Germany’s new China strategy is a diplomatic high-wire act

Last Thursday’s release of Germany’s new “Strategy on China” came as a pleasant surprise to policy wonks in Europe, who’ve become accustomed to delays in the long-awaited document. The strategy’s generally warm reception must have also come as a pleasant surprise to the German Chancellery, which has been battling with the foreign ministry to water down the text and avoid antagonizing Beijing.

Germany’s pro-China, blue-chip companies — and perhaps Beijing itself — seem to have been placated by the strategy’s diplomatic phrasing and the removal of stronger incentives for German industry to “de-risk” its China business. However, the relief may be short-lived. The new German strategy is part of a wider evolution of European China policy, and it also sets in stone the position of the German federal government that China is a major challenge to German interests.

A new China strategy was originally promised in the power-sharing agreement adopted by Germany’s new coalition government in December 2021. Since then, defining Germany’s approach to China has become a major point of friction for the coalition, which consists of three parties — the SPD, the FDP, and the Greens.

Anna Baerbock, the head of the foreign ministry and a member of the Greens, has been pushing for a tougher stance on China, while Chancellor Olaf Scholz, from the SPD, is reluctant to antagonize Beijing. On the more hawkish side of the debate is the FDP and a large part of public opinion. The most vocally pro-China voices in Germany are representatives of the top German companies like Volkswagen and the chemicals group BASF, which are continuing to double down on the Chinese market.

The foreign and economic ministries want companies to accelerate the process of reducing Germany’s economic dependence on China, but Scholz and the CEOs would rather make hay while the sun shines. Scholz’s understanding of the world isn’t fundamentally at odds with that of the foreign ministry, he is simply more risk-averse in his outlook. For Scholz, it’s imperative to keep China on his side while war in Ukraine rages and the possibility of another Trump presidency looms.

Divisions within the coalition were highlighted last October when the chancellor pushed through the sale of a 24.9% share in a terminal at the Port of Hamburg to Chinese state-owned shipping giant COSCO. This 24.9% stake was a compromise solution — a 35% stake was originally planned, but the sale faced strong opposition from ministers in Scholz’s cabinet. There’s been similar seesawing on other China-related issues.

The Strategy on China itself is the product of lengthy negotiations within the government, the foreign ministry pulling in a more critical direction, and the Chancellery attempting to soften the text. A much tougher draft of the document was leaked to the press last November, and it was expected that the final strategy would be defanged by the Chancellery before a final draft was published. The publication of the strategy, in mid-July when the German parliament is beginning its recess and most of Berlin is on vacation, also suggests that the Chancellor was anxious about the strategy’s reception.

Leaked draft vs. final version

The final version of the strategy was indeed less potent than the earlier draft, with several proposed tools for curbing economic dependence missing and the language significantly softened.

These changes have been generally well received by German business interests. Ralf Brandstätter, a board member of Volkswagen, wrote in a LinkedIn post that the “debate on a future German government policy on #China was meaningful and important,” while the CEO of Siemens said that the strategy was a “step in the right direction.”

The language of the final Strategy on China is incredibly diplomatic. Sections where the leaked November draft blames China have been shifted from the first to the third paragraph, and subtle shifts from active to passive language soften the tone of criticism. While the November draft opens with several sections of direct criticism, the final strategy begins with a compliment — “China has followed a path that has led to strong economic growth” — before noting that “growing prosperity and achievements in fighting poverty in China contrast with setbacks concerning civil and political rights.”

More strikingly, the leaked draft opens its third section on international cooperation with the sentence “We are in an increasing global systemic competition with China,” whereas the final version begins with an anodyne observation that sets the tone for the whole chapter: “Actively cultivating Germany’s foreign and foreign economic relations is a key aspect of this Strategy.”

Chinese reactions

The Chinese embassy in Germany issued a four-point rebuttal of the strategy that was relatively optimistic. Besides the mandatory note that “China firmly rejects any interference in its own internal affairs,” it focuses on the assertion that “China is more partner than rival for Germany.” Both the embassy statement and remarks by Foreign Ministry spokesperson Wāng Wénbīn 汪文斌 repeat the line used by Premier Lǐ Qiáng 李强 on his recent visit to Germany, that the policy of “de-risking” will only generate risks for Germany.

Meanwhile, Chinese media was sanguine in its reaction, choosing to focus on the positive. A China Daily editorial ran with the headline “China is Germany’s partner, not a rival,” and even the usually bellicose state tabloid Global Times claimed that “the strategy is likely to strain Germany-China ties in the short term,” but that “influence will be limited.”

