Germany’s New China Strategy: Following Brussels
For the first time, Germany has adopted a China strategy. The document focuses on risks and breaks with previous mercantilism. It largely follows EU leadership but falls short of new impulses.
The German government has adopted its first China strategy (German version here). What shall we make of it? Does it represent significant change? Is the German government fulfilling its promise to Europeanize its China policy?
For decades, Germany’s China policy mainly focused on economic engagement coupled with rhetorical insistence on human rights. The new strategy breaks with this tradition. For example, less than three years ago, then-Chancellor Angela Merkel was the driving force behind the negotiations of a Comprehensive Agreement on Investments (CAI) between the EU and China. The strategy document of 2023, by contrast, sees no realistic path to the agreement’s ratification.
At the center of the new course is the reduction of dependencies for the sake of de-risking. Cooperation with China remains necessary. Economically, Germany and China are deeply intertwined. Decoupling would come with an enormous cost. The provision of global public goods requires coordination with China. But the German government identifies China as a systemic rival since the country puts the interests of the one-party system above the principles of the rules-based order. Overreliance on China in strategic sectors ranging from health care to digital and green technologies is perceived as a threat to Germany’s and Europe’s capability to act.
The strategy may fall short of a risk matrix that could inspire the emerging European approach to increase its economic security. However, the document is well-founded and solid, touching upon different types of risks that require tailored policy responses. These risks range from national security, to supply chain resilience, to protection of universal values, to preservation of competitiveness.
To mitigate these risks, the strategy rightly stresses the need for Germany and Europe to increase our own resilience and strengthen our competitiveness. Notably, the document reminds companies of their duty to bear the financial risks of geopolitical crises. The government will hold confidential talks with particularly exposed companies to determine how to reduce cluster risks. Export and investment guarantees will be caped and bound to conditions. Furthermore, a tightening of the screening of inbound Chinese investments in Germany seems imminent. The strategy further mentions market economic incentives for diversification – without getting more specific.
On human rights, the strategy is crystal clear and names all grave human rights violations China has committed in recent years. The government insists on the universality of human rights. Despite such strong language, by and large, the document falls short of linking human rights concerns to concrete measures that bear significant economic consequences. Exceptions are the due diligence law, export controls protecting human rights, and unspecific safeguards against Chinese interference in Germany.
Berlin Following the Leadership of Brussels
All this cannot be done by Germany alone. The China strategy, therefore, puts Europe at the center of its considerations and strives to Europeanize Germany’s China policy. The focus on de-risking reflects what European Commission President, Ursula von der Leyen, had put at the heart of her widely reported China speech in March. The German China strategy also repeats the EU’s description of China as a “partner”, “competitor” and “systemic rival,” while echoing the assessment that competition and systemic rivalry have gained in importance. Berlin also promises solidarity with other EU member states if they suffer from economic coercion – as Lithuania does.
Unlike the European Union’s “Strategic Outlook” of 2019, Germany’s China strategy does not contain any actionable points. The government also does not name specific priorities. This raises questions about its implementation. Most importantly, though, the strategy embraces most policy instruments discussed or already implemented by Brussels. Berlin further states it strives to contribute to a coherent European China policy with its strategy. But this is precisely where the strategy is failing. The promised support for the European External Action Service’s search for EU consensus remains vague. While Berlin is largely following Brussels it does not suggest any new policy inventions or instruments. It also falls short of any concrete proposals to find compromises in Europe or drive European China policy forward in any meaningful way. The largest member state is rather a follower than an engine that steers the realignment of Europe’s China policy. This may be unavoidable for a coalition government that is not fully aligned on its China policy, but it remains noteworthy.
Some policy proposals that are currently discussed on both sides of the Atlantic are mentioned only cautiously. Most prominently, the German China strategy remains cryptic with regard to the screening of outbound investments into China. The US is likely to introduce such a screening mechanism soon, while the European Commission cautiously referred to outbound investment screening in its latest Economic Security Strategy. However, the German government only promises it will constructively contribute to the European assessment of whether the instrument could be a helpful tool to address security challenges. This wording of the German strategy likely reflects disagreement within the government on whether an outbound investment screening mechanism should be introduced or not.
Such hesitation needs to be put in the context of the current policy debates. Some argue that instead of an outbound investment screening, the export control regime could be strengthened. The German China strategy, however, hardly lends much support to such a broadening. It states that export controls are to protect national security and human rights, which is the existing EU consensus. Granted, the strategy voices concern about China’s civil-military fusion that could lead the way to broadening the definition of dual-use items that fall under the export control regime. However, not least the reference to the export controls imposed in 1989 following the Tiananmen Massacre insinuates a narrow application of export controls. The hesitation to embrace outbound investment screening coupled with a rather restricted language on export controls indicates rather little policy change in this field.
The strategy’s gravest weakness is that it provides no ground for additional financial resources to get it implemented. To meet the challenges the strategy identifies, Germany will need to invest. On the day of its release, German government officials were quick to reassure observers in private conversations that plenty of what the government proposes is not China-specific and could be funded by other means. Diversification of supply chains or strengthening of European and German competitiveness is indeed not explicitly China policy. It is also not exceptional that a strategy does not come with an explicit budget. Existing resources could be re-shuffled to prioritize the China policy as promised by the government. However, the fact that no additional resources will be made available might reflect a broader cut of government spending. If applied to the goals of the China strategy it could easily fail.
What Comes Next?
While the long-awaited China strategy has been published, the work is only starting now. Implementing the strategy requires careful further analysis of risks in different technological and economic ecosystems. It needs political decisions because de-risking will come at a cost. We will never live in a ‘risk-free’ world. It is a highly political decision at what cost, by which means, and to what degree risks are supposed to be mitigated. The strategy provides more leverage to those that opt for a broader scope of the concept and more ambitious de-risking, but the document is open enough to different interpretations.
Apart from the above-mentioned lack of resources it also falls short of European implementation. The strategy speaks of several forms of coordination across the federal government, with sub-national governments and the parliament as well as stakeholders such as employer organizations and labor unions. But European partners are not mentioned specifically in this regard.
The strategy is a step forward. But it is not a breakthrough. Plenty of work remains to be done in order to de-risk and develop a more resilient and sound German China policy.
This article was first published by China Observers on July 20th 2023.