Quarterly Concerns

Mar 31, 2022

China’s Shadow over Germany’s “New Era”

Even if China’s pro-Moscow stance on Russia’s invasion of Ukraine is not set in stone, it cannot be without consequences for Germany’s new China strategy.

An illustraion showing German Chancellor Olaf Scholz in an airport departure lounge
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The immediate challenges posed to Europe by Russia’s war in Ukraine are already pushing the German government to its limits. While Berlin is still hesitant to position itself more robustly and take more risks in this conflict, in the background, a new course must also be set in relation to China. The ongoing development of the German government's China strategy needs to start from different premises: With its “no limits” friendship with Moscow, which it proclaimed back in February, and deep-seated criticism of NATO, Beijing is also turning into a security policy challenge for Europe.

Beijing will deny this and try to keep all avenues open in its supposed—but so far pro-Russian and anti-Western—neutrality. Meanwhile, the propaganda apparatus in China is spreading almost exclusively Russian fairy tales about the war in Ukraine. Whatever way you look at it, Beijing is becoming the central player in an increasingly global conflict. Whether it is Russia's senior partner in a protracted and systemic confrontation against the US-led West, backing Putin one day and undermining sanctions the next, a relative winner in the crisis, or a calculating middleman supporting a negotiated settlement.

For all the uncertainty about how precisely Beijing will calibrate its responses in the coming months, the picture has already become clearer in recent years: Germany must also chart a clearer course toward China in this phase of a fraying world order.

When Beijing puts pressure on European, and especially German, companies in response to Lithuania’s opening of a Taiwan office, it undermines the integrity of the European single market and the common trade policy. When disproportionate sanctions against parliamentarians and research institutes are maintained, China deliberately opposes democratic constitutionality and academic freedom in Europe. If China sees the United States—the guarantor of European security—as an archrival, and challenges Europe's democratic partners in Asia, then the German government should ensure that strategic consequences follow.

Systemic Competition under Pressure

As with Vladimir Putin’s Russia, this initially means considering China's internal development as even more of a yardstick: The nationalist, anti-Western and illiberal course of party and state leader Xi Jinping is likely to intensify even more if his grip on power becomes entrenched at the 20th Party Congress in November. China is under massive pressure—the leadership's mantra is stability at any price. And now, in addition to internal signs of stress—from the real estate crisis to pressure on the labor market and a permanent lack of productivity—there is also the global economic war shock and a new COVID-19 wave, against which China is ill-armed. Energy prices, food safety, and the disruption of supply chains and transportation routes will hit China hard.

How the leadership deals with this pressure will shape relations with Europe at least as much as Beijing’s foreign policy behavior. In both cases, the course taken so far promises a highly instrumental and self-interested approach—especially toward Europe—but overall more toughness, the expansion of spheres of influence, and targeted isolation. Xi’s most likely lesson from the war in Ukraine will be that he wants to make China even more self-reliant and is prepared to pay a high price for this. Compliant supporters of China’s modernization, such as German companies, will still be used without issue, but the focus will be on localization, displacement, and “indigenous innovation.” Whenever possible, China will increasingly try to counteract the growing cohesion within Europe and with the US.

Paradigm Shift

Where Germany’s Russia analysis failed, or the consequences were not fully reckoned with, the same mistake must not be repeated with China. Contrary to often implicit and little-expressed basic assumptions in the past, under current conditions closer ties to China no longer expand Germany’s international room for maneuver. Berlin must become more competent in assessing China’s strategic shadow games and translate foresight regarding potential conflicts and tensions, on issues such as Taiwan and technology development, into a capacity to act. It must also speed up its situation analysis on China's internal development.

Such an analysis shows repeatedly that China has a choice, but its leadership regularly chooses a course that is incompatible with European interests, principles, and values. Europe—and Germany in particular—has kept the doors open long enough; a new chance, perhaps the last chance for a while, will be offered in April, when the EU-China summit is scheduled. The summit should be of great importance to the German government, especially if Beijing continues to lean with Russia with regards to the war in Ukraine and depending on what its tactics are.

