Scholz’s “Business as Usual” with China

November 03, 2022
5 min read
Photo credit: photocosmos1 / Shutterstock.com
“Should I stay or should I go now?” goes the song lyric. Despite many critical voices, Germany’s Chancellor Olaf Scholz did not show any hesitation about travelling this week to Beijing with a high-level German business delegation.

What is the problem with this? In short, that Scholz’s visit will be conducted like business as usual—a repeat of his predecessor’s much criticized approach. Yet the world has changed, including Germany.

Earlier this year, Scholz himself announced a Zeitenwende—a fundamental shift—in German foreign policy following Russia’s full invasion of Ukraine. This entails raising the country’s military budget and revising its flawed reliance on Russian energy. It has become easier to wean Germany off this addiction as the Nord Stream gas pipelines have been put out of action due to sabotage. But Germany’s deep dependencies with China might be harder to reverse.  

Adding to the impression of business as usual, Scholz has also just pushed through—despite major opposition in and out of Germany’s government—the authorization for the Chinese company COSCO to buy a minority stake in the port of Hamburg, the city where he earlier was mayor. This led France’s President Emmanuel Macron to remark tersely about learning from past strategic errors with infrastructure and China.

Rather than a Zeitenwende, it seems that the policy of Scholz on China is running on autopilot.

And, as the United States has rolled out major curbs on cooperation with China when it comes to semiconductors, Scholz’s government reportedly looks set to greenlight the sale of the German chip factory Elmos to Silex, a Swedish company that is a subsidiary of the Chinese group Sai Microelectronics. Some commentators point out that this sale, if it goes through, would not concern a high-end strategic semiconductors producer that will help China dominate the tech world. Still, the timing adds to the feeling that Germany’s policy is remaining set in its old ways.

Rather than a Zeitenwende, it seems that the policy of Scholz—who was finance minister in Chancellor Angela Merkel’s last government—on China is running on autopilot. It resembles the endless dithering on Huawei’s access to Germany’s 5G network. The approach of the Social Democratic chancellor is in sharp contrast to that of Foreign Minister Annalena Baerbock of The Greens, who has tasked her ministry to draft a more hard-edged China policy. This places China policy in the context of a “systemic struggle between democracies and autocratic regimes,” as Baerbock put it at a conference in Berlin recently.  

Baerbock labelled Germany’s reliance on Russian gas a mistake that should not be repeated with China. But this has already happened in practice. For example, Europeans trying to go green and move away from Russian gas end up with Chinese-made solar panels. China’s share in the global production of key elements for solar panels, polysilicon, and wafers is approaching 95 percent. Additionally, some panels are likely produced in the labor camps of Xinjiang, where the Uyghur minority suffers from human rights atrocities.

Raw materials remain an Achilles’ heel of the EU’s trade with China. Ten out of the 30 critical raw materials are today mostly sourced from China. That might not be a problem with free trade in an ideal world. But in the world we live in, Xi Jinping’s China has shown a growing willingness to employ trade links to hurt other countries and foreign companies for political reasons.

In 2020, Beijing cut off imports of wine and other products from Australia because its government had asked for an independent inquiry into the origins of COVID-19 in China. In the EU, Lithuania was crossed out as a country from China’s customs books. Its alleged crime? The opening of a Taiwan representative office in Vilnius in 2021 that used the name “Taiwan” instead of “Taipei,” which is used in other European countries. In just one example from the business world, in 2018, German carmaker Mercedes-Benz had to apologize to China for using a Dalai Lama quote in a social media post.

Europe needs bold German leadership on reducing trade and investment vulnerabilities with China, but so far this remains at the level of speeches.

A decade ago, I co-authored a think tank report and an op-ed in the Financial Times warning about Germany’s growing economic dependency on China. The argument was that this would breed vulnerability and have negative strategic implications for European and transatlantic cohesion on China policy. At that time, this was shrugged away in the euphoria over surging German trade numbers with China. Now as then, Germany accounts for close to half of the EU’s exports to China. With this comes increased responsibility.

Scholz claims he needed to go to China to establish a direct in-person dialogue with Xi as they have only communicated via video so far. That is understandable but the timing awful. Scholz is the first G7 leader travelling to Beijing following the recent Chinese Communist Party Congress that conveyed the clear message that Xi is the “chairman of everything” now. And Marx takes precedence over the market, as Xi’s speech to the congress conveyed. In that context, the visit by Germany’s chancellor will be used by China’s propaganda apparatus to present it as evidence of the world’s deference to Xi.

Europe needs bold German leadership on reducing trade and investment vulnerabilities with China, but so far this remains at the level of speeches. Doing so will be costly and will entail hard choices on raw materials (Europe does not like the dirty business of mining and processing on its territory). Scholz must speak frankly with a certain part of the German business community and with the German public about this.

His visit to China is not an auspicious start in this regard, but Germany’s government—pushed by The Greens—could still discover its mojo and deliver the needed German and European Zeitenwende on China.