BERLIN – When Germany and China launched their government consultations a decade ago, Angela Merkel was still chancellor and their relationship seemed an endless opportunity for trade and profit. Conversations were a time for pomp and circumstance, business deals, autograph ceremonies, red carpets, and military salutes.
But on Tuesday, the German chancellor, Olaf Scholz, and the Chinese prime minister, Li Qiang, will relaunch consultations after a three-year hiatus during the pandemic into a very different world — one with new calculus about political vulnerabilities and economic dependence.
The two countries are returning to talks almost as separate partners, their relations strained by Russia’s war in Ukraine, Beijing’s deepening flirtation with Moscow, and China’s escalating tensions with the United States, Germany’s most important ally.
“These consultations seem out of step with the times,” said Thorsten Benner, director of the Global Institute for Public Policy in Berlin. Consultations between governments is usually something you would do with your democratic allies. The challenge is to balance the new realism we are facing with Merkel’s old style of conducting consultations with China.”
These consultations will be the first for Mr. Schulz, as well as the first visit to Berlin for Mr. Lee as Prime Minister, who will be accompanied by a large train of ministers. There is no doubt that their missions will be at odds, even as they try to form areas of mutual interest.
For Germany, the meeting will be an opportunity to assert a new position, one in which China remains one of its most important economic partners but also a “systemic competitor”. This means that Berlin will try to protect its vital technologies and encourage its business to diversify away from Beijing.
For China, it will be an opportunity to persuade its largest European trading partner to stick to business as usual — and drive a wedge between Berlin and Washington.
How to maintain necessary economic relations with China, given mounting US pressure to align with it against Beijing, is a balancing act that Germany is still struggling to master.
A German official privately called it the “Berlin Three-Body Problem”. Fully aware that Washington was its security guarantor, German officials no longer had the luxury of dealing with its economic and political interests separately.
Relationships you once treated as bilateral and distinct — German-Chinese, German-American and Chinese-American — now feel tangled together. Security concerns over economic ambitions have also evolved in ways that have not preoccupied Germany before.
The Russian invasion of Ukraine forced Germany to reconsider economic relationships it had taken for granted, such as its reliance on cheap gas from Russia, which previously provided 50 percent of its supplies. Germany managed to switch to other supplies, narrowly avoiding a severe energy crisis, though not a recession.
In comparison, an event like a Chinese attack on Taiwan that triggers a military confrontation between the US and China would be much more painful. German officials believe they will be forced to intervene, having pressed hard on Asian countries to support Europe against Russia’s invasion of Ukraine as a violation of territorial sovereignty.
The economic consequences will be even more serious: more than a million German jobs depend directly on China, many more indirectly. Almost half of all European investment in China comes from Germany, and nearly half of German manufacturing companies depend on China for part of their supply chain.
For China, too, this is a difficult moment.
The economic recovery after the pandemic has been slower than expected. Some Western companies have also been wary of making new investments in China, where President Xi Jinping is embarking on a campaign to boost national security this year — including expanding anti-espionage laws that have increased police scrutiny of Western companies in China.
Relations with Germany are particularly important: it is China’s largest European trading partner and a source of European foreign investment.
“The fact that Germany was talking about reducing risks or becoming less dependent on the Chinese market naturally worries China,” said Hu Chunchun, assistant professor at Shanghai International Studies University.
During the talks in Berlin, German officials will likely give China an idea of what’s to come in the long-awaited China Strategy Paper, which has been delayed by months of internal wrangling within the German government about how difficult its position will be. The paper is now expected to be published publicly in July.
The original leaked draft reflected a tougher line on the need to diversify economic interests away from China, particularly in areas such as critical infrastructure, as well as raw materials for technologies needed for a carbon-neutral economy, such as solar modules and electric vehicle batteries.
That tone is expected to have softened somewhat under pressure from Mr. Schultz, who is worried about a major shock to an economy that has plunged into recession.
German officials will make it clear that they have no intention of changing the “One China” policy, acknowledging Beijing’s goal of uniting with Taiwan while maintaining “friendly, but informal” relations with the Taiwanese.
They will also underscore a message that Mr. Schultz has repeatedly emphasized: that Germany has no plans to “decouple” China, as US officials once urged. But, rather, he will lean towards the concept of “risk reduction”.
Analysts say the problem is defining what risk-off actually means.
“Does it mean to eliminate or reduce risk? How quickly can you do that? There is a lot of leeway in that term,” Mr. Banner said. “Scholz is walking a fine line. He does “light risk avoidance”. He’s very big on diversification, but he doesn’t want to discourage investment.
In April, Chinese officials raised concerns with Germany over news reports that said Berling was considering limiting the sale of semiconductor chemicals to Beijing. The United States is seeking to enlist European and other allies in its effort to block Beijing’s access to critical technologies such as semiconductors, an effort that has angered China.
“They need to distance the Europeans from the Americans as much as possible,” Miko Hootari, executive director of the Mercator Institute for Chinese Studies, said of the Chinese delegation’s goal this week. “Germany plays a big role in that.”
Paul Heinel, the former director for China on the National Security Council in both the Bush and Obama administrations, said Beijing still counts on the fact that many European companies are too dependent on Chinese consumers to distance themselves from China.
“The Chinese leadership has calculated that Europe still plays a big role,” he said.
With Germany, in particular, China has cards to play: Germany’s largest and most powerful companies — chemicals producer BASF, carmakers such as Volkswagen — have bucked the trend of several other increasingly anxious German firms, doubling their investments in China.
Late last year, China lifted its strict epidemic restrictions and reopened its economy, rolling out the red carpet to encourage foreign investors to pour money into China. Oliver Blum, CEO of Volkswagen, was one of the first multinational business leaders to visit China. The country is the largest sales market for the auto industry.
said Philippe Le Curie, a senior fellow at the Asia Society Policy Institute’s Center for China Analysis.
Indeed, Germany’s greatest challenge may not be reckoning with Beijing but with its own companies — and making it clear that in the future, they must advance their economic dependence on China at their own risk.
It makes the path for Germany to transform its relationship with China possible, but fraught with danger, said analyst Mr Huotari: “There is a way. Whether it hurts, we have to see.”
Erica Solomon Reported from Berlin, w Nicole Hong from Seoul. Olivia Wang Contributed reporting from Hong Kong.