Zeitenwende Test Case

Even if Xi and Putin, building on more than 25 years of Russian-Chinese strategic rapprochement, have recently done a great deal to strengthen the anti-Western Moscow-Beijing axis, China cannot simply be equated with Russia and the challenges in dealing with it are becoming much more complex. China will thus become perhaps the most important test case for the change in Germany’s foreign policy in the next few years, which Chancellor Olaf Scholz’ Zeitenwende has proscribed.

If Beijing continues to rely on openness and cooperation with Europe, this would have to be urgently reflected in deeds. The alternative scenario is becoming more concrete, however: Germany, too, would have to make cooperation with China much more conditional and put comprehensive, strategic competition with China into practice. This scenario should set the direction and boundaries for Germany's new China policy—geared to Europe's ability to act. Over the next 12 to 24 months, the following seven lines of action need to be fleshed out:

#1 Calibrate the Way the European Union Engages with China in Relation to the Extent of Beijing’s Support for Putin

The German government must be prepared for subtle but sustained Russian-Chinese cooperation. The range of possible Chinese behavior in the coming months and years remains broad: The German government, together with its European partners, should clearly signal that Beijing risks severe cracks or even a rupture in the basis of European-Chinese cooperation, if it systematically counters European sanctions policy, deepens military-technical cooperation with Moscow, continues to supply technology—especially legacy chips that keep Russia’s war machine running—or if Chinese companies immediately exploit opportunities in Russia's weakness. The clearer Beijing’s strategically-minded, anti-Western positioning becomes in this conflict, the more serious cooperation with the United States and like-minded partners becomes for Germany and Europe.

#2 Meet China’s Challenge in “New Domains”

China’s challenge to Europe will increasingly play out in new domains. China's technological advances in the development, use, and control of space are closely intertwined with its military programs and ambitions. Cyber-attacks from China are already a daily occurrence for companies and critical infrastructure operators. Espionage, the theft of intellectual property and highly sensitive political information, is only one side of the coin. Still underestimated are the effects of Chinese actions aimed at shaping and influencing information spaces worldwide.

In all these fields, not only is European awareness of the problem generally low—there is often simply a lack of European capacity to analyze Chinese activities systematically in the first place, in order to develop appropriate responses. Cooperation with Australia, Taiwan, and other players with extensive experience in these fields should be expanded. NATO also has a role to play for European countries in dealing with these threats.

#3 Prioritize Economic Security over Deepening Interconnectedness

Strategic foreign economic policy toward China would have to establish long-term “economic security” as a third goal alongside comprehensive reciprocity and fair competition. Measures such as the EU-China investment agreement, which has already been put on hold, are at least partially at odds with the overriding priority of reducing those dependencies on China that threaten to limit Germany’s strategic ability to act in the event of sustained tensions or a crisis.

In addition, there is a need for the consistent application of new and emerging trade defense instruments and investment reviews. The anti-coercion instrument becomes even more urgent in view of the fact that recent Chinese efforts aim at expanding the reach and penetration of Chinese law enforcement. The emerging new German national security architecture should take economic issues into account, and German and European institutions should provide regular reporting on strategic import vulnerabilities and technology dependencies. Companies in strategic sectors could be required to disclose their country-specific linkages or dependencies outside the OECD framework, especially vis-à-vis China. Cooperation within the framework of the EU-US Trade and Technology Council (TTC) should also be further intensified to coordinate export controls and technology cooperation.

