Without the transatlantic relationship, former U.S. secretary of state Henry Kissinger once said, Europe would be at the mercy of China, a mere “appendage” of Eurasia. This bleak notion is weighing heavily on the minds of German officials as they contemplate their country’s place in a world of escalating U.S.-China competition.
German Chancellor Angela Merkel referred to Kissinger’s observation in a January 2020 speech, telling an audience in Berlin that it had prompted her to take a “fresh look at the map.” “As Europeans,” she said, “we need to think very hard about how we position ourselves.”
Germany is in the midst of a wrenching reassessment of its relationship with China, a challenge made infinitely more difficult by its increasingly strained ties with the United States. Berlin shares many of Washington’s concerns about Beijing from the lack of reciprocity in its economic relationships with trading partners and the spread of debt and political influence through the Belt and Road Initiative (BRI) to its growing use of surveillance technology and detention of over 1 million Muslims in Xinjiang.
But after spearheading a pushback against the policies of Chinese President Xi Jinping, a campaign that culminated last spring when the EU declared China a “systemic rival,” Europe’s largest member state is wavering, keenly aware of its own vulnerabilities and wary, despite its concerns about China’s political and economic development, of following Washington down a path toward full-blown confrontation with Beijing.
Germany’s challenge in 2020 is to define a third space for itself and for Europe in the face of this growing U.S.-China discord. But the Merkel government’s reluctance to antagonize Beijing risks undermining the EU’s push for a common policy toward China and perpetuating a situation where member states look out for their own interests, often to the detriment of a common European front. A desire to minimize the economic impact of the coronavirus pandemic across Europe is likely to reinforce the temptation to keep Beijing close.
For decades, Berlin’s strategy toward Beijing was defined by the phrase “Wandel durch Handel,” or change through trade. Like other Western democracies, including the United States, Germany convinced itself that China’s authoritarian politics would morph into a free, open, and more democratic system through ever-tightening economic ties. This allowed German companies to double down on the vast Chinese market, investing billions of euros in new factories. A rapidly modernizing China, meanwhile, could not get enough of Germany’s machine tools and manufacturing know-how.
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In 2001, when China became a member of the World Trade Organization, Merkel’s predecessor Gerhard Schröder was one of Beijing’s most enthusiastic supporters. Because German firms were making unprecedented profits in China, their executives discouraged German policymakers from complaining about the myriad problems tied to doing business there, such as forced technology transfers, intