On October 21, German Chancellor Scholz announced in Berlin that he would lead a business delegation to visit China in November. A spokesman for the German federal government further stated that the visit will take place in early November, but in view of the complex measures against COVID-19 in China, Scholz's itinerary in the country may be limited to a single day. If Scholz's visit to China goes as planned, he will be the first Western leader to visit China after the 20th National Congress of the Communist Party of China.
However, so far the Chinese Ministry of Foreign Affairs has yet to confirm the news. On October 24, when asked about Scholz's visit, Chinese Foreign Ministry spokesman Wang Wenbin said that at present China has no news to release.
This year marks the 50th anniversary of the establishment of diplomatic relations between China and Germany. Under normal circumstances, the two countries should have a series of exchanges and even celebrations to express friendship and cooperation. However, in today's world with ever-increasing geopolitical turmoil, the international political and economic situation has descended to extreme complexity. The relations between Germany and China too, have seen an increase of a lot of uncertainty. The political and economic legacies of Germany's foreign policy, economic cooperation, and energy supply, which former German Chancellor Angela Merkel worked hard to build over the years, have vanished amidst the Ukraine war. Under such a backdrop, the future Germany-China relationship will be full of tests and trials.
The biggest foundation of the cooperation between these two countries is the economy. In early 2022, statistics released by the German Federal Statistical Office showed that China has become Germany's most important trading partner for the sixth consecutive year. In 2021, the bilateral trade volume between Germany and China reached EUR 245.4 billion (about 10% of Germany's total import and export trade), an increase of 15.1% over 2020. Even with the impact of the COVID-19 pandemic, German trade with China increased by 3.5% in 2020. According to the data released in the 2021 Foreign Investment and Cooperation Country (Region) Guide (Germany) by the Chinese authority, the total investment of Germany in China is nearly USD 90 billion. The Chinese Ministry of Commerce noted that from January to May 2022, Germany's actual investment in China increased by 21.4%. In addition, business environment survey reports on German companies conducted by the German Chamber of Commerce in China this year showed that 71% of German companies plan to increase investment in China due to the continued recovery of the Chinese economy. A survey by the German economic research institute DIW Berlin conducted in June indicates that about 1.1 million German jobs depend directly on the Chinese market to digest German exports.
With the global economy in turmoil, Germany faces the challenge of severe inflation and economic recession, which is why it is pressingly important to maintain stable foreign economic cooperation. The German economic community hopes that Scholz's trip will seek to consolidate fundamental Germany-China cooperation and ensure the stability of the supply chain and market, especially in pillar industries such as automobile machinery manufacturing and chemical and electrical industries that rely heavily on the Chinese market. Stable cooperation with China, therefore, has become highly important. According to Bloomberg, Volkswagen CEO Oliver Blume and Siemens CEO Roland Busch will both visit China this time with Scholz.
Even so, the war in Ukraine has reshaped the global geopolitical landscape, and the close economic cooperation between Germany and China has been put in the spotlight. German political circles and think tanks began to seriously discuss and study the issue of "decoupling" between Germany and China. Deputy Chancellor and Minister of Economy Robert Habeck and Green Party German Foreign Minister Annalena Baerbock are representatives who encourage this. They believe that Germany will "no longer be naive" in trade with Beijing, and advocate strengthening the German government’s review of investments in China, restricting some technology transfers, and tightening government guarantee rules for German companies investing in China. Baerbork said that if German companies such as automobiles do not reduce their economic ties with China as soon as possible, Germany will easily become politically passive.
The changes in Germany-China relations are related to the systematic shift in Europe's relations with China. In the EU's official China policy statement in 2019, China was positioned as Europe's partner, economic competitor, and systemic rival. However, after suffering the immediate impact of the conflict between Russia and Ukraine, the EU's high representative for foreign affairs and security policy Joseph Borrell said recently that the role of China as a "competitor" of the EU has become more prominent, and he also claims that China is promoting “an alternative vision of the global order". Under such changes, the voices promoting the decoupling of China and Europe and China with Germany have been on the rise.
In a previous report released by the German think tank Ifo Institute, it is stated that if the EU and China unilaterally "decouple", Germany's total imports from China will decrease by 95.84%, and its exports to China will also decrease by 17.73%. The report also noted that if the EU and China "decouple" at the same time, in the event of a trade war, Germany’s imports from China will drop by 96.44%, and its exports to China will drop by 97.19%. Among them, if there is the bilateral "decoupling", German’s automobile industry will be affected the most, with an 8.47% profit loss (approximately USD 8.306 billion), followed by the manufacturing transportation equipment companies which will be 5.14% profit loss (approximately USD 1.529 billion), as well as mechanical engineering companies with 4.34% profit loss (approximately USD 5.201 billion).
The complex cooperative relationship between major powers has never been dominated by merely a single factor. As far as Germany-China relations are concerned, on the one hand, geopolitical and value factors will certainly have a great impact on future economic cooperation between the two. In particular, the existence of the U.S. factor will play an important and even controlling role for Germany in geopolitical, military, and diplomatic cooperation. On the other hand, Germany must also pragmatically consider the economic interdependence between itself and China, as well as the mutual cooperation between the two countries in sectors like investment and trade, as indicated by the recent China-positive statements of Chancellor Scholz.
Therefore, the relations between the two will most likely seek a balance between geopolitics and the interests of economic and trade cooperation. Should the situation change and such relations face differentiation, the economic and trade cooperation between the two will remain to be an important stabilizer. If both Germany and China are able to maintain basic rationality, there will be no subversive changes to this fundamental economic relationship.
In maintaining the relationship between the two countries, the German industry plays a highly crucial role. According to data, from 2018 to 2021, the three German auto giants, namely Volkswagen, BMW, and Daimler, in addition to chemical company BASF accounted for 34% of all European direct investment in China. For German car companies such as Audi, Volkswagen, BMW, and Mercedes-Benz, the Chinese market accounts for about one-third of the global market. Markus Jerger, CEO of BVMW, remarked that if the German government really cancels the policy support for German small and medium-sized enterprises, then 50% to 70% of them may not dare to enter the Chinese market again. Therefore, the Chinese government and the Chinese market will need more communication with the German industries and actively responding to their demands.
Final analysis conclusion:
The visit of German Chancellor Olaf Scholz to China will be an opportunity to deepen the relationship between the two countries. Intense geopolitical turmoil and the war in Ukraine have pushed the pendulum of international relations to one extreme after another. As the situation develops, the pendulum of international relations will return to a state of equilibrium. The same is true for Germany-China relations, which have both a center of balance. So long as such a balance is maintained, the situation will not get out of control.
