Germany Adopts 'Strategy on China' to Beijing's Disapproval

The Lede: Germany announced on Thursday a new ‘Strategy on China’ that encapsulates the country’s ‘de-risking’ path for critical industries as Beijing hit back with criticism.

What We Know:

Building on its first national security strategy from last month, the German government published its ‘Strategy on China’ this week. It details Germany’s approach to managing its dependence on China in light of issues regarding international law and human rights.
The document stresses Germany’s commitment to maintaining trade and investment ties with China, but reducing dependencies in critical sectors through diversification in its supply chains in line with the ‘de-risking’ narrative. It considers medicine, metals and rare earths such as those for lithium batteries, and semiconductors to be critical sectors. It suggests that the German government will adjust lists of products subject to export controls, issue provisions regarding research and development projects in China, and plan to hold talks with firms with exposure to China to identify risks.
China has criticized the German government for the move, which it sees as protectionist and unstable for bilateral relations. The Chinese foreign ministry insists that the two countries are “partners rather than rivals” and that the move would “aggravate divisions in the world.”

The Background: China is Germany’s most important trading partner. Imports and exports between the two countries reached about $335 billion in 2022. China is a key market for major German companies such as Volkswagen and BMW. During Angela Merkel’s years as chancellor, trade between the two countries grew and Germany held back on criticism. In 2014, the two countries established a ‘comprehensive strategic partnership.’ China’s stance on the Russian War in Ukraine, tensions in the Taiwan Strait, and the controversy surrounding the Uyghur minority group in Xinjiang, and the flow of technology and knowledge to China has dampened Germany’s views.

Likely Outcomes:

Restrictions on trade in the targeted sectors will be implemented as described in the strategy. Yet, as the new strategy remains relatively vague regarding areas of cooperation and possibilities of German participation in economic growth and innovation in China, firms will likely seek opportunities within this framework. However, the overall sentiment of ‘de-risking’ may lead businesses away from dealing with China in the future. This may become a blueprint for other European countries in forming a China strategy.
China may look for European countries that do not share the same ‘de-risking’ sentiment and focus on fostering ties in those places. Countries such as Hungary, Serbia, and Montenegro may experience increased attention from Beijing as the rest of Europe moves away.

Quotables:

“Anyone who listens to China knows with what self-confidence it will decisively influence the development of our world — more repressive at home and more offensive abroad. China has changed and so our China policy must change too.” - Annalena Baerbock, foreign minister of Germany

“We believe that to engage in competition and protectionism in the name of de-risking and reducing dependency, and to overstretch the concept of security and politicize normal cooperation will only be counterproductive and create artificial risks.” - Wang Wenbin, spokesperson for the Chinese Foreign Ministry

"I am more than skeptical about whether sacrificing trade will lead to more positive change or a better world. Rather the opposite because if we are in communication, we can better understand others as well as convey aspects of our values and culture." - Peter Adrian, president of the Association of German Chambers of Commerce and Industry (DIHK)

"It is gratifying that the strategy very resolutely bids farewell to the dream of a comprehensive strategic partnership with China, which Angela Merkel also pursued with President Xi. This clear departure was urgently needed." - Thorsten Benner, co-founder and director of the Global Public Policy Institute

Good Reads:

Germany's new China strategy: Critical but not decoupling (DW)

Germany urges companies to ‘de-risk’ from China, emphasizes it is not seeking a decoupling (CNBC)

‘China has changed.’ Germany unveils strategy to cut reliance on world’s no. 2 economy (CNN)

China criticizes German call for reducing dependency on Chinese products as ‘protectionism’ (The Hill)