The Federal Government’s China Strategy, July 2023
Background
China has changed, and this requires a change in how Germany deals with China. For Germany, China is at the same time a partner, a competitor and a systemic rival. German companies in China face restricted market access, unequal competitive conditions and forced technology transfer. China’s data laws raise additional concerns about data protection and data security.
With the publication of the federal government’s China strategy, German actors are asking what new developments and challenges could arise and what they now need to consider in their relations with China. It remains to be seen how the strategy will be implemented in practice and to what extent it will change how Germany deals with China. Key questions in this context include possible opportunities and risks in economic relations, the importance of technology partnerships and geopolitical considerations.
Goals
The China strategy aims to adjust how Germany deals with China and to protect German and European interests. It covers bilateral relations, strengthening the EU and international cooperation. Its focus is on fairness, sustainability and reciprocity in economic and trade relations with China. It aims to reduce risks through de-risking without seeking a complete separation of the two economies (decoupling).
The strategy emphasizes fair competition with China. De-risking and diversifying supply chains are meant to reduce the vulnerability of the German economy. Critical dependencies on China will be analyzed, especially for metals, rare earths, lithium batteries, photovoltaics and active ingredients for human and veterinary medicines. The federal government plans to support alternative and sustainable sources of supply.
The strategy aims to strengthen Germany’s and Europe’s capacity for innovation in green technologies in order to expand production capacity. Key technologies such as semiconductors, artificial intelligence and green technologies are to be further developed and protected. Research policy is to be strengthened by increasing investment in research and development to 3.5% of GDP by 2025.
Investment screening and export controls are meant to reduce security risks and prevent unwanted technology transfer. Companies are expected to take geopolitical risks properly into account in their decisions. The screening of foreign investments aims to protect independence in security-critical areas and secure supplies for the population in relevant sectors. In cyberspace, the strategy aims for fair regulation and free cross-border data flows. At the same time, measures will be taken to strengthen resilience against hybrid threats, especially to protect companies from economic and scientific espionage.
Assessment
The federal government’s China strategy shows a balanced understanding of the challenges and opportunities in the relationship, even though it is clearly a compromise between the coalition parties. It emphasizes fair and sustainable economic relations and protection against technology transfer and industrial espionage. Reducing supply chain vulnerabilities and diversifying sources of supply are meant to strengthen economic resilience. The strategy recognizes the importance of key technologies and technological sovereignty. At the same time, protecting them could affect international technology partnerships.
Economic risks are to be reduced through de-risking, and sustainable investment is to be promoted. At the same time, companies are asked to take greater account of geopolitical risks. This can lead to uncertainty and higher costs when doing business with China and other countries.
Investment screening and export controls could lead to longer approval procedures and restrictions on investment. This can affect investment flows and companies’ flexibility. Existing business plans and partnerships could be affected.
International companies need a balanced and investment-friendly approach in order to use the full potential of foreign investment. An attractive investment climate should be maintained, and international cooperation should be promoted.
On some points, such as helping companies find diversified and sustainable sources of supply, the strategy lacks concrete details on how this will be achieved.
It is positive, however, that the federal government has thought about the structures needed to implement the strategy. It aims for closer coordination within existing structures. For this purpose, a group of state secretaries for China has been set up, and the ministries coordinate regularly. The government will report regularly on progress in implementing the China strategy and will involve the Bundestag and other key actors, especially the federal states. There will also be an ongoing exchange with business associations, companies and trade unions.
In its China policy, the federal government relies mainly on Brussels and sees itself more as a supporting player than as an independent actor. This is partly realistic. It is essential that implementation of the China strategy aims for a coordinated EU policy. Only then can fairer trade conditions be achieved and challenges in relations with China be addressed. It remains to be seen whether this can be done without additional funding, which is not planned.
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