Written by 2:38 pm EU Investment

Missing in Action? – The Diplomat

Despite signs to the contrary in the run-up to former Chancellor Angela Merkel’s departure and the change of guard in Germany, the country’s China policy seems to be continuing along its familiar business-first line. Olaf Scholz is set to make his first trip to China as chancellor in early November, accompanied by a business delegation. He has been adamant that Germany will maintain its profitable business links with China, swearing off ideas of “decoupling” from the country. However, this line is increasingly at odds with many both in Germany’s domestic politics and among its partners in the EU and elsewhere.

Scholz’s foreign minister, Annalena Baerbock, advocated for a tougher line on China both during her bid for the chancellorship and later as foreign minister. Just in September, reports came in that Germany has been preparing a new trade policy that spells an end to “naivety,” according to Germany’s trade minister. The policy also includes plans to restrict Chinese infrastructure investment and to refrain from supporting initiatives like the Belt and Road.

Seen in this light, Scholz’s China trip and the recent decision, taken despite opposition from ministries and coalition partners, to allow state-owned Chinese shipping company COSCO to acquire a share in Hamburg Port sends mixed signals to fellow EU countries on Germany’s direction. Scholz wants to see Germany continue to enjoy the very real economic benefits its relationship with China can bring – and here he has the support of much of German industry. At the same time, politicians both in Germany and beyond look to Scholz for a more strategic and coordinated China strategy that takes into account the major uncertainties that geopolitics are bringing into trade and investment relations.

Scholz’s mixed approach to relations with China comes at a time when the United States and many EU partners are looking at China much more warily. China’s support for Russia’s war in Ukraine has antagonized many, but the roots of the problem run deeper. Lithuania may have been a canary in the coal mine in Europe, calling out China’s human rights situation and coercive trade practices earlier and more vocally than most. Other countries in Central and Eastern Europe – a region whose participation in the Chinese-led 17+1 format sparked concerns of a dividing Europe just a few years ago – are turning sour on China. Italy’s new Prime Minister Giorgia Meloni has long been a critic of China, and the U.K.’s Rishi Sunak has quickly found common ground with the United States in calling China’s influence “malign.”

Just last week, French President Emmanuel Macron said a visit to China so soon after the 20th Party Congress would be seen as too legitimizing a gesture toward Xi’s leadership, and that he would have preferred a joint visit with Scholz to show European unity. Meanwhile, Belgium’s Foreign Minister warned of the potential security risks of the Hamburg COSCO deal. Now, it is Germany whose China policy is seeming increasingly out of sync with European partners.

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There are various reasons to predict that Germany’s current approach will become increasingly difficult to sustain in view of its position in the EU and among Western allies more generally.

First, the main points of tension in the China-EU relationship, such as China’s support for Russia, aggression toward Taiwan, and human rights violations in Xinjiang, are core issues for China and the EU alike, and neither side is likely to change course. This dynamic drives them toward a more complicated, challenging relationship.

The deterioration in recent years of the EU-China relationship over issues like human rights violations in Xinjiang, Hong Kong, and elsewhere, China’s hardened stance toward Taiwan, and increasing authoritarianism at home are core issues for the two parties with no easy solution in the near term. The EU cannot, nor would it want to, be seen as reneging on its line of protesting and sanctioning human rights violations any more than China wants to backtrack on what it sees as imperatives of domestic security, or to be seen as giving in to foreign demands.

Similarly, the more support foreign countries show for Taiwan, the more pressing the issue becomes for a Chinese Communist Party increasingly sensitive of its prestige and sensitive to perceived threats. At the same time, with the amount of political capital invested in supporting Taiwan in many EU countries and the huge geopolitical and economic shock of any Taiwan conflict, EU countries are unlikely to scale back their engagement in the issue and will start to prepare for potential economic disturbances should the worst happen.

Second, Germany is in a position where it is a leader in the EU but is finding its China policy at odds with many other member states in the bloc, even though a more unified approach would benefit everyone.

Germany itself has been calling for a more united European stance in geopolitics, and has acknowledged the need for a more strategic approach toward China. Nevertheless, it is sending mixed signals with Scholz travelling to China just weeks after the Communist Party Congress and at a time when many European countries are turning more and more critical of China. The history of European foreign and trade policy shows that to wield influence, Europe needs to be united. As Europe’s largest trading partner with China, Germany would benefit from a Europe united behind advancing common rules as much as anyone. However, Germany is increasingly swimming against the current in a Europe that wants a firmer approach to trade and politics with China.

All of this shows a picture of a country attempting to continue more or less as business as usual while the world around it has changed. This is not to say Scholz should necessarily acquiesce to the most hawkish voices in the EU, but he should show that Germany is actively invested in creating and acting in alignment with common European approaches to China. This approach is increasingly called for by the German business sector as well.

Third, the United States and other NATO and Western allies will likely put more pressure on countries to close ranks in issues related to trade and openness to Chinese investment in critical infrastructure.

As the security situation in both Europe and the Asia-Pacific continues to worsen, Germany as a NATO and EU member will be increasingly involved. The increasing alienation of China and the United States will affect Germany as well. In military affairs, this could mean having to decide Germany’s approach to a potential Taiwan conflict, where there would likely be significant pressure to actively support the United States. On the economic side, both the U.S. and Europe are increasingly treating foreign direct investment as a security issue, and sales of critical infrastructure or technology to China can put Germany at odds with U.S. legislation or make it the target of U.S. political pressure to limit sales. With the future of the China trade seeming more uncertain than before even in optimistic evaluations, Germany will need to be attentive to the views of its major partners.

These three major currents in China and the EU’s relationship are difficult to reverse and will likely continue to define the relationship between Germany, the EU, and China. Germany’s recent lack of a coherent direction on its China strategy sends the wrong message at a time when there is increasing consensus on the need among other EU leaders for a more strongly strategic approach.

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Scholz may be right that continuing dialogue is important and that a full decoupling is currently not feasible. However, his recent decisions risk repeating a long-term European weakness – namely, a lack of a unified approach to international affairs. Such an approach will not manifest without German backing, and Scholz should be more attentive to warnings from his own government and European partners – some of whom have shown a sharp geopolitical eye before. The combined pressures of an uncertain security situation and a changing EU consensus may yet force Germany to change its approach, and Germany will be in a better place if it is prepared to lead the change rather than have the ground shift under it.

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