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This article is part of the series Facing China.
BERLIN — In the fall of 1984, Helmut Kohl traveled to China with German industry in tow on a mission to harness what he predicted would be a “century-long modernization” effort.
After overseeing the groundbreaking of Volkswagen’s first Chinese factory in Shanghai, Kohl returned home, telling parliament that he and Chinese leaders had resolved to build a “stable, long-term partnership.”
Kohl’s prophecy came true, convincing a generation of German political and business elites that China held the key to Germany’s long-term prosperity.
What they forgot to consider is what to do if Beijing used that key to lock them into an economic relationship they couldn’t escape from.
As Europe weighs what course to take in the face of Beijing’s growing belligerence at home and abroad, it has become increasingly clear that the decision depends on Berlin, far and away China’s most important counterpart in the region. Equally clear is that Germany’s economic entanglement with China has become so extensive that reversing it is no longer a realistic option.
Then-German Chancellor Helmut Kohl arrives in China in 1984 | Thomas Imo/Photothek via Getty Images
Germany’s big industrial companies — including engineering behemoth Siemens, car giant Volkswagen and chemical maker BASF — were among the first Western companies to make big bets on China in the 1980s and they’ve flourished there ever since.
“We’re going to get the Chinese off bicycles,” Volkswagen patriarch Ferdinand Piëch boasted as the company ramped up production of its coveted Santana model in China in the early 1990s.
He was right, and then some.
Last year alone, Germany exported nearly €100 billion worth of goods to China, accounting for more than half of the value of all EU exports to the country. Germany bought even more from China than it exported there, making the country its biggest overall trading partner.
While the U.S. remains Germany’s biggest export market overall, China drives the country’s export growth. Even in the midst of the pandemic, China has remained a crucial pillar, with German exports returning to pre-crisis levels, while the U.S. has declined.
In addition to the exports, scores of German companies produce locally in China and show no signs of drawing back. Just in May, BASF began work on a large-scale, high-tech plastics factory complex in the south of the country. The $10 billion project represents the largest single investment in the company’s 155-year history.
For BASF, China “isn’t just the biggest market, it’s the fastest growing,” said CEO Martin Brudermüller.
That reliance is the main reason Chancellor Angela Merkel has preferred to ignore calls for decisive action on China in response to its actions in Hong Kong and elsewhere, opting instead for a wait-and-see approach in the hope the tensions would dissipate.
So far, they haven’t. Washington has been pressuring Europe to pick sides in its standoff with China, a simmering geopolitical dispute many fear could devolve into another Cold War, or worse.
Though Europe declared China a “systemic rival” last year and has adopted a more forceful tone on issues such as Chinese acquisitions of strategic European companies, it has yet to articulate a detailed strategy, calling instead for a “flexible and pragmatic” approach.
In other words: the German playbook.
Only business
In any discussion with a German official about the country’s relationship with China, the word “complicated” will be repeated many times. Germans tend to describe the ties as “multilayered” and “nuanced” and highlight the different approaches to China taken by Merkel’s chancellory, the foreign office and the economy ministry.
In truth, the relationship couldn’t be more straightforward.
For years, Berlin has pursued a two-pronged strategy toward China, quietly rapping Beijing on the knuckles for human rights abuses in places like Tibet, even as German companies invested untold billions in the Chinese market, helping to transform the Reich der Mitte (Middle Kingdom), as Germans wistfully refer to China.
In retrospect, the to and fro looks more like an elaborate choreography that benefited both sides by keeping politics and business neatly separate; while Germany pretended to be upset over China’s human rights abuses, Beijing feigned offense at Berlin’s “intrusion into its domestic affairs.”
That tacit understanding explains why the ever-cautious Merkel has been willing over the years to take seemingly provocative steps, such as hosting the Dalai Lama (twice for “private” visits in the Berlin chancellery) and Hollywood actor Richard Gere, a tireless advocate for the Tibetan cause and a regular target of Chinese propaganda. Though greeted with enthusiasm in Germany, the meetings were met with immediate indignation in Beijing. And then promptly forgotten.
German workers rolled out the red carpet for then-Chinese Premier Wen Jiabao at a German Volkswagen factory in 2012 | Sean Gallup/Getty Images
Germany also hasn’t shied from offering a safe haven to Chinese dissidents, from artist Ai Weiwei to Hong Kong democracy activist Nathan Law. It recently joined other Western countries in suspending its extradition treaty with Hong Kong after China imposed its controversial new security law on the territory in June.
China complained on cue and, as ever, busines ties between the two countries trundled along, unabated.
Since becoming chancellor in 2005, Merkel has traveled to China a dozen times. Her last visit, together with a large business delegation, came a year ago last September, amid a crackdown against democracy protestors in Hong Kong.
“Solutions can only be achieved through dialogue,” Merkel said of the standoff between democracy protestors and the government.
As if to prove the point, Merkel, sitting alongside Chinese Premier Li Keqiang, crowned her visit by overseeing the signing of 13 business deals between German and Chinese executives in the Great Hall of the People on (of all places) Tiananmen Square.
