China’s changing landscape calls for an adjustment in how we engage with it. Germany views China as a partner, competitor, and systemic rival. German companies face market access restrictions, unequal competition conditions, and forced technology transfers in China. Additionally, China’s data legislation raises concerns about data privacy and security.
With the publication of the German Government’s China Strategy, stakeholders from Germany are must now contemplate the potential new developments and challenges that may arise, and the aspects they need to consider regarding their relations with China. It remains to be seen how this strategy will be implemented and to what extent it will lead to an adjustment in the approach towards China. In this context, important questions are raised concerning the potential opportunities and risks in economic relations, as well as the significance of technology partnerships and geopolitical considerations.
The German Government’s China Strategy aims to adapt the government’s approach and safeguard the interests of Germany and Europe. It encompasses bilateral relations, strengthening the EU, and international cooperation. Emphasizing fairness, sustainability, and reciprocity, it seeks to mitigate risks through De-Risking while avoiding complete economic decoupling.
The strategy emphasizes fair competition with China. De-Risking and diversifying supply chains aim to reduce Germany’s economic vulnerability. Critical dependencies on China, particularly in metals, rare earths, lithium batteries, photovoltaics, and (veterinary) pharmaceuticals, are analysed, with the government planning to support alternative and sustainable sources.
Boosting Germany and Europe’s innovation in green technologies aims to expand production capacities. Protecting and advancing key technologies like semiconductors, artificial intelligence, and green technologies is a priority. Research policy will be reinforced by increased investments in research and development, reaching 3.5% of GDP by 2025.
Investment reviews and export controls are designed to address security risks and prevent unwanted technology transfers. Companies are encouraged to consider geopolitical risks in their decisions. Scrutiny of foreign investment aims to preserve independence in security-critical sectors and relevant areas for public supply. Fair regulation and unrestricted cross-border data flow are sought in cyberspace, alongside measures to strengthen resilience against hybrid threats, especially economic and scientific espionage.
The German government’s China Strategy demonstrates a balanced understanding of the challenges and opportunities in the relationship, even though it clearly represents a compromise among the coalition parties. It emphasizes fair and sustainable economic ties, technology transfer, and industrial espionage protection. Reducing supply chain vulnerability and diversifying sources aim to strengthen economic resilience, although securing key technologies may affect international technology partnerships.
De-Risking seeks to mitigate economic risks and promote sustainable investments. However, companies are urged by the government to consider geopolitical risks, which may lead to uncertainties and costs in dealing with China and other countries.
Investment reviews and export controls may lead to longer approval processes and investment limitations, potentially affecting investment flow and corporate plannability. Existing business plans and partnerships could be impacted.
International businesses require a balanced and investment-friendly approach to harness the full potential of foreign investments, ensuring an attractive investment climate and promoting international cooperation.
Though the strategy lacks specific details on certain aspects, such as how the government plans to support the industry in diversifying sustainable sources, it is commendable that the government has made internal structural considerations. A deeper coordination within existing structures has been initiated, with a State Secretaries Roundtable for China established and regular inter-ministerial coordination set to take place. The government will provide regular updates on the progress of the China Strategy, involving the Bundestag and other key stakeholders, including the Federal States. Continuous engagement with business associations, companies, and unions is envisaged.
Germany primarily relies on Brussels for its China policy, positioning itself as a supportive element rather than an individual actor, which is partially realistic. Coordinated EU policies must be pursued in implementing the China Strategy to achieve fairer trade conditions and address challenges in China relations. Whether this can be achieved without additional financial resources, which are not currently planned, remains to be seen.