Economic entanglement and systemic rivalry: Germany and China at a crossroads | DW Analysis
Hamburg, Germany's gateway to the world. Every day, giant ships dock here to serve Europe's greatest industrial power. They transport millions – and millions – of containers every year. Almost 1 in 3 of them is either heading to China, or coming in from a Chinese port. In fact China is Germany's biggest trading partner. And here in Hamburg the ties are so strong … that a shipping line owned by China's government has bought a stake in this terminal.
This is a story of how Germany pumped up its economy on business with China… And how it got closer than any other western power to the leaders in Beijing. Only to wonder if all of this is a good idea. Under president Xi Jinping, China has become a darker dictatorship … one that's challenging the power and values of the West.
China is not only developing, but also bit by bit exporting an authoritarian regime that is antagonistic against our belief in democracy and human rights. The US is lining up the West to take a stand for democracy in a battle of the systems that will define this century… Many want Germany to join. There's going to be pressure from within the German population, from Germany's major allies outside of Europe, pushing Germany towards a harder line But is Germany really prepared to risk all this in a showdown with China? Now the new government here in Berlin faces a choice… a dilemma. Should it keep following the money? Or does it need to think again? My great hope is that we are moving toward a more - a greater strategic culture in this country. However, my great concern is, is that that might not happen fast enough In this video we're going to find out how Germany got so entangled with China… How the last few years have shown what it is they're really dealing with.
And we'll examine whether the new team running Germany really wants to make a new start It's late at night in Beijing Germany's new leader, Angela Merkel, takes her first steps on Chinese soil as chancellor. Way back in 2006. She gets all the fanfare befitting an important visitor. But little could she have known how important CHINA would become for HER. It's so interesting to watch the coverage of Merkel's first trip.
You have to remember, she was a big change. She was a woman, she was a decade younger than the man she'd replaced. The image was fresh.
And at times the mood seemed even kind of jolly… But Merkel had a message that wasn't so welcome. She broke with tradition and spoke openly about human rights. I think we will keep talking about human rights in future meetings.
there is a growing openness to talking about this, although there are still sure to be differing views. But it's important not to brush them under the carpet, but to talk about them openly. But she wasn't looking for a fight… You could hear the optimism there in talking about a 'growing openness' to talk about sensitive subjects. This was following a strategy that many in the west hoped would bear fruit. In a speech to German business leaders in Shanghai during that same trip, she laid it out explicitly. There's no footage available but this we do have the transcript… We will not only follow the development of civil society in China, but also use different forms of dialogue to try to develop it in a direction that means more openness and more freedom.
There's a German expression for this idea… "Wandel durch Handel," or change through trade. The idea that by engaging and trading with a regime like China, you can encourage it to open up politically. Back here in Berlin, Merkel soon put that to the test.
In her second year in power, she hosted the Dalai Lama in the chancellor's office. This crossed a line for China – it sees the exiled Tibetan leader as a dangerous separatist. The meeting would become a turning point… Beijing reacted very strongly to this. They essentially froze dialogue with Berlin for about six months. Noah Barkin remembers this well. He covered the meeting as a reporter.
Now, he's one of the top analysts on German-China relations. So Merkel wanted to send a signal about her support for human rights at the very beginning. But China reacted quite fiercely to that.
And that led her to change her approach. It took a lot of effort to get that relationship going again. This didn't mean Merkel gave up on the issue of human rights altogether… some prominent Chinese dissidents like Ai Weiwei would find sanctuary in Germany. But there was no repeat of the Dalai Lama meeting – or anything like it.
Merkel had found Beijing's boundaries, and didn't cross them again. And soon, Germany would need China more than ever before. In 2008 a financial crisis tore through the western world. In Europe, whole nations teetered on the brink of bankruptcy. There was rage… against the banks, the politicians, the system itself. Fears were rampant that Europe's single currency, the euro, could collapse.
Merkel was in the middle of this crisis. She used Germany's economic power to keep the currency afloat. But she needed help. With Europe on its knees, Merkel needed a new source of growth. It was clear to her where to find it... China really acted as a cushion for the German economy at a time when other European economies were undergoing serious economic hardship.
China's economy was much less affected by the financial crisis. It bounced back fast, growing at rates the west could only dream of. It was pouring resources into infrastructure on a scale never seen before. And China had money to spend in Europe too. China also came to the aid of European countries like Greece that were going through debt crises.
China bought up the debt of European countries that were that were really suffering during this crisis. China would go on to snap up assets like Greece's huge Piraeus port, helping Athens pay off some of its debt. For China this was a fantastic deal. Giving it a strategic cornerstone it would later build around.
