China fearful of new German government

Mark O'Neill December 06, 2021 10:12

China has just lost its best friend in Europe, Angela Merkel, and fears the government that is replacing her.

Merkel formally left office last Thursday (December 2) after 16 years as Chancellor of Germany. Her replacement is Olaf Scholz, leader of the Social Democrats, who heads a three-party coalition from his party, the Greens and the Liberal Democrats.

Unveiled last month, its policy platform urged Beijing to loosen its grip on Hong Kong and said that “any change in the status quo in the Taiwan Strait can only be resolved peacefully and by mutual agreement.”

Annalena Baerbock, the new Foreign Minister and leader of the Green Party, said last week (December 1) that she did not rule out a boycott of the Winter Olympics in Beijing in February.

“Eloquent silence is not a form of diplomacy in the long run. A values-driven foreign policy is always an interplay of dialogue and toughness,” she said in a newspaper interview. She expressed concern about the treatment of the Uighurs in Xinjiang, the detention of journalist Zhang Zhen and the situation of tennis star Peng Shuai.

Incoming Health Minister Jens Spahn said that Germany and the European Union should reduce their over-reliance on China by finalising more trade deals with other countries and regions. It should diversify its export markets and source of imports away from China, he said.

The new German government is moving toward the consensus in Europe. Beijing’s foreign policy, “wolf warriors” and fake news campaigns have turned European public and political opinion against China.

Its explanations have failed to convince Europeans of the legitimacy of what it is doing in Hong Kong, Xinjiang and the Taiwan Strait and its treatment of dissidents and religious groups.

But, Beijing believes, these criticisms are outweighed by Europe’s enormous economic interests in China, especially those of Germany, the largest EU investor in the country.

Since 2015, China has been Germany’s most important trading partner. In 2020, bilateral trade was worth 212 billion euros. It was Germany that played the leading role in negotiating the EU-China Comprehensive Agreement on Investment (CAI), signed in December 2020. The European Parliament has refused to sign the agreement, after Beijing sanctioned some of its members.

During Merkel’s 16 years, Germany elevated its relationship with China to that of “comprehensive strategic partnership”, including discussions on climate change and disarmament. For 10 years, the two countries have held regular intergovernmental consultations. The latest took place in April of this year, virtually instead of in-person, due to the coronavirus pandemic.

Economists in Germany believe that, over the next 10 years, China will account for 30 per cent of global economic growth.

According to Chinese figures, Germany is the largest EU investor in China, with investment of more than US$90 billion, 25 per cent of total EU investment in the country. There are about 5,000 German firms in China. They are especially strong in chemicals, automobiles, machinery, precision equipment and new energy.

Volkswagen sells more cars in China than in Germany. In 2020, China accounted for 38 percent of global car sales of Germany's largest car manufacturers Volkswagen, BMW and Daimler, according to a study conducted by the German Center for Automotive Research (CAR).

While most global markets declined in 2020 because of Covid, car sales of BMW and Daimler in China increased by 7.4 per cent and 11.7 per cent respectively, both sales records.

“This enormous investment strongly influenced Merkel’s policy on China,” said a German business consultant in Hong Kong. “This limited her freedom to speak out on human rights and other contentious issues.

“The policy of Scholz will not be much different. He is pragmatic and well-informed and must consider the economic interests of the big auto companies, Siemens, Bayer, BASF and other major firms. But, within his coalition, there are different opinions, especially with the Greens,” he said.

Last June Beijing angered the BDI, Germany’s powerful industrial association, with its law to counter foreign sanctions.

“Instead of relying on a de-escalation, the Chinese government is creating new uncertainties,” said BDI board member Wolfgang Niedermark. “This is damaging China’s reputation as an investment location and trading partner.

“The law is very different from similar laws in the EU,” he said. “It undermines legal clarity and creates a grey area which from now on will hang over any company doing business in China. Instead of reacting with threatening gestures, the Chinese government would be well advised to introduce more constructive elements into the dialogue with its trading partners.”

The new government will have to find a way to balance the interests of its major companies with the increasing public and political hostility toward China.

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Mark O'Neill

A Hong Kong-based writer, teacher and speaker.