Partner, Competitor, Rival – China policy at a crossroads

Part 5 in our series China’s role(s) in the world economy

In the previous 4 parts of our series on China’s role in the world economy, we showed China will take on different roles in different areas. From a western perspective: a partner in climate change mitigation; a competitor in key technologies; and a systemic rival in the international rules-based system.

This last part takes Germany’s upcoming general election as a starting point to draw up the challenges and opportunities that the new government of one of the most important EU economies will face in its relations with China – a situation that will certainly be similar for other EU countries, too.

China’s rise was one of the most important economic developments of the late 20th and early 21st centuries. As an export-oriented economy, Germany has benefited a great deal from this exchange with its most important economic partner in Asia.

However, relations with China are at a crossroads and must be readjusted – on the national as well as on the EU level. It is clear by now that the German and European policy approach of “change through trade” (“Wandel durch Handel”) has failed.

Under Xi Jinping, China has developed into “an increasingly assertive global power that does not shy away from applying economic pressure on countries and actors whose policies it disagrees with,” as EU High Representative for Foreign Affairs and Security Policy Josep Borrell pointed out in a recent speech.

In addition, competition-distorting state intervention in the Chinese economy has increased significantly, and the “competition of systems” between liberal democracies and the state-capitalist autocracy has intensified.

Furthermore, the authoritarian state capitalism under the leadership of the Chinese Communist Party (CCP) has demonstrated that economic development and progress are possible without democracy, thus challenging the influential belief in the economic superiority of market-based democracies.

China, therefore, has become an alternative model of authoritarian capitalist development for other emerging and developing countries and autocratic regimes to emulate. Last but not least, China is in the process of overtaking Western countries in certain key future technologies, showing that high-quality development is possible within an autocratic system.

Against this backdrop, Germany’s and Europe’s relationship with China has become complex and ambivalent. For the EU, China is simultaneously a “cooperation and negotiating partner,” an “economic competitor,” and “a systemic rival promoting alternative models of governance,” as stated in a strategy document of March 2019.

This triad accurately describes the complex relationship with Beijing, which is characterized by cooperation, competition, and conflict. However, it is not yet a consistent strategy from which guidelines for a China policy could be derived.

It remains unclear how the three dimensions are interrelated and how they should be weighted. However, a strategy for dealing with China is urgently needed to assert European interests and values in the context of the intensifying U.S.-China strategic rivalry.

The same applies to Germany. For Germany, China remains a very important economic partner. But this partnership is not a one-way street: Both countries need each other, as their economies are closely interconnected.

Ideally, Germany should pledge for the EU not to let itself be put into a sandwich position between the U.S. and China, but rather decide autonomously how to deal with China. However, equidistance between the U.S. and China is not a realistic option for Germany or Europe.

For despite all of the differences with the United States that continue with the Biden administration, the foundations of the transatlantic community of values and security remain. At the same time, the contrast with China’s authoritarian regime is fundamental.

Therefore, it is unrealistic for any future German government to continue with a policy of compartmentalization. i.e., treating economic and political interests as strictly separate. Instead, Germany will have to face China more directly in its role as a systemic rival and, together with other like-minded countries, first and foremost the U.S., make clearer and more pressing commitments to democratic values and human rights.

Walking the fine line between protection and protectionism, Germany must also continue to improve measures on the national and EU level to protect important key technologies against China as a competitor, which tends to play by different rules.

From the above, it becomes clear that dealing with China will be a significant challenge for the next German government, which will have to rebalance economic and political interests.  Moreover, it will be important for Germany to pursue a Europe-China policy instead of continuing to pursue a Germany-China policy that primarily serves the interests of Germany and its companies.

To make things even more complicated, it is important to point out that the way China is dealt with will ultimately depend decisively on the behavior of the Chinese leadership, which Germany and Europe cannot influence.

China will do what its leadership deems good for the country. Economically, Beijing is in the process of further closing itself off in certain areas (dual circulation), which amounts to partial decoupling – regardless of Western sanctions or other measures. The Chinese leadership appears to be willing to accept even substantial economic losses to achieve its political goals. This is a fact that must also be noted and handled.

Overall, China must be a higher priority on the foreign policy agenda than it has been so far. Germany’s relations with China will be a balancing act in the coming legislature. The new German government will have to set a course for the future.

But that also means that it will have to make some difficult decisions. Close coordination with Brussels and other EU member states is crucial here because no single country can act alone on an equal footing with China.

If the EU and its member states want to safeguard and stand by their shared values and common interests, nationally as well as internationally, a unified and consistent EU approach towards China is more urgently needed than ever before. The new German government could play a decisive role in the design and implementation of such a policy.