Berlin Cable

Oct 28, 2022

Scholz Goes It Alone on China

Having pushed through a deal in which a Chinese state-owned company takes a minority share in one of Hamburg’s port terminals, the German chancellor is getting ready for his solo trip to see President Xi Jinping in Beijing. It is a missed opportunity.

German Chancellor Olaf Scholz attends a post-war reconstruction of Ukraine conference in Berlin, Germany, October 25, 2022.
All rights reserved

Picture the scene: The G20 summit in Bali on November 15-16. Russia has brutally invaded Ukraine and destroyed Europe’s post-Cold War peace order—and most likely after getting the nod from Beijing (following the Russian-Chinese “no limits” partnership announced on February 4, just 20 days before the war, although the Chinese deny this). Russian President Vladimir Putin is not only confronted by his Ukrainian counterpart Volodymyr Zelensky, who has been invited specially by the Indonesian hosts. There are also the two Europeans leaders Putin had lied so much to in meetings and countless telephone conversations: French President Emmanuel Macron and German Chancellor Olaf Scholz.

Together with British Prime Minister Rishi Sunak they have a strong message for Putin: Europe will continue to support Ukraine whatever it takes. Russia must stop its criminal aggression at once and withdraw all its troops from Ukrainian territory. After that, Scholz and Macron travel on together to visit Chinese President Xi Jinping, who has tried to stay out of the dispute with Russia in Bali. In Beijing, their message is the same. And they have an additional warning: If China continues its pro-Russian “neutrality,” China’s relations with Europe will continue to suffer.

Yet, this scenario is not to be. Scholz has passed on a French offer to join forces vis-à-vis China and jointly visit Xi. Instead, the German chancellor will fly to Beijing for a one-day trip on November 4, taking, as has been customary during the Angela Merkel era and before, a delegation of CEOs from the big German companies that are heavily engaged in China. It is Scholz’ first “courtesy call” after becoming chancellor almost a year ago, the chancellery argues. It is common practice to make such a visit on one’s own.

Missed Opportunities

Still, it feels like a missed opportunity. The decision to go to China alone speaks of Scholz entertaining a special notion of the role of a German chancellor—a notion he rarely shares, let alone explains. He just knows. Travelling solo when it comes to reaching out to Xi Jinping, who recently secured a third term as president at the Chinese Communist Party’s 20th Congress and will likely rule China for life with unfettered power not seen since Mao Zedong, is part of that. Another aspect has been the highly tactical game he has played to allow Chinese state-owned container shipping company COSCO to take a share in one of Hamburg port’s four terminals.

After the European Commission and all six of the German ministries involved in the process of granting permission (all run by politicians from Scholz’ coalition partners, the Greens and the pro-business Free Democrats) having come out against allowing COSCO to take a 35 percent share, Scholz got his way—by decreasing the share to 24.9 percent. This is below the 25-percent threshold requiring government permission, and Scholz later insisted that the deal would not hand China any “strategic influence.” This clearly is a minority view.

In fact, it seems to have been an “einsame Entscheidung” by the chancellor, a decision taken by himself alone, to forge this “compromise.” Annalena Baerbock’s foreign ministry made a point of filing a “notice” to the cabinet’s proceedings, which read, “The purchase of a share of Tollerort container terminal by COSCO expands excessively China’s strategic influence on Germany’s and Europe’s transport infrastructure as well as Germany’s dependency.” Finance Minister Christian Lindner, the leader of the Free Democrats (FDP), wrote on Twitter that he supported the note.

And that’s just Scholz’ top cabinet colleagues. The backlash against the chancellor’s ego trip on China policy have been remarkably broad and unequivocal. The criticism of Scholz has become louder still after business newspaper Handelsblatt reported on October 27 that the Scholz government was also going to greenlight the Chinese takeover of a chip production factory belonging to the German company Elmos, even though Germany’s domestic intelligence service had voiced concerns.

Given how much German public opinion has turned, that’s not really a surprise. According to a recent poll by INTERNATIONALE POLITIK and Forsa, 58 percent of respondents advocate taking a tougher line with Beijing even if this brings economic cost. According to the Berlin Pulse, a poll by Körber-Stiftung, 66 percent say “rather yes” when asked if Germany should reduce its dependencies on China even if it leads to economic losses.

But it’s not only that Scholz seems intent on increasing his pile of presents for Xi. There is also an element of trying to preempt Germany’s China strategy, which was supposed to be published early next year, on the heels of a National Security Strategy. The chancellor appears to be creating facts on the ground that run counter to the current trend of reducing, rather than increasing, dependencies with Xi’s increasingly totalitarian state.

Running a Deficit

No one in Germany wants to stop dealing with China, which has become the country’s biggest trading partner in goods in recent years, confirmed by figures for 2021. While the United States remained Germany’s most important export market worth €122 billion, China followed suit with €103 billion. However, imports from China to Germany reached a whopping €142 billion (from the United States: €72 billion). That means that Germany last year enjoyed the biggest trade surplus with the US (€50 billion) and the biggest trade deficit with China (€39 billion).

Of course, German companies also make profits by directly producing and selling in China, some automobile or chemical behemoths like Volkswagen or BASF seemingly very much so. In the world that began on February 24, however, this is deeply worrying, since losing their China business may pose an existential threat to these “too big to fail” companies that are of crucial importance for the German economy. The Scholz government, or at least those ministries led by the Greens and the FDP as well as the intelligence services, have urged these companies to take steps to make sure a rupture with China would not sink them.

Scholz’ recent actions suggest that he does not share these concerns, or rather feels it is advantageous to ignore them for now. Another reason is the worry that the United States is also becoming more protectionist, with the “buy American” provisions in the Inflation Reduction Act a case in point. These are supposed to prop up the US electric car industry, similar to China’s insistence that batteries in e-cars on Chinese roads need to be “made in China.” The fear is that Europe will get squeezed by these new economic realities.

Old Tricks

Remarkably, during their tête-à-tête in Paris on Wednesday (see also Joseph de Weck’s latest PARISCOPE column), Macron and Scholz seemed to agree on little, but they did both have misgivings about the US move. “You have China that is protecting its industry, the US that is protecting its industry, and Europe that is an open house,” Macron said in a television interview the same evening, adding: "[Scholz and I] have a real convergence to move forward on the topic, we had a very good conversation.” The French president also suggested the EU needed a “Buy European Act.”

The fact that this comes less than two weeks after the chancellery suggested a revival of efforts to reach a transatlantic trade agreement speaks of how unmoored Scholz’ thinking has become. True, asking the most important ally to stick to economic fair play is nothing objectionable, but the message it sends of a willingness to confront Washington rather than Beijing is unfortunate. In a situation where Germany needs to urgently rethink and rejig its economic model, all Scholz has come up with in terms of a China strategy so far are the old tricks of the Merkel era, which are at best of no use anymore, and at worst dangerously counterproductive.

The Chinese slowdown, after decades of high growth, will on its own already create big problems for Germany. The fact that the country has succeeded, thanks in no small part to its unfair practices, to build its own high-tech industry to rival, and possibly soon outcompete, the German one, will only add to this. It’s therefore not only regrettable that Scholz has missed out on the chance to send a strong message of European unity by visiting Xi together with Macron. Recent days have also shown that the chancellor, in trying to deal with China all on his own, is out of his depth.

Henning Hoff is Executive Editor of INTERNATIONALE POLITIK QUARTERLY.

Read more by the author

Henning Hoff

From Washington to Moscow

Chancellor Olaf Scholz is stepping onto the world stage. And he is doing better than his critics suggest.
Henning Hoff

On the Sidelines

The Scholz government is risking its leadership role in Europe.