Trade

Europes China weak spot: Germany

This article is part of the series Facing China.

Forget Chinas Belt and Road initiative. When it comes to influencing European politics, Beijings real leverage doesnt come from high-profile investments in small countries like Greece or Hungary. It comes from European investments in China — specifically Germanys desire not to upset its lucrative economic relationship with one of the worlds largest export markets.

Thats the view of EU trade officials from half a dozen countries, as well as senior diplomats and experts contacted by POLITICO as Germany prepares to lead crucial negotiations on the EUs future relationship with China amid growing unease about Beijings human rights violations.

“Europes weak point is Germany, and in Germany its the car industry, and in the car industry its Volkswagen,” said Max Zenglein, chief economist at the Mercator Institute for China Studies (MERICS), a think tank.

German exports to China have grown every year since 2008 except in 2015. In 2018, Germany sold some $106 billion of goods and services in China, according to the World Bank — more than the combined exports of France ($32 billion), Italy ($21 billion), the Netherlands ($12 billion), Ireland ($11 billion) Sweden ($9 billion) and Spain ($9 billion).

“Do we want an investment deal or do we want to be tougher on the human rights issues?” — A senior EU diplomat

Volkswagen sold more than 4.2 million cars in China in 2018, compared with some 350,000 in the U.S., and has come under scrutiny for its factory in Xinjiang, a region where about 1 million Uighurs have reportedly been held in internment camps.

As European leaders prepare for a virtual summit with Beijing on Monday, the spotlight has fallen on German Chancellor Angela Merkel, who must balance rising concerns about human rights with her desire to deliver an investment deal with Beijing by years end.

“Its definitely a dilemma,” said a senior EU diplomat involved in the EUs reaction to the Hong Kong crackdown. “Do we want an investment deal or do we want to be tougher on the human rights issues?”

Economic consequences

EU diplomats say Germanys relationship with China has had an outsized weight in determining the blocs strategy toward the country. EU foreign policy may be decided by unanimity, but its nonetheless difficult for smaller countries to push back against Berlins efforts at engagement.

“Its difficult to get EU countries in the same position when it comes to China,” said the senior EU diplomat. “Germany is the one pushing for [close cooperation] with China.”

EU officials said one reason Germany — and indeed the EU — had been particularly reluctant to speak out when Beijing imposed its national security law on Hong Kong in June this year was because leaders still hoped to secure an investment deal with China by years end.

Merkels government and Brussels have also taken a soft stance when it comes to the treatment of Uighurs, despite repeated calls for action from the European Parliament, including for “targeted sanctions.” Brussels has also not moved to prevent the sale in the EU of goods made with forced labor, unlike the United States.

“China is currently very successful in achieving a degree of self-censorship in Germany because Berlin fears economic consequences,” Zenglein said.

Germanys economy minister, Peter Altmaier, defended his countrys approach in an interview with POLITICO in July.

“We have trade relations with many regions across the globe, including in many cases countries that have a different understanding of civil rights than we have in Germany,” he said. “That was the case with the former Soviet Union, as well as with many countries in the Middle East, Africa and Asia. I have always been convinced and I still believe that change can be achieved through trade.”

Germany has been reluctant to ban the Chinese telecoms vendor Huawei | Alexander Koerner/Getty Images

A trade official from a smaller EU country pointed to Germanys reluctance to ban the Chinese telecoms vendor Huawei from involvement in its mobile networks as evidence that Berlins relationship with Beijing goes further than its engagement with the Soviet Union.

“Germany would never have let the Soviet Union build its communication network,” the trade official said.

Deal dilemma

Zenglein argues that Germany has failed to price in the political risks arising from its economic engagement in China.

Berlin is only now playing catch-up with other Western powers such as Japan, the U.S. or France in formulating a China strategy that balances longer-term foreign policy and security interests against access to the countrys growing market, he said.

This month, Germany for the first time published a strategy on the “Indo-Pacific,” which it said would guide its foreign, security and economic policies toward region. In it, Berlin said it would seek to build stronger ties with countries such as Vietnam and the Philippines in an effort to “avoid unilateral dependencies by diversifying partnerships.”

For the moment, however, Germany is still pushing for an investment deal that would strengthen the EUs economic ties with China, rather than diversify them.

“Germany needs an agreement in order to maintain parity to the U.S. competitors that will receive preferential access under a U.S.-China deal,” said Hosuk Lee-Makiyama, director of the European Centre for International Political Economy (ECIPE).

Germany had hoped to strike such a deal with Chinese President Xi Jinping at the September summit, which was supposed to be held in Leipzig. Its looking increaRead More – Source