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Our relations with China

By Friedrich Merz
Friedrich Merz is chairman of the CDU/CSU parliamentary group in the German parliament.

This week, Olaf Scholz travels to China for his first visit as German Chancellor. The chosen date is more than ill-timed. For one thing, a new China strategy of the German government is still being drafted. The same applies to the EU. And since relations with France are already under severe strain, Germany’s refusal of a joint visit by Macron and Scholz will further weigh on bilateral relations. And most importantly, China is supporting Russia in the war against Ukraine. Without China, North Korea would not be able to advance its nuclear weaponization. The visit of the German chancellor and current president of the G7 countries directly after the 20th Party Congress of the Chinese Communist Party will therefore be highly welcome in China. With the involvement of the Chinese state-owned company Cosco in a terminal in the port of Hamburg in the baggage, the visit will above all be a propaganda success for the Chinese leadership.

China is the world’s second-largest economy, the world’s largest exporter, and China’s demand for energy, raw materials, food and much else moves the world’s markets. And because Germany has the highest degree of economic openness of any OECD country and thrives on it, the conversation must be with China. Beijing has certainly read the coalition agreement signed by the CDU/CSU and will ask the chancellor what the German government’s announced China strategy will include. If he does not want to again dupe his coalition partners, above all the foreign minister, then he can only say very little about it.

However, some framework conditions for future cooperation can already be mentioned today: China is not Germany’s largest and most important trading partner. Fortunately, it is and remains the European Union. Trade with our direct neighbors in the EU alone, with the Netherlands, France, Poland, Italy, Austria and Belgium, exceeds the volume of trade with China by a factor of four! China is important, but Europe is far more important. Then comes the United States of America, followed by China.

But China is the fastest growing market in the world right now, China possesses important raw materials, and so China remains a very important trading partner for us. But China is about to further bring us into economic dependencies. Especially after the experience with Russian gas, we should be very careful now because of that. In the first half of 2022, Germany’s trade deficit with China was around €40 billion, partly due to China’s decoupling strategy. However, the openly declared goal of the Chinese state and party leadership is to replace imports from Germany with production in China. And there, the influence of Communist Party cells on the management of German companies and German subsidiaries has been growing for years. This, too, creates new dependencies and vulnerabilities.

The warning signs are growing

Because China has changed fundamentally under Xi Jinping’s rule. The country’s leadership is becoming increasingly repressive domestically and more aggressive in its foreign policy, even to the point of openly threatening war on Taiwan. This is accompanied by a focused strategy of asymmetrical dependencies with global trading partners, for instance, through the so-called “Silk Road Project.” The state of China has become a geostrategic and, above all, a geoeconomic actor. Xi Jinping pursues a hard-line Leninist-Maoist course of dominance and ideological supremacy like no other Chinese ruler since Mao. Beijing’s domestic behavior, be it against the Tibetan and Uyghur minorities, against advocates of freedom of expression or against the people of Hong Kong, but also its aggressive tone toward Taiwan, are warning signs in ever-increasing numbers.

Thus, all expectations of “change through trade,” which were also associated with China’s accession to the WTO in 2001, have remained unfulfilled. On the contrary, China is using all bilateral and multilateral relations solely for its own benefit, thus systematically expanding its political, economic and military supremacy beyond its immediate neighborhood.

For this reason, the previous German government already significantly tightened controls on Chinese direct investment in Germany, for example in critical infrastructure. The Foreign Trade and Payments Act now provides far greater scope for prohibiting minority shareholdings. But in addition to purely security-related inspections, a further inspection standard should be included. With its accession to the WTO, China committed itself to far-reaching market openings, in particular to the principles of reciprocity and non-discrimination.

The sheer numbers of reciprocal direct investments obscure the fact that these principles are still not being adhered to in China, for example in the acquisition of property and shareholdings. Therefore, the rules of reciprocity should be given greater attention in the future. It must be assumed that the “economic competitor” and “systemic rival” China under Xi will initially refuse this. But then, approvals of Chinese stakes and acquisitions in German companies will have to be handled far more restrictively in the future, even below the threshold of pure security considerations.

China and Germany share long and changing relations, which in recent years have been dominated by economic interests. The real challenge to our relations, however, lies in vastly different views of the world’s future political order. So if the Chancellor already travels to China at this point in time, the talks with today’s China must be focused on global political issues “beyond supply and demand”.

Friedrich Merz is the Chairman of the CDU and Chairman of the CDU/CSU parliamentary group in the German parliament.

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