Why Germany Can’t Break Up With China

When Germany’s chancellor, Olaf Scholz, took office in 2021, he pledged that his government would shift his country’s relationship with China away from one of economic dependence. Three years later, talk of scaling back reliance on China has been replaced with calls for equal access to China’s market for foreign firms.

That strategy puts the Germans at odds with many of their closest allies, including the United States and other European countries, which would like to see China scale back its recent surge of exports in the green energy sector, including electric vehicles. The U.S. Treasury secretary, Janet L. Yellen, has talked about imposing trade restrictions on China.

The chief executives of several leading multinational companies based in Germany joined Mr. Scholz on his three-day tour of China, which included a meeting with Xi Jinping, China’s top leader, in Beijing on Tuesday. All of the company leaders oversee large operations in China that they are eager not only to maintain, but in many cases to expand.

That leaves Mr. Scholz facing the delicate act of balancing the export-oriented needs of his domestic economy with pressure from allies to leverage his country’s position to make demands on the Chinese.

German companies invested 10.4 billion euros, or $11 billion, in China last year and, unlike their counterparts in Japan and the United States, they have showed little sign of waning.

Some analysts see this as proof of German strength in its position to push its agenda with Chinese leaders.

“Germany plays an exceptionally special role for China in the development of its economy and also in foreign trade relations,” said Max J. Zenglein, chief economist at the Mercator Institute for China Studies in Berlin. Electronics and electronic technology, along with machines and chemicals, remain important exports from Germany to China.

“As countries such as the U.S.A. and Japan are positioning themselves much more sharply in relation to China, Germany has an important function when it comes to access to technology and capital,” he said. “Germany is definitely in a position of strength here.”

About 5,000 German companies are active in China. But in a recent survey of 150 members of the German Chamber of Commerce in Greater China, two-thirds said they felt they faced unfair competition in the country.

German companies believe their products offer superior quality, innovation and technical leadership compared with those made by their Chinese competitors. But increasingly limited access to government officials and regulators have the Germans concerned they will lose out on business that is key to their global success.

Mr. Scholz highlighted the role that German companies have played in helping China to grow its economy, in remarks released by the chancellor’s office ahead of his meeting with Mr. Xi on Tuesday.

“In the past two days, together with a business delegation, I have visited Chongqing and Shanghai and been impressed with how German companies contribute to growth, innovation and sustainability in China,” Mr. Scholz said.

Ursula von der Leyen, president of the European Commission, expressed concerns last week that Europe remained the last market that was fully open to China. Last fall, the European Union opened an investigation into whether electric vehicles made in China benefited from unfair subsidies, with a decision expected by this summer. She cited Brazil, Turkey and the United States as countries that were pursuing steps that could lead to trade restrictions on Chinese products.

Among the executives traveling with Mr. Scholz were the heads of BMW and Mercedes-Benz — Volkswagen’s chief executive pulled out at the last minute, citing a conflict. All three of Germany’s main automakers are heavily invested in China and appear intent on remaining competitive in the market.

“China is the largest automobile market in the world. We are a leading luxury auto maker and we have grown strongly in China and have a strong presence,” Ola Källenius, chief executive of Mercedes-Benz, said in comments to German public broadcaster ARD. “Withdrawing from such a large market is not an option, on the contrary, we are expanding our position here.”

Representatives of the German auto industry point out that thousands of jobs in Germany depend on the revenue generated in the Chinese market. German auto makers increasingly rely on teams in China for research and development in fields such as automated driving that are not as advanced in Europe.

During the trip, ministers from both countries signed an agreement to work toward the standardization of autonomous driving technology.

“Our guiding principle should always be free trade and competition” Oliver Zipse, chairman of BMW said, naming Japan, Korea and other countries who sell their cars in Europe. “We do not feel threatened by Chinese automakers.”

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