Focus topics

The planned China strategy is the wrong approach

By Holger Goerg, Katrin Kamin, Rolf J. Langhammer and Wan-Hsin Liu

China has risen to become the most important geopolitical player alongside the US. With numerous infrastructure projects worldwide, it is creating strong market positions and continuously expanding its economic and political influence. For the EU, this engagement inside and outside Europe has implications. Not least because China is the EU’s most important trading partner.

The EU and Germany are both now striving for a foreign and security policy-motivated strategy vis-à-vis their systemic rival China. At the same time, they are avoiding creating economic policy tools that explicitly constitute a “Lex China”, in order not to come into conflict with the ban on discrimination in the multilateral economic order.

Focus on one country is counterproductive

Does Germany need a foreign policy-motivated strategy focused on a single country? For a variety of reasons, the answer could be “no.” First, because Germany would be doing exactly what China is often accused of doing, i.e., applying significant state requirements and protectionist interventions to private-sector decisions and activities. This is done on the assumption that companies are acting purely in a business sense and underestimating the macroeconomic risks of close economic ties with China. The subtext conveyed is that companies should be better guided by the government. Furthermore, questions could quickly arise about strategies aimed at other countries, such as the US. That apart, it is not apparent why Germany should have a strategy of its own if the EU is already working on one and has a much stronger hand in its dealings with China.

However, the argument in favor of a clear strategy for the coming years, equipped with goals and instruments and a detailed inventory of mutual economic dependencies, would be that it could serve as a guideline for businesses, prompting them to give greater weight to the business and economic risks and to behave in a manner desired by the government. Moreover, such a strategy could send an important political signal to China. In order to ensure that it is really a strategy but not just a catalog of short-term measures against the interests of companies, it would have to consider the major economic challenges and changes in Germany and China.

It is becoming clear that what has been presented by the German government so far still has too many gaps to be considered a strategy. In particular, there is still a complete lack of discussion of Germany’s long-term challenges and goals.

Clarifying how to deal with autocracies

More generally, the question arises as to whether a more broad-based strategy is needed to deal with not just one single country. The issues that Germany encounters with China are due in particular to an autocratic system prone to erratic behavior. Thus, dealing with all autocracies would become the linchpin of a strategy preferably coordinated at the EU level, rather than focusing on just one – albeit large – autocratic country. Calls for diversification likewise support a strategy aimed at dealing with all difficult trading partners-as the search for new sources of natural gas has demonstrated. Implementing sustainability goals is also not a problem specific to China.

Of course, one should not ignore the fact that the multilateral order, which would be curtailed by country-specific strategies, is facing its most severe crisis to date as a consequence of geoeconomic power strategies, creating a need for adjustments to both foreign policy and trade policy. Autocracies are particularly capable of initiating erratic course changes without regard to laws, voters, markets, or global rules, exposing supply shocks to market economies and neglecting sustainability goals to a greater extent. This fact also argues in favor of a wider strategy for managing relations with autocracies. Such a strategy should clearly define how to deal with these countries and issues and at the same time work to build greater solidarity among countries that share democratic values.

As part of this effort, we must also explicitly address our own weaknesses- for example in terms of technological progress and innovative capacity of our ageing democracies. Only in this way will it be possible to succeed in systemic competition where autocracies are weak, such as in the international financial markets and in the manufacture of advanced IT products and environmental technologies. Clearly positioning Germany as an attractive location for investment and innovation, in conjunction with other democratic countries should be a major goal of a future-oriented strategy. That would obviate the need for a response that is narrowly focused on a single country.

Holger Goerg is Acting President at the Kiel Institute for the World Economy and Managing Director at the Kiel Centre for Globalization.

Katrin Kamin is a PostDoc and Co-Head of the Geopolitics and Economics Initiative at the Kiel Institute for the World Economy.

Rolf J. Langhammer is a Senior Researcher at the Kiel Institute for the World Economy. He was also Vice-President at the Kiel Institute until 2012.

Wan-Hsin Liu is a Senior Researcher at the Kiel Institute for the World Economy and Coordinator at the Kiel Centre for Globalization.

This article was written in the context of the Global China Conversations event series of the Kiel Institute for the World Economy (IfW). On Thursday (11 a.m., CET), Katja Leikert, Member of the Bundestag and Member of the Foreign Affairs Committee & the Committee for Family Affairs, Senior Citizens, Women and Youth, and Holger Goerg, Acting President of the Kiel Institute for the World Economy, will discuss the topic: “Does Germany need a China Strategy?“. China.Table is the media partner of this event series.

This article is an abridged version of a Kiel Focus Publication by Goerg et al. (2023).


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