Will Scholz’s China gamble be Russia 2.0?
Chancellor Olaf Scholz is not foolish enough to argue that he is continuing the “Wandel durch Handel” economic policy Germany tried with Russia, but this time with Chinese characteristics. The “change through trade” concept completely failed to change Russia, nor prevent it from invading Ukraine. But Scholz’s trip to Beijing is not being sold on the naivety that you can change the politics of the world’s most powerful dictatorship. Instead, it shows he intends to cement Germany’s position as one of China’s key economic partners while hoping this gives him a voice loud enough to be a restraining factor when it comes to Chinese foreign policy – in particular on Taiwan.
He is arguing that dialogue and economic engagement is important. A strong case can be made for that, but the problem is that he is making it at the same time as many EU and G7 members are increasingly wary of strengthening economic ties due to China’s support for Russia, and its abysmal human rights record. He thus weakens the unified approach to international affairs both organisations are attempting. President Macron has let it be known he feels a visit so soon after the 20th Party Congress legitimises Xi’s massive power grab.
Scholz has brought a present with him. The giant Chinese shipping company Cosco wanted to take a 35 per cent stake in a Hamburg container terminal. There was strong opposition to the bid in the German government, with six ministries coming out against it and the Green Party faction in the coalition making public its disquiet over allowing China into part of Germany’s infrastructure. Scholz forced through a compromise and Cosco has been allowed a 25 per cent share.
From a short-term purely German perspective this all makes sense. China is Germany’s biggest trading partner with imports and exports between the two totalling €246.5bn last year. Germany receives more imports from China than any other country, and only the US receives more German exports. This partially explains why Scholz is the first leader of a liberal democracy who has been granted a state visit since the outbreak of the coronavirus pandemic in 2019. The German delegation decided against an overnight stay and so the visit is just a one-day trip to avoid the tough Covid-19 restrictions which remain in place in China.
The delegation includes numerous CEOs of big German companies including Merck, Volkswagen, Siemens, and BASF which is building a huge new chemicals factory in the southern city of Zhanjiang at a cost of €10bn. Volkswagen, Europe’s biggest car manufacturer, needs Chinese raw materials such as lithium, as do the expanding German renewable energy industries. The presence of German industrialists holding meetings about investment in the same building Xi and Scholz limits the German’s room to address human rights concerns and the Taiwan issue.
China is not Russia. It is much more important, and much more difficult to disengage from. Germany’s economic relationship with Russia was not a necessity, and as Putin’s Russia became ever more a gangster state it was a poor choice – the “Handel” continued in the complete absence of the “Wandel”. The difficulty is that Scholz’s relationship with Beijing is going to deepen the German economy’s dependence on China and its voracious appetite for German cars, washing machines, and fridges.
The German companies’ approach appears to be “bish, bash, Bosch’ followed by “kerching”. But what happens if, in the medium term, the German government follows the road most of its G7 and EU partners are taking, which is to show serious scepticism about tying themselves more deeply to China? This seems plausible. The Green Party has succeeded in ensuring the government is reviewing its relationship with Beijing and a new “China Strategy” will be unveiled next year. It is expected to recommend reducing economic dependence on China, grow relationships with the industrialised democracies in the region, and accept that it needs to be on the same page as the US, Japan, Australia, and India when it comes to the region. The four countries form the Quad group – a loose naval agreement designed to box in China.
This attitude is underpinned by that of the German intelligence agencies. Thomas Haldenwang, the head of the domestic agency, the BfV, warned last month that China is a bigger threat than Russia and said: “If Russia is a storm, China is climate change”. Addressing the Bundestag, all three agencies said there was “naivety” about China.
Because of its reliance on China, the sanctions that would follow an invasion of Taiwan would hit German companies harder than most. So Scholz is walking a difficult tightrope. He’s banging the drum for German industry and ensuring that when Berlin talks Beijing will at least listen, if not agree. He may also agree to creating a degree of political distance from China over several years. But at the same time, he’s helping to tighten the knots which tie German prosperity to peace in the South China Sea. That’s a similar gamble to tying energy supplies to Russia and peace in eastern Europe.
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