‘Wake-up call’
For a long time, Germans reasoned that China, aside from the great economic opportunity it represented, wasn’t really their business. Tibet has been a perennial pet cause for the country’s hippie set for decades, but not an issue that has gotten much traction in the broader public. Most Germans considered China a faraway place with a different mentality and mores, fundamentally “other.”
In contrast to the U.S., for example, the cultural ties between Germany and China are limited. Relatively few Germans speak Chinese or have ever visited the country. As is true for many Europeans, the greatest exposure most Germans have had to Chinese culture is using chopsticks.
Though German politicians often parroted American conventional wisdom on China — that economic liberalization would pave the way to democratic reform — few of those who claimed to know the country best, Germany’s business elite, ever really believed that would happen.
“We can’t judge the Chinese according to our standard of values, or our cultural or humanistic ideals,” Jürgen Heraeus, a billionaire businessman who spent decades dealing with China, including as the Asia point man for Germany’s main industry lobby, told business daily Handelsblatt earlier this year. “They simply function differently and even have a different relationship to life and death.”
That sentiment, widely shared, if rarely expressed publicly, has informed German policy on China since Kohl.
Hong Kong police detain a protester during a rally in support of Uighur human rights last year | Dale de la Rey/AFP via Getty Images
Yet recent events have begun to challenge German business’ fatalistic approach to China.
A combination of factors, from the crackdown in Hong Kong to revelations about China’s abuse of its Uighur minority and their internment in “re-education camps,” to fears that Beijing could surreptitiously export its surveillance state to Germany via 5G technology, have triggered reappraisal of China by the German public.
While none of the issues is particularly new, the fallout from the pandemic seems to have crystallized the China question in Germans’ minds. China’s obfuscation about the origins of the virus, coupled with its ham-fisted propaganda effort to cast itself in the role of Europe’s savior, backfired, sowing distrust.
“We’ve seen a change in the level of trust, which used to be very high,” said Janka Oertel, director of the Asia program at the European Council on Foreign Relations. “Now it’s very low.”
Even before the German public woke up to the threat China poses, German business had also become more skeptical, albeit for different reasons.
While most in German industry didn’t expect China to give up on authoritarianism anytime soon, they did believe the country would open itself up to more competition, just as the West had done for China. One long-standing priority for Germany and other Western investors was for China to end the stipulation that foreign companies have a local joint venture partner, a tactic China has used with great success to absorb Western knowledge and expertise. Another was that China do more to curtail intellectual property theft of Western technology.
Even if the Chinese remained under authoritarian rule, German businesses hoped their world would be liberated.
That expectation all but died in 2017 when President Xi Jinping cemented his hold on power. Instead of withdrawing the government and Communist Party from the corporate sphere, Xi strengthened their hand. Many companies have been forced to give the Communist Party an explicit role in corporate decision-making. A recent cybersecurity law that forces companies to grant Chinese authorities access to their networks fueled fears among foreign firms that they would be powerless to protect their trade secrets.
“Xi Jinping set clear, new accents for the Chinese leadership and communicated them to the outside world in a way we hadn’t seen before,” said Friedolin Strack, the head of the Asia division at the Federation of German Industry (BDI), the country’s main industry lobby. “It’s not that we were naive about China before, but rather that they went through a relatively dramatic transformation.”
China’s aggressive turn forced German industry to engage in a radical rethink. In early 2019, the BDI published a paper by Strack and his team calling for a tougher approach on China. The message: The West’s strategy for opening China had failed. China would not become a liberal, market-driven economy, the report concluded. It was, Strack says, a “wake-up call,” both for Europe and China.
A unified EU response was Europe’s only hope, the BDI argued. The report made 54 recommendations, including everything from higher spending on R&D to tougher controls against price dumping by Chinese firms.
In Berlin and Brussels, the BDI report is often cited as a watershed moment. If even German industry, the greatest champion for deeper engagement with China, was beginning to worry about the long-term implications of the strategy, something must be amiss.
Yet the report was controversial within the German business community itself. Smaller firms, which are most exposed to unfair Chinese competition, welcomed the call for a new approach. But Germany’s blue-chip industrial giants, which have an easier time protecting themselves in China because of their scale, worried that the tone of the report would do lasting damage.
Turning point?
The main worry in Germany’s Mittelstand, the medium-sized businesses that form the country’s industrial backbone, is that sometime in the not-so-distant future, China won’t need them anymore. The reason German exports to China have remained so robust over the years is that German engineering is still superior. That’s particularly true of German machinery-makers, the country’s so-called hidden champions.
But China is catching up. In the past, German industrial companies combatted China’s attempts to steal their technology by holding back their latest innovations from the Chinese market. In most cases, even if the gear they sold to China wasn’t state-of-the-art, it was generally superior to what Chinese suppliers could offer. That strategy has become increasingly difficult as Chinese rivals have become more sophisticated, forcing German companies to put their top-shelf offerings on the Chinese market.
For German industry as a whole, the long-term question is whether access to China’s vast market is worth the risk.
