China-Germany economic ties shift with Xinjiang allegations, zero Covid and supply chain issues
South China Morning Post
5 min read
When German Chancellor Olaf Scholz took office last year, he told Chinese President Xi Jinping that Germany would deepen economic ties with China "in the spirit of mutual respect and mutual trust".
But over the past few months, a wind of change has begun blowing over Berlin's relationship with Beijing, just as its foreign ministry constructs a new China strategy.
This comes in light of China's obfuscation over Russia's actions in Ukraine, its zero-Covid strategy, which has frustrated businesses, and its alleged persecution of the Uygur people in Xinjiang.
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While China has repeatedly denied these accusations, German Economy Minister Robert Habeck said Germany was actively working to diversify and reduce its dependency on China.
"Upholding human rights weighs heavier," he said after the recent release of the "Xinjiang Police Files", a tranche of leaked police documents apparently illustrating China's oppression of the Uygur community - charges vehemently denied by Beijing.
The leak has resonated with policymakers in Berlin: Foreign Minister Annalena Baerbock raised it with Chinese counterpart Wang Yi last month, and she told German radio, "we now know for sure there is forced labour and the worst crimes are happening".
Lawmakers, business figures and analysts say the combination of issues has led to a re-evaluation of ties with China.
"But that does not mean Berlin is going to rupture trade relations with Beijing," said Reinhard Buetikofer, the leader of the European Parliament's China delegation and an outspoken critic of the country.
"Nobody in Germany believes in such economic separation. But Germany and the EU are not willing to ignore any human rights abuses and have in turn come up with trade defence instruments to push back against unfair trade practices."
Germany and China have been interdependent trading partners since the latter started opening up its economy in the late 1970s.
Berlin's policy since then has been defined by the mantra "change through trade", which also extended to Russia. The hope was that trading with an authoritarian regime would lead it to become politically liberal, and in turn enrich German industry.
Despite their political differences, Germany and China are set to mark 50 years of diplomatic ties this year and according to Germany's Federal Statistics Office, Beijing continues to remain Berlin's most important trading partner. Goods worth €245.7 billion (US$262 billion) were traded between the two nations in 2021.
But that hope of change now appears long gone.
"China will always stick to its holy grail of territorial integrity and national sovereignty when it comes to international relations," Buetikofer said.
Noah Barkin, a Berlin-based analyst of Europe-China relations at the German Marshall Fund of the United States, said Germany was entering a new phase in which China was seen less as a partner and increasingly as a strategic competitor and rival.
"Mitigating the risks associated with Germany's dependence on China is at the heart of the new government's challenge."
German industry, meanwhile, is facing the supply chain ruptures caused by China's zero-Covid policy.
"The Chinese economy has been hit really badly by serious lockdowns and there is a drop in business perspectives. It is going to take a while for China's economic sector to bounce back," said Joerg Wuttke, president of the European Chamber of Commerce in Beijing.
The chamber's flash survey in April showed 85 per cent of European businesses in China struggled to gain access to raw materials, while more than two-thirds had difficulty retaining staff.
A separate survey released on Friday by the Institute for Economic Research - one of Germany's largest economic think tanks - showed that 67.3 per cent of German wholesale trade and 63 per cent of retail trade was hit by China's strict coronavirus containment measures.
At a meeting of the EU's 27 trade ministers in Luxembourg on Friday, officials discussed the economic impact of the zero-Covid policy on Europe's economy. It helped drive the need to "diversify supply chains" away from China, said French Trade Minister Franck Riester.
While there is little Germany - or Europe - can do to affect China's harsh zero-Covid policies, the pandemic has served as a cautionary tale for German companies that rely too much on a single market, where the political priorities of one man can override everything else.
"It will accelerate the push for diversification in supply chains and markets," Wuttke said.
Business' gripes will be reflected alongside human rights concerns in a new China strategy, which is expected to arrive early next year and is expected to represent a clear break from the era of Angela Merkel.
"I see more concern about the economic relationship among people from the business community than I see with politicians. With the pandemic lockdowns, German investors cannot really send their staff there," Buetikofer said.
In the meantime, businesses warn that China's self-imposed isolation is leaving it on the sidelines while the rest of the world moves on.
Wuttke points to Scholz taking his first Asia trip as chancellor to Japan, while Germany's President Frank-Walter Steinmeier is also visiting Singapore and Jakarta later this month.
"Clearly, China has lost its allure and put itself in a box. That needs to change for business ties to flourish," he said.
