Scholz’s China visit signals a fillip to biz links

LEAVING aside Ukraine and Russia, the country most affected by the fallout of the ongoing war arguably has been Germany, Europe’s economic powerhouse. German prosperity has depended on cheap gas and fuel supplies from Russia as well as access to the vast Chinese market. Today, the energy relationship is in tatters. As to the latter, the German leadership seems hard at work to somehow keep it going even though it realises that it may be swimming against the prevailing current.

What is remarkable is that even as Germany’s allies and partners are seeking to shift their supply chains away from China and restricting technology exports to the country, Berlin seems determined to press ahead. There is little in Chinese policy that could look encouraging to the Germans. The old dream of changing China through engagement is dead. Instead, Beijing has signalled that it is determined to move ahead on its own path of state-led high-tech industrialisation whose emphasis is on self-reliance.

That was the essence of the visit of Germany Chancellor Olaf Scholz to Beijing last week, the first visit by a G-7 leader to China since the onset of the Covid-19 pandemic. There was a sense of urgency to the very brief 11-hour visit, given the looming threats of inflation and recession that the German economy confronts.

While the headlines about the visit were garnered by the joint declaration that the two sides “oppose the threat or use of nuclear weapons, advocate that nuclear weapons cannot be used and that nuclear wars must not be fought”, the real substance lay in the efforts to give a fresh fillip to their substantial economic engagement.

The visit was criticised strongly by sections of political opinion in Germany, including members of Scholz’s own government who are not keen to encourage ties with a country whose reputation for assaults on the human rights front is increasing. But the Chancellor, like his predecessor, Angela Merkel, believes that good ties with China are very much in Germany’s national interests, even though there are wide areas of disagreement on human rights in Xinjiang or Taiwan.

Critics charged that the decision, on the eve of the visit, to approve the sale of a stake in a terminal in the port of Hamburg to a Chinese company, COSCO, was aimed at shoring up the business prospects of German companies, many of whose CEOs accompanied the Chancellor to Beijing. German companies like BASF, Volkswagen, Adidas, BMW, Bayer, and Siemens have massive sales in China and are planning major investments there.

China and Germany have deep economic links. China is Germany’s top trading partner with trade topping $255 billion. According to The Economist, nine of the 10 top German companies get at least one-tenth of their revenues from China. Where American FDI in China accounted for just

2 per cent of the US total in 2021, the figure for Germany was 14 per cent.

What is remarkable is that even as Germany’s allies and partners are seeking to shift their supply chains away from China and restricting technology exports to the country, Berlin seems determined to press ahead. There is little in Chinese policy that could look encouraging to the Germans. The old dream of changing China through engagement is dead. Instead, Beijing has clearly signalled that it is determined to move ahead on its own path of state-led high-tech industrialisation whose emphasis is on self-reliance.

In a pre-departure Op-ed in the Politico, Scholz defended the visit, though he acknowledged that since the China of today “is not the same as the China of five or ten years ago… the way that we deal with China must change too.” But he was clear that even in these circumstances, China was an important business and trading partner for Germany and Europe and Berlin had no intention of decoupling from it.

The problem for Berlin is that Germany seems out of step with the rest of the western world which is turning away from China. Actually, it is not clear just what kind of a technology relationship China wants with the world. Its policies are frankly aimed at replacing western technology with its domestically developed ones.

While interdependence is part of the economic framework in which the West operates, the Chinese seem determined to establish an asymmetrical position in a range of areas. The manner in which the Chinese have used their dominance — punishing Japan for the 2010 Senkaku boat incident, South Korea for stationing THAD radars and Lithuania for allowing a Taiwan office — does not bode well for the future.

An important part of Scholz’s agenda was to push Beijing for a greater opening up of the Chinese markets. The Chinese are unlikely to oblige, but to sweeten the visit, they formally announced that they had signed a bulk agreement for 140 Airbus aircraft, including 132 A320s and eight A350s, during the visit. Many of the deals were already in the books and the announcement was probably also aimed at the US, whose Boeing company remains frozen out of the Chinese market.

Scholz may be happy that he was able to raise the issues he wanted — greater market access for German businesses, or a call to China to use its influence to stop the war in Ukraine, or, for that matter, reiterating Germany’s positions on Taiwan and human rights. But whether it made a difference to the Chinese is another matter.

Despite the slight shift in the nuclear issues, Xi maintained China’s position, which is that all parties in Ukraine exercise restraint and pursue peace talks. As for market access or Taiwan, there was no direct response.

Beijing was, no doubt, happy with the visit which signalled that the western world’s approach to China was not united. This has important implications for Beijing’s need to access Europe as a source of high-tech R&D and products to advance its own goals.

As for German business, which operates within its own parameters, there was happiness because with a recession looming, it needs China more than ever.