“We have created a massive competitor in exactly the businesses that we’re good at and we are being squeezed out of the market,” Oertel said. “That is not a positive outlook, so in the long run, German policy will have to adapt.”
But will it?
A genuine shift would require German to accept the economic fallout. China hasn’t shied from using its economic leverage in trying to cow other trading partners that have dared challenge it, notably Australia.
So far, German action on China has been limited to rhetoric. In a sign of how rare direct criticism of China is in Berlin, a veiled rebuke by Foreign Minister Heiko Maas last week of his Chinese counterpart for threatening a Czech politician over a trip to Taiwan was widely hailed as a “new direction.”
In 2007, a three-year program called “Germany and China: Moving Ahead Together” launched, including a touring exhibition of German companies like BASF throughout China. | China Photos via Getty Images
German opposition leaders say a real shift will require more than a few choice words. Omid Nouripour, a Green member of the German parliament’s foreign affairs committee, said Germany should start focusing less on business relations with China and more on Beijing’s record on human rights and the rule of law.
“Germany needs to take a much clearer stance,” he said, adding that it was essential to do so together with the rest of the EU.
But Nouripour also cautions against the kind of “full confrontation” U.S. President Donald Trump has pursued, a course he says is counterproductive.
Alexander Graf Lambsdorff, a senior MP with Germany’s opposition Free Democrats who focuses on foreign policy, said that while the German establishment had been slow to understand the Chinese threat, it was slowly coming around.
“In the long run I think we’ll see Germany alongside democracies like the U.S., Japan and the U.K. in standing up to China and pursuing a more sober, rational and less naive policy,” he said.
At the moment, there are few signs of an awakening. Both Merkel and her key ministers, including Economy Minister Peter Altmaier, have shown no inclination to abandon the status quo on China. In July, Altmaier told POLITICO that he still believed in “transformation through trade,” with China.
At times, it can seem like Germany’s discussion about China is taking place in a parallel universe.
On Wednesday evening, for example, the Bundestag, Germany’s parliament, gathered to debate the China policy at the behest of the Greens. The ostensible purpose was the EU’s video summit with Chinese leaders, scheduled for next week.
Jürgen Trittin, a senior Green MP, took to the podium with guns blazing.
“In China, economic growth and the tightly bound globalized world go hand in hand with less rule of law, less freedom and total surveillance,” he thundered. “China is not a strategic partner. China is a difficult partner.”
Niels Annen, a Social Democratic deputy foreign minister, defended his government’s soft China policy with a flourish of alternative facts.
“Human rights are a central element of our China policy,” Annen insisted.
He went on to upbraid the U.S. for “demonizing” China and said he hoped China and Europe would find a compromise on an investment agreement they have been negotiating for several years that would ease restrictions on European companies in China.
“We’re prepared for a partnership,” Annen said, as if one didn’t already exist.
Some see Merkel’s pending departure — her government’s term ends in a year, and she does not plan to stand for reelection — as a chance for Germany to reposition itself vis a vis China, especially if the Greens join the next government as is widely expected.
If Joe Biden wins the U.S. presidency, Germany would be more willing to lock arms with Washington, many argue.
Omid Nouripour, a Green member of the German parliament’s foreign affairs committee, cautions against the kind of “full confrontation” U.S. President Donald Trump (above, with Chinese President Xi Jinping) has pursued, a course he says is counterproductive | Nicolas Asfouri/AFP via Getty Images
The economic realities tell a different story. With Europe still reeling under the effects of the pandemic, U.S. demand depressed and a messy Brexit on the horizon, China is about the only thing keeping Germany’s economy from falling through the floor.
The same was true in the wake of the financial crisis in 2008 and 2009, when Chinese demand fueled Germany’s V-shaped recovery.
Will whoever is leading Germany a year from now really risk the country’s economic relationship with China over Hong Kong or the Uighurs? Unlikely.
A more realistic scenario is that Berlin will follow Merkel’s carrot and stick approach, with the emphasis on the former, much in the way it has dealt with Russia.
Over the past year, Germany determined that Russia assassinated a Chechen rebel in broad daylight in central Berlin and hacked into the Bundestag’s computer system. It now suspects the Kremlin of poisoning Russian opposition leader Alexei Navalny with a nerve agent.
The German government’s response? It might put its Baltic pipeline project with Moscow on ice. (More than half of Germans are against halting construction, according to a poll released this week.)
It’s worth keeping in mind that Germany’s economic relationship with Russia — even before international sanctions were imposed on the country — is negligible compared with what it has built with China.
For better or worse, Kohl’s goal of tethering Germany’s fortunes to China worked, and now there’s no going back.
Whatever qualms Germans may have about China at the moment, looking the other way on human rights in exchange for prosperity is not a tradeoff they’ve ever objected to in the past.
German exports are about more than good business, Kohl told reporters during his China visit in 1984. They create “jobs, lift GDP, ensure social security for a lot of people and, ultimately, a bit of private happiness.”
Nette Nöstlinger contributed to this article.