Optimism also extends to the Chinese-language mediascape. Shanghai Observer went with the headline “German Government Adopts First Comprehensive China Strategy, Emphasizes It Won’t Pursue Economic Decoupling,” and Reference News, published by Xinhua, reported, “Germany does not seek to fundamentally change the relationship with China.”

The assessment that the “tough version of the China Strategy eventually amounted to nothing” is fairly common among Chinese commentators. Only one commentary, from an official Xinhua account, assesses that the strategy “finds it hard to conceal its anti-China tone,” but it does return at the end to the observation that “China and Germany have no fundamental conflict of interest.”

Important things that didn’t make it into the final draft

Beyond an all-round rhetorical shift, there were also several more meaningful changes.

Distance from allies: One of the most significant changes in language between the November draft and the final version is the de-emphasis of cooperation with allies on China. India is mentioned twice rather than eight times, and NATO only six times compared with a count of 28 in the leaked draft. The final version de-emphasizes the transatlantic relationship and adds the pointedly distant observation that “China has entered into a geopolitical rivalry with the United States.”

Economic tools: There are also several changes that may have more concrete policy implications. References to instruments that would reduce market dependency on China have been removed. The leaked November draft states that companies exposed to China should be “obliged to specify and summarize relevant China-related developments” and promises that the government would explore the use of “stress tests in order to identify China-specific risks at an early stage.” Both of these measures are scrapped from the final strategy. Also missing is the mention of “import stops” from regions where it cannot be guaranteed that supply chains are free of human rights violations.

Not binding: In the section on “coordinating policy and building expertise on China,” the word binding has been removed in reference to the strategy itself and its implementation process. References to funding commitments — for Chinese language at the state (Länder) level and for the Mercator Institute of China Studies in Berlin — have also been omitted.

Implications for Germany-China relations and other European countries

Despite these changes, the strategy still retains much of the original. Even where the language has been softened, most of the key points remain. For example, Beijing’s human rights violations in Xinjiang are pointed out in both versions, even if in the final draft they are said to be “serious” (schwerwiegendenather) rather than “massive” (massiven). It matters that “stress tests” and reporting obligations were removed from the final version, but the core message — that the government is working to “change the incentive structure for German companies” — remains. Overall, the final draft feels like the Chancellery expended a lot of effort making it more palatable for Beijing and German business interests, but that it’s still Baerbock’s recipe.

Even more importantly, the publication of the strategy marks an important milestone and irreversible shift in the wider European policy on China. The German Strategy on China is just the latest in a line of policy documents, beginning with the EU Strategic Outlook in 2019, that has helped shift the political discourse in a certain direction. It is especially helpful in cementing the European consensus that China is more “competitor” and “systemic rival” than partner, because Berlin has been holding Brussels back from a more critical stance.

Compared with other government policy documents on China — of which there are currently only three from EU member states — the German strategy is much more detailed in its exploration of challenges, aims, and policy suggestions, and in that sense it is a big step forward in the evolution of European China policy. The strategy helps drive forward the debate in Brussels, and we can expect to see similar strategy documents from other EU countries emerge in the coming months and years.

The lack of concrete policy detail in the German strategy also becomes less important when it is viewed for what it really is — a position paper. Other EU countries, such as Belgium, have China strategies. They just don’t publish them, on the sensible basis that if China knew about their strategies for dealing with China, it might somewhat undermine their efficacy.

Although Germany’s China Strategy does contain some strategic elements, its primary function is to communicate unequivocally that Merkel-era engagement with China is dead. That is largely why the strategy has also been well received by the “China-watching” community in Germany — even if they see many things lacking in the final draft, they understand it as an irreversible step in the right direction.

Now that the strategy is out there, German government officials have solid terms of reference for how to deal with China. Making the paper public, and presenting it onstage with coalition partners, conveys a sense of legitimacy that is hard to overlook. The position of the German federal government is now unequivocal: “China has changed. As a result of this and China’s political decisions, we need to change our approach to China.” It is a victory for Baerbock and those who are trying to shift the discourse on China and cement a consensus that China is a challenge to German interests.

Ultimately, the strategy may be a good example of a win-win negotiation. While the Greens have their policy-defining strategy, the groups that Scholz is keen to placate — big business and Beijing — seem placated.