And back home in China, a rising middle class… went shopping too. The opportunities for German industry were clear. Giants like Volkswagen already had a foot in the door. Now was the time to push it open. So Merkel did exactly that. Meetings with Chinese leaders became platforms for deal-making.
Cathryn Clüver Ashbrook leads one of Germany's most influential think tanks. She would travel to China with large business delegations. The implicit goal was always to come home with key deals… she always felt like it was her obligation in terms of her own understanding of national interest, to put that piece of economic policy front and center of her individual negotiations with China. Crucially, from Berlin's perspective, all this was gradually building up something precious: trust. I think this did affect how Merkel viewed China.
China was there for Germany and China was there for Europe during the euro crisis, and I don't think she's ever forgotten that. As a sign of that growing trust… In 2011 Merkel even set up regular government-to-government consultations between Berlin and Beijing. Something usually reserved for close allies. Politically and economically, it was all systems go. And in Hamburg, trade was booming, in both directions… It soon became part of China's massive "belt and road" infrastructure plan. Axel Mattern heads the port's marketing body.
We are partners in that Belt and road initiative since the beginning. We are always discussing how we can contribute in this kind of development. And for the Port of Hamburg, it is of vital importance to be a part of this development. For China all this trade and investment also had profound strategic meaning for the development of its own economy and technologies If you think about the three biggest industry areas within them, the three lead business areas in Germany, it's machine building, it's automotive, and it's, of course, climate technology, all of which China wanted. They wanted the kind of innovative capacity that Germany can deliver in terms of its R&D. German universities and research bodies jumped on the bandwagon too.
There was huge growth in partnerships in science and technology. Merkel's approach seemed to be working out. Engagement with China was proving to be a wonder drug… Helping to fix the euro crisis.
Hitching Germany's economy to the most dynamic in the world. Building TRUST. China for its part was all in. What could possibly go wrong? Hong Kong, 2019. China's most global city descends into chaos.
Young Hong Kongers, protesting a new extradition law imposed by Beijing that would put their freedoms at risk. Phoebe Kong covered the story for DW. As many as two million protesters demonstrated against the extradition bill, but soon after that, it evolved into a wider fight for democracy and liberties and also discontent towards police brutality all of these things accumulated and then sparked a tremendous outbreak of anger.
But the protests only seemed to strengthen Beijing's resolve… China tightened its control of the territory still further, imposing an even more draconian national security law. The national security law is indeed deemed as a watershed in Hong Kong's history We have lots of examples of activists and politicians being prosecuted. people are also very concerned that it is a kind of erosion of the independent judiciary, which is something that makes Hong Kong so distinctive from the rest of China.
These are some of many drastic changes we've seen after the imposition of the national security law. This added up to a clear break of the treaty commitments China made at Hong Kong's handover from the UK back in 1997. For the government here in Berlin, this was a chilling development. It suggested that that trust that it had been building up might have been misplaced. And it threw that whole idea of "Wandel durch Handel" we talked about earlier – the idea that by engaging with China, you might encourage it to open up politically – well all that was thrown into doubt.
In fact the warning signs had been flashing for some time… that under president Xi Jinping, China was becoming more powerful, more ambitious, and more ruthless. Like in China's remote region of Xinjiang, where evidence emerged of mass oppression of the Muslim minority. Concentration camps. Forced labour. "Re-education."
The US has called it genocide. In the South China Sea, Beijing was turning remote reefs into militarised islands. Trying to assert control of crucial shipping routes, and intimidate neighbours with their own territorial claims. China's military was expanding dramatically, with some new missile technologies more advanced than the West's… and a navy growing even bigger than America's.
And for Taiwan , this posed an existential threat. Beijing ramped up air missions to probe the airspace around the island, stoking fears that its threat to take over by force… might one day become a reality. Suppression. Concentration camps.
Expansionism. Threats of war. This wasn't the China that Angela Merkel had been hoping for.
But what about the economic side of the relationship? Well… even THAT is increasingly open to question. Despite all this trade, German and other Western companies complain they don't get fair access to China's enormous market. Nobody knows the problems better than Joerg Wuttke.
He's the head of the EU Chamber of Commerce in Beijing. The market access that we hoped for 20 years ago happened to some extent, but still a lot of areas are very much blocked. We came out with a position paper in September that has a solid 430 pages and nine hundred thirty recommendations to the Chinese government. You can see the magnitude of the problem.
Then there's the subsidies dished out to Chinese firms – many of which are OWNED by the state, creating a double-whammy that's impossible to compete with. We are facing basically state-owned enterprises that are subsidized. These are state sponsored competitors of ours that not only compete with us here in this market, but also globally by buying up assets that we are interested in. And there is a constant fear for intellectual property… Where western firms DO get a foothold in China, they've often had to form joint ventures with Chinese counterparts, which can leave their technologies open to ‘transfer’ or even theft. The pandemic added new concerns. Medical equipment shortages early on exposed Germany's crippling dependency on Chinese supply chains.