#4 Strengthen European Industrial Policy in Competition with China, Drive Forward Diversification

In order to prevent existing and future dependencies on China and to strengthen European innovation ecosystems, measures such as the European “Chips Act” and Important Projects of Common European Interest (IPCEIs) on microelectronics, battery technology, and hydrogen are first steps that should be expanded. In sensitive emerging technologies—especially where dual-use potential exists—cooperation with China in science and research must also be put to the test. At the same time, Europe should learn from Japan, Australia, and Taiwan and provide financial support for the diversification of particularly dependent or strategically important industries as “friend-shoring.” Even if it is not textbook EU trade policy, geo-economically it would be a strong signal for the EU to seek accession to the trans-Pacific CPTPP trade agreement. The EU Indo-Pacific strategy would thus be filled with life.

#5 Strengthen Europes Connectivity and Assertiveness in increasingly Chinese-dominated Spaces

With the EU’s Global Gateway Initiative, a strategic and financial framework now exists that needs to be filled with concrete flagship projects in the coming months—from submarine cables to hydrogen cooperation—to underpin Europe's claim to drive the digital and green transformation. Lighthouse projects, with connectivity partners Japan and India, could be prioritized, not least to create alternative offerings to the Chinese Belt and Road Initiative (BRI) in the Indo-Pacific and Eurasian regions. In the fields of standardization, data regulation, and digital rulemaking, European players have experience and weight which, bundled in the EU framework, can have even more impact internationally. Increased cooperation within the EU and with “like-minded” partners should take priority over further targeted cooperation with China, where this is in the interest of Europe as a whole.

#6 Make Multilateral Cooperation China-proof

In addition to the global climate and health crises, the world could be rocked by dramatic food crises in the coming months. Preserving and, where possible, expanding multilateral spaces for effective cooperation with Beijing on these issues remains a core task. Only then can new coronavirus waves, worldwide including in China, be slowed down, and a worldwide stockpiling competition for grain be mitigated. If the German government focuses on radical climate cooperation, then this should mean, above all, making such convincing European offers to the G77 states, also in the context of the COP negotiations, that the calculus for China to further delay its green transition changes. As pressing and even more difficult will be the involvement of China in disarmament or transparency initiatives. The (nuclear) rearmament spiral accelerated by China and the dangers posed by new weapons systems will not be stopped by European efforts, but wherever possible, understandings with China on these issues should be sought.

#7 Expand the Infrastructure, Coordination, and Resonance of Germanys China Policy

In its coalition agreement, the German government committed itself to expanding Asia competence in Germany. Central to this must be sustainable support for action-oriented “China intelligence” geared to practical needs, which communicates research findings in an accessible manner and addresses knowledge gaps in cooperation with players from politics, business, and society. This includes an integrated interplay of university research, think tank work, and know-how in ministries, companies, associations, and NGOs. The need to “read" the strategic intentions of the leadership in Beijing, to describe and, where possible, decipher priorities, constraints on action, and also multiple internal debates for this purpose will grow rapidly. In view of the ever-diminishing access channels and controlled information spaces, much must be learnt about effective “signaling” and the logic of appropriateness in China’s behavior.

Not only for this reason, cultivating a variety of civil society contacts within the Chinese-speaking world is also relevant. They must be expanded where possible, in their own right, against all resistance and circumnavigating any barriers erected by Beijing. The recruitment of Chinese students in Europe and more investment in educational and scientific exchange, with both the People's Republic and Taiwan, are called for.

For the German government, effective European coordination of China policy should be given at least as much priority as European unity in the Brexit negotiations. Internally, this requires regular rounds of state secretary meetings and better coordination between the federal and state governments. Critical ministries have long shown a lack of coordination on China policy. Mechanisms are needed with European partners to ensure joint situational analysis, solidarity, and coordination of interests on a more permanent basis.

In addition to the transatlantic framework and traditional meetings with the “like-minded,” such as the G7, much closer coordination on China issues with partners in Asia and the developing world is a key task for Germany in particular. China’s illiberal global advances will only be contained by broad-based networks and coalitions.

Even if it is difficult to look at the bigger picture in view of the developments in Ukraine, the real test for Germany’s “New Era” has yet to come.

Mikko Huotari is Executive Director of the Mercator Institute for China Studies (MERICS) in Berlin.

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