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  • Writer's pictureThe San Juan Daily Star

Did Germany learn from its Russia trouble? The test may come in China.

As Chancellor Olaf Scholz of Germany prepares for his first visit to Beijing on Thursday, the country’s intelligence chiefs and allies are warning him against pursuing business as usual with China.

By Katrin Bennhold and Erika Solomon

Germany understood the trap of strategic vulnerability that it had laid for itself in relying so heavily on Russian gas only after Moscow invaded Ukraine and turned off the spigot. But whether that lesson has been fully absorbed may be tested elsewhere: China.

As German Chancellor Olaf Scholz prepares for his first visit to Beijing on Thursday, a planeload of executives in tow, Germany’s intelligence chiefs and allies are warning him against pursuing business as usual with a China that is saber-rattling in the Taiwan Strait. Were tensions to escalate, Europe’s most powerful democracy could be exposed to economic coercion.

More than 1 million German jobs depend directly on China, and many more indirectly. Almost half of all European investments in China are from Germany and almost half of German manufacturing businesses rely on China for some part of their supply chain.

And Germany’s dependence on China is more complex than that on Russia: In addition to China’s export market, German industry also relies on China for raw materials and technologies critical for the transition to a carbon-neutral economy. From solar modules to batteries for electric cars, China is crucial.

“When people talk about China, they say, ‘Russia is the storm, China is climate change,’” said Thomas Haldenwang, president of Germany’s domestic intelligence agency. “We cannot allow a situation where the Chinese state can influence political events in Germany, possibly through critical infrastructure.”

Yet, Germany is edging in that direction — and at a moment when Chinese President Xi Jinping has just secured a third term with greater emphasis on China’s security interests and threats from the West, warning of “dangerous storms” on the horizon.

Even so, before his trip, Scholz has been quietly engineering a compromise to allow Cosco, a Chinese state-owned shipping company, to buy a stake of up to 25% in a container-handling terminal in Hamburg port, Germany’s most important.

The investment, down from Cosco’s original proposal of 35%, was opposed by six of his ministries and both the domestic and foreign intelligence chiefs.

They worry that Cosco’s stake could be weaponized by Beijing, whose state-owned companies already hold sway over other critical infrastructure and technology, including a stake in the Wilhelmshaven port and the mobile network of the German railway company, and in 2016 bought what was then Germany’s largest robotics firm, Kuka.

As if to prove their point, German politicians say, Cosco threatened to take its business elsewhere if its bid was turned down. It is the Hamburg port’s biggest client, and already owns stakes in ports in the Netherlands, Belgium, Spain and Italy. It also owns two-thirds of the port of Piraeus in Greece and even some stakes in ports in the United States.

“The blackmail is already in full swing,” said Norbert Röttgen, a conservative member of the German Parliament’s foreign affairs committee and outspoken China hawk. “It’s another building block of Chinese influence in Germany.”

In a terse statement this past week, Cosco cautioned that the Hamburg deal was still uncertain. “There is no assurance that the transaction will take place or when it may take place,” it said.

Scholz, a former mayor of Hamburg whose successor is one of the noisiest advocates for the Cosco bid, has so far been silent on the matter.

The bid has become a test case of the chancellor’s fledgling China strategy — and Germany’s willingness to pay an economic price for more strategic independence.

For decades, Germany’s postwar identity was that of a peaceful exporting nation, thriving on cheap Russian gas imports and ever-growing sales to its largest trading partner, China. That model made it the largest and most influential economy in Europe.

Angela Merkel, Scholz’s predecessor, visited China a dozen times during her 16 years as chancellor, each time accompanied by dozens of executives. Exports to China helped lift Germany out of mass unemployment in the early years of her chancellorship, and cushioned the blow of the financial crisis years later. Unlike in the United States, where China’s economic rise led to industrial decline and job losses, in the export nation of Germany, it created growth.

Even before the war in Ukraine, Germany’s China policy was ripe for evolving from the mercantilist soft touch of the Merkel era. In 2019, the Federation of German Industries, or BDI, published a policy paper warning that the country’s liberal, open model was increasingly in competition with China’s “state-dominated economy” and that Germany should protect itself more forcefully from Chinese companies.

The war in Ukraine has only added urgency.

China makes a wide range of factory equipment that it used to buy from Germany. COVID-19 lockdowns and a wave of nationalism have also hurt consumer spending on imports in China. At the same time, Germany has kept buying ever-more Chinese goods.

The result is that Germany’s longtime trade surplus with China vanished late last year and has been replaced by a steadily widening deficit. Many German companies now see China as a competitor at home instead of an opportunity abroad.

“People always talk about how China is a big market — no, China is a huge economy with a small accessible market,” said Jörg Wuttke, president of the European Union Chamber of Commerce in China. Overall, EU exports to China are only slightly larger than those to Switzerland.

All of that has added to the frustration with Scholz’s apparent tiptoeing around China, and not only from some German businesses.

Scholz’s reluctance to take a tougher line on China, observers say, is likely to be a reflection of uneasiness over the German economy. He is treading carefully to avoid creating a sense of confrontation with China when the country is headed for recession and Europe is already locked in a standoff with Russia.

“We are in a precarious economic situation due to the war,” said Thorsten Benner, director of the Global Public Policy Institute in Berlin. “Part of the hesitation is that Scholz doesn’t want to send shock waves into the system.”

But he and others said Germany’s economic anxieties should not factor into decisions on strategic investments, such as Cosco’s bid in the Hamburg port, out of fear that Chinese business would go elsewhere. European states need to stand together, they say, and Germany cannot be afraid to be the first.

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