And Xi Jinping's aggressive approach to diplomacy is also eroding trust among the western business community. I'm deeply frustrated about the politicization, the kind of punishment of partners and companies. And you know, if, for example, the Czech senator visits Taiwan or Taipei, then all of a sudden products from the Czech Republic cannot enter the country anymore.
This kind of I think pettiness is something which really annoys me. It doesn't show that China can deal with the dissents very easily. That used to be different. Perhaps the biggest fear for the German economy is about the BIG picture. That in Germany's traditional strongholds like cars and heavy machinery, China will soon OVERTAKE Germany.
Chinese machine builders are very quickly establishing themselves as the lead machine builders in the world, a sector that Germany cornered for itself for over 70 years. China overtaking Germany in this key industrial sector for Germany is only a matter of time. Angela Merkel tried to tackle SOME of these problems near the end of her time in office, negotiating an investment deal between the European Union and China.
The deal aimed to help at least SOME European firms doing business in China. The deal needed ratification in the European parliament. But before that could happen, a row about human rights blew it out of the water. Anger in Europe over abuses in Xinjiang lead to EU sanctions on a group of Chinese officials. China reacted furiously, with a much bigger round of sanctions in retaliation…. against various institutions and even members of the European Parliament itself.
The most prominent was Reinhard Bütikofer, a German Green who heads the parliament's delegation on China. I reckon China calculated that they might impress us with the sanctions. In fact, the opposite has happened. I really feel that they have shot themselves in the foot. The resolve that we see in the European Parliament to stand tall and to defend the values we believe in, namely human rights, democracy, rule of law and multilateralism, that resolve has only increased.
The European parliament refused to ratify the China deal while some of its members were under sanctions. The agreement is on ice' would be a really positive spin. I really don't see this coming in the next seven years.
It all showed just how hard it had become to engage with China on business and challenge it on human rights at the same time. And the tale of Huawei revealed Germany's internal struggles in dealing with China. It was a decision facing many western governments faced – should a tech giant from China be allowed to build the 5G mobile networks of the future? Was it OK for this critical infrastructure to be built by a company subject to Chinese state power? Definitely an important decision. But Angela Merkel's government could not make up its mind. The business ministry was all in favour.
It said: Huawei has great technology and great prices. The foreign ministry said wait a minute. Huawei is too close to the Chinese government. This would not be safe for such critical infrastructure. The interior ministry also had a say…. And so did Germany's tech security body… And here at the chancellor's office, they agonised about it all… There was a tendency to avoid making a decision for fear of alienating China a reluctance by the chancellery to really take a clear decision."
All these institutions bounced the Huawei question between each other for years …. Finally parliament passed legislation that would at least provide a framework for making a decision. So let's break this down for a minute. It took Germany years to decide how to decide whether to let Huawei build its 5G network. As the Merkel era came to an end, for her critics it was symbolic of a strategy that was running out of steam. I think Merkel's approach failed to adapt to the changing face of China under Xi Jinping.
I think she continued to prioritize shorter term economic interests over broader strategic interests. I think her approach was driven also by a sense of German and European weakness. In other words, a reluctance to speak out on values issues to take policy decisions, for example, on 5G that might alienate or offend China, even if they were in Germany's strategic interests.
So… what now? Can Germany find a new way of dealing with China? The answer to that could lie in a clash of personalities, right here in the heart of Berlin. There's a new team in town. A three-way coalition, spanning all the way from the Greens through the centre-left Social Democrats, to the free-market liberals.
Bound by a message that they want to do things differently. They want to come up with a new strategy on China. And they're under pressure to deliver. US President Joe Biden has been appealing to democratic allies to join him in pushing back against China and other autocratic powers, framing this era as a kind of battle of the systems. It's an idea that's shared by many in Brussels.
China is not only developing, but also bit by bit exporting an authoritarian regime that is antagonistic against our belief in democracy and human rights. Official EU documents acknowledge this idea, describing three aspects to relations with China… Partnership, competition, and systemic rivalry That has big implications. And that very same framing of systemic rivalry is right there in the coalition agreement that underpins Germany's new government. The paper explicitly calls out problems with China. It's the first of its kind to mention Taiwan, voicing support for its democracy.
The paper also highlights the South China Sea, the status of Hong Kong, human rights abuses in Xinjiang, fair competition rules… So all those issues that we looked at earlier are referenced by the new coalition. So is this a revolution in Germany's approach to China? Well not so fast. The policy is one thing. We need to take a closer look the people now in charge of making it happen. Most of all the chancellor, Olaf Scholz.
A Social Democrat. And the Foreign Minister, Annalena Baerbock. A Green.
They're from different parties… different generations, and on China, they have very different records. Remember Hamburg, the port at the heart of Germany's trading relationship with China? That's Olaf Scholz's city. He was its mayor for most of the last decade -- during the very time when trade with China became its lifeblood. In a foreign policy debate he strongly ruled out the idea of a total "decoupling" of Germany’s economy from China. "There's one thing I really want to confront head on.
I am emphatically against any "decoupling fantasies"… that North America, Europe and China each stick to themselves and develop all kinds of separate structures. It's a huge step forward that we have a global economy." The thing is, no serious voices are calling for that kind of total decoupling that Scholz describes there.
So this kind of rhetoric from Scholz is being taken by many as a sign that what he really wants is more of the same. "Olaf Scholz stands for continuity. I think his view of China was shaped by his seven years as mayor of Hamburg." Ok so what about Annalena Baerbock, foreign minister from the Greens? Well, she's very different.
Like her party, she's been all about putting human rights first. And she says she really means it. "My attitude to foreign policy is that you can't pursue a purely economic path, just saying nice things about how human rights are important but then when it really comes down to it, not doing anything about it."
Annalena Baerbock has talked about dialogue with toughness in describing her approach to China. She's called for essentially a break in Germany's approach - so more outspoken on human rights, reducing economic dependencies on China. OK… so we have a head of government who doesn't want to rock the boat. And we have a foreign minister who wants a tougher line.
Also in the mix: a Liberal finance minister who's pro-human rights but close to the business community. Remember all those ministries who couldn't agree on Huawei – does this new government mean more of that kind of thing? We could see a sort of cacophony of discordant signals on China from this new government. One thing the new government IS clear on: it says it wants its China strategy to match that of the EU. And it wants both to be coordinated with the US.
That's something many analysts say is overdue. Now is a time for European leaders to try to come toward to move toward a common strategy in coordination with the Americans… Where Germany can be united with the United States vis a vis China, is this push in increasing the capacity of a level playing field to really insist that large market economies do play by the same rules. But it's notoriously complicated for the EU to speak with one voice. Can this really work? "It's going to be very difficult because we have 27 member states and you always have the likes of Sweden and Lithuania that are far more tougher than Hungary or Greece, for example." So does all this potential for democratic dithering and division mean nothing much will change? Will Hamburg continue to show the way… with Germany's economy only getting more intertwined with China? Leading voices in business insist that the enormous Chinese market may be simply too important to turn away from….
"Half of the global car market expansion is here, 60 percent of global growth in chemicals is here. So in a way, you have to be where the action is." And tackling global challenges like climate change will demand cooperation with Beijing for decades to come.
And yet… Polling shows that German public opinion is hardening against China. And the mood in parliament, the Bundestag, is also shifting, in line with trends around the Western world. This could open more scope for political debate ahead… not about decoupling, but at least diversification. To have fewer eggs in the Chinese basket. There's going to be pressure from within the Bundestag, from within the German population, from Germany's major allies outside of Europe, the United States, Japan, Australia, Canada, pushing Germany towards a harder line and pushing Germany to change its tone, to speak out more on values issues and re-evaluate its economic relationship with China, reduce its dependencies, become more resilient. What about Beijing, what does it want? There's change afoot there too.
Xi Jinping is redesigning China's economic model, moving to more domestic focus and more state control. THIS could turn out to be the true decoupling – masterminded not in Washington or Berlin but Beijing. "It's a huge risk. First of all, really, China started decoupling primarily on the internet side now COVID comes on top of it, where basically you have an inward-drifting China maintaining control over the economy and politics you can see from the G-20 in 19 of these leaders meet physically and talk. And the one missing is the president of China.
And I guess I think that shows a little bit about how insular China has become. And of course, once you are cutting yourself off from the world, this insular behavior starts to turn into insular thinking. It's a dizzying paradox, with China becoming at once more insular at home and more global in its ambitions.
Determined to take what it sees as its rightful place in the world -- on its own terms. China does have that long term historic and strategic arc as its key asset in its foreign policy thinking that will force decisions in Germany that will be uncomfortable. And so the main thing that German politicians need to be now is they need to be honest with their electorate, because in order to create a functional strategy and a strong position that's widely held among key actors in society, society needs to the different threats that emerge or the different strategic and at least competitive energies that emerge from China. So the test that China presents to the West really is a test of democracy itself… and whether that slow and messy decision-making can come up with strategies that work. If you want to know the answer… watch Germany these next few years.
It's got so much at stake that it can't afford to fail.