Germany’s China Strategy Marks a New Approach in EU-China Relations

The German government just released its much-awaited China Strategy, marking an official recognition that the relationship between China and Germany, and the European Union, has changed—and that economic and security policy is evolving accordingly. The delayed release of the document, which was originally leaked in November, reflects the internal divisions between different ministries and other stakeholders that will likely continue to shape the debate. The business community has been particularly vocal in opposing moves that might jeopardize the economic relationship—China remains Germany’s single largest trading partner. Nonetheless, the publication of such a document signals an important change in Berlin and aligns the German government more clearly with the European Commission, which has emerged as a more critical voice on China in recent years. Washington should welcome Berlin’s new geostrategic attitude toward China, as it signals greater scope for transatlantic coordination, and should control for risk factors by limiting the downsides of its economic and technology policymaking on China for European and other partners and allies through enhanced coordination and dialogue.

A New Approach

Despite the fraught internal debate that shaped it, the strategy is forward leaning by Berlin’s standards. It suggests that Germany now firmly views China as capable of impinging on its security as well as its economic interests—the traditional ballast of the relationship. Mirroring German foreign minister Annalena Baerbock’s message to her Chinese counterpart Qin Gang in April, the strategy emphasizes Taiwan’s importance as a trade and investment partner and suggests Berlin will be closely tracking Chinese aggression across the Taiwan Strait and broader Indo-Pacific. And though it is careful to highlight that Germany is not seeking decoupling, the strategy does not pull punches in suggesting Germany will seek to diversify trade and investment ties away from China and help partners do the same, as well as scope technology cooperation based on security and human rights concerns. De-risking, while still not fully fleshed out, features prominently in the document, and the sections related to the economic relationship reflect the European Commission’s proposed Economic Security Strategy, which was released last month, by prioritizing reducing dependencies on China in strategic sectors.

Cooperation with China where it advances German interests is not foreclosed. The emphasis on climate change and people-to-people ties, however, suggests the perceived space for such coordination has narrowed. Moreover, cooperation on climate itself is far reduced as competition over the localization of clean energy technology supply chains heats up, something that is reflected in the strategy’s language. The major investment deal former German chancellor Angela Merkel once rushed to conclude with China, the EU-China Comprehensive Agreement on Investment (CAI), is explicitly rejected. This further reflects the emergence of a new geoeconomic mindset in Berlin, something many in Washington and Brussels have long awaited.

The existence of the strategy itself should serve as a source of optimism for those seeking greater transatlantic and intra-EU coordination on China. Germany has fired a warning shot to Beijing that it will find its “special” relationship with Berlin less privileged going forward: the strategy commits Germany to engaging and developing policy on China in ways that facilitate, rather than undermine, an EU-wide approach and to using bilateral discussions, such as the recent intergovernmental consultations, as venues for furthering the EU agenda. The economic relationship with the United States, which has been somewhat strained after Washington’s embrace of industrial policy through the Inflation Reduction Act, is hailed as being of the “utmost importance,” highlighting the importance of transatlantic coordination moving forward.

Backing Words with Action

The German government will need to prove that it is willing to put its weight behind the new strategy. Berlin has given reason enough to worry that it may be—as Beijing suspects—the weakest link in a tightening chain of democracies seeking to respond to China’s assertive turn abroad and repressive turn at home. For example, Scholz pushed forward on a solo trip to Beijing in November with a business delegation in tow, in a move that was widely seen as prioritizing Germany’s near-term economic interests over European unity on China. Shortly before the trip, he approved Chinese conglomerate COSCO Shipping Holdings Co. Ltd.’s bid for a minority stake in a Hamburg port terminal over objections from coalition partners, the European Commission, and Germany’s intelligence services. And the strategy comes on the back of government consultations between Berlin and Beijing in June that drew parallels to the Merkelian era, as they followed a business forum packed with German CEOs and, in public remarks, Scholz largely steered clear of issues such as Taiwan, Hong Kong, and Xinjiang while emphasizing the importance of continued economic cooperation.

Some of Germany’s leading firms continue to rely extensively on the Chinese market, something that the strategy makes a veiled reference to but takes no direct action on by advising companies to take into consideration geopolitical risks. In practice the government is leaving decisions on how to mitigate supply chain risks to the private sector. Moreover, disentangling the closely intertwined supply chains is already proving to be very challenging. Take the clean energy technology space: despite the European Commission’s welcome proposal for a Net Zero Industry Act, skeptics have questioned if this will be enough to change private sector incentives.

Zoom out, however, and the picture becomes more nuanced. Consider the steps Berlin took ahead of Chinese premier Li Qiang’s trip, asking Beijing to bring a smaller delegation. Members of Scholz’s own party, the Social Democrat Party (SPD), suggested revisiting the format in the future given changes in the bilateral relationship. In private, Scholz reportedly warned Chinese counterparts against changing the status quo across the Taiwan Strait by force and expressed concern over the human rights situation in China. And consultations came on the heels of Germany’s first National Security Strategy, which both explicitly and implicitly critiqued Beijing for actions that “time and again [run] counter to our interests and values.” Moreover, the German national intelligence agency has recently publicly labeled China as Germany’s “greatest threat” in terms of foreign direct investment and scientific and economic espionage.

Further, in practice some German actions are already quietly enacting a policy of de-risking in some areas. While it may have reservations about a bloc-wide outbound investment screening mechanism, Berlin has not hesitated to endorse other defensive tools at the EU level and at home. One example is the way it has beefed up (and deployed) its inbound investment review mechanism in ways that reflect China-specific risk assessments. Soon after Scholz’s unpopular visit to Beijing, for example, the coalition government in Berlin quickly blocked two Chinese bids for stakes in German semiconductor firms—reportedly with Scholz’s blessing. Such decisions clarify that even in Germany, the environment has changed markedly for Chinese firms since 2016, when Berlin readily green-lit Chinese chip and robotics deals; as Economy Minister Robert Habeck put it, “the times are over when one just sat back.”

The devil will be in implementation. As some experts have pointed out, Germany will face potential trade-offs as it seeks to advance its various priorities—including combating climate change and reducing dependencies on China for critical minerals. Nonetheless, the publication of the China Strategy indicates that Europe’s largest economy is adjusting its position and terms of engagement with China in ways that are likely to benefit the transatlantic relationship. The Biden administration’s continued engagement with Europe on positioning vis-à-vis China and the creation of cooperation platforms like the Trade and Technology Council may be paying off in creating some coordination on policy toward China. However, to ensure continued momentum and reduce outstanding risk factors in the transatlantic relationship, Washington should consider more actions to align diplomatic and economic policy toward its partners. Regular attention to the health and stability of cross-Atlantic ties and the implications of U.S. economic and technology policymaking—especially as this becomes a more important part of U.S.-China strategic competition—will preserve the goodwill and stability needed for further coordination on China down the line.

Lily McElwee is a fellow with the Freeman Chair in China Studies at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Ilaria Mazzocco is a senior fellow with the Trustee Chair in Chinese Business and Economics at CSIS.

Lily McElwee
Deputy Director and Fellow, Freeman Chair in China Studies
Senior Fellow, Trustee Chair in Chinese Business and Economics