cheap goods.

The UK, which has attracted the largest share of Chinese investment in Europe, is currently proposing a new alliance of 10 democracies including India, South Korea, Australia and the G7 nations – US, UK, Germany, France, Italy, Canada and Japan – to break China’s monopoly on 5G technology.

This kind of decision to unite against China may leave Germany, the second largest investment recipient, struggling somewhat with how to respond. And let us be clear: German governments have consistently prioritised trade with China over other less mercenary considerations such as democracy or human rights. In 2018, Germany accounted for just under 50% of all EU exports to China. While this only accounted for 7.1% of German exports – worth €93.1 billion – Chinese imports to Germany stood at €106.2 billion (9.8%), with a total trade volume of €199.3 billion. China represents a hugely important trading partner for Germany’s export economy.

This is predominantly due to the over-reliance on the Chinese market on the part of individual German industrial behemoths such as Volkswagen – whose CEO, Herbert Diess, told the BBC that he was “not aware” of reports about Uyghur internment camps in Xinjiang where VW have opened a new factory – BASF and Siemens. Volkswagen recently invested €2.1 billion in Chinese electric vehicle companies, small beer compared with chemical giant BASF’s recent €10 billion investment in building an integrated petrochemicals complex in the South.

With such close trade and business links, it is perhaps unsurprising that the German government is “struggling to adjust its China policy,” according to Bernhard Bartsch, senior Asia expert at the independent German foundation Bertelsmann Stiftung, and “desperately wants to avoid any confrontation with the Chinese government, mostly for fear of retaliation against German businesses in China. This fear is not unfounded.”

Merkel faces huge political pressure domestically, both from corporate lobbyists, and from political opponents. In February this year, Nils Schmid, foreign affairs spokesperson of the Social Democratic Party (SPD), who are in coalition with the Chancellor’s Christian Democrats, accused the Ms Merkel of being “stuck with an idea of China that is 10 years old,” and of underestimating the “systemic challenges” posed by Beijing.

Recent moves by China to impose draconian security laws in Hong Kong have attracted little criticism from the German government. On 27th May, a spokesperson said that they expect Beijing to abide by Hong Kong’s rule of law and that the city should retain a high degree of autonomy. Meanwhile, the EU expressed nothing more than ‘grave concerns’, stopping well short of explicit criticism or action – only Sweden apparently raised the possibility of sanctions at the meeting of EU27 Foreign Ministers.

The opposition Green Party in Germany have called on Merkel to cancel the Leipzig summit in September over the issue. Hong Kong pro-democracy activist leaders Glacier Kwong and Joshua Wong have also appealed to the Chancellor to “oppose this draconian law and to call on China to abide by the UN treaties, which are binding under international law.”

In an interview with Business Insider, Kwong added that she hoped Merkel “doesn’t sacrifice Germany’s fundamental values to support the economy and appease China,” warning that “being dependent on China will sooner or later do Germany serious harm.”

While a mutually beneficial partnership may have been the desired ideal, the German state has begun to realise in recent years that a more strategic approach may be needed, given China’s moves to buy up companies overseas in key markets – especially the tech sector – and position itself primarily as a formidable competitor and rival. The long-held mantra of German politicians of ‘Change through Trade’ when it comes to China is frankly looking dead as the proverbial dodo… or at least it won’t be China who is doing the changing.

Pressure from the US is also increasing. Back in 2017, President Obama stepped in to convince Berlin to backtrack and block the sale of German microchip manufacturer Aixtron to Chinese firm Fujian Grand Chip. Since then, rules have been changed to make it easier for Berlin to step in to oppose purchases of shares and take-overs of German firms by non-EU companies.

Within the EU Parliament, Manfred Weber – German MEP and head of the largest grouping, the European People’s Party – has urged the EU to bring in a 12 month ban on Chinese investors buying into EU firms. The move followed on from legislation last year that introduced restrictions on ‘non-EU investors’. Weber said, “We have to see that Chinese companies, partly with the support of state funds, are increasingly trying to buy up European companies that are cheap to acquire or that got into economic difficulties due to the coronavirus crisis.”

However, Beijing has been using its Belt and Road infrastructure project to court EU member states, particularly Italy and those in Eastern Europe – a number of whom have their own interesting take on democracy, freedoms and human rights. With recession looming in the wake of the Covid-19 pandemic, EU governments will find themselves caught between China and the US as they battle for economic recovery.

Anti-China voices in the US are keen for the EU to align with Washington’s hard-line stance. However, the EU, wary of what many see as a new Cold War on the horizon, has instead toned down statements on Chinese actions over the pandemic and even allowed Chinese diplomats to censor a piece written by EU Ambassadors. EU Foreign Affairs Chief, Josep Borrell recently stated that, in the face of rising pressure to “choose sides”, the EU should “follow our own interests and values and avoid being instrumentalized,” when asked why the EU had not joined the US, UK, Australia and Canada in criticizing China over the new Hong Kong legislation.

Back in January, Angela Merkel was even saying that the EU should “try to include a country like China and treat it at least equally, based on our results and experiences with multilateralism.”

Berlin’s position is potentially coloured by personal antipathy and elitism regarding US President Donald Trump, along with the deterioration of US-EU relations over the last 3 years. With the imposition of US tariffs on EU exports, US criticism of EU nations’ paltry financial contributions to NATO and a less than diplomatic tone in criticism of individual politicians, relations have certainly cooled.

But the EU does not speak with one voice. “Things are changing” says Jean-Maurice Ripert, the former French ambassador to China, with “an awakening toward China’s expansionist ambitions… the Covid crisis and what’s going on in Hong Kong are opening the eyes of those who didn’t believe it.”

After 15 years as Chancellor, current German policy is very much Merkel policy. But with two of her potential successors are already advocating for a tougher position on China, and France stating that Franco-Sino relations will not return to normal after the pandemic ends in the face of Beijing’s ‘Warrior-Wolf’ diplomacy, Berlin may well find that they are out of step with other EU member states at the Leipzig summit.

The post Let’s talk about Germany’s dependence on China appeared first on Global Vision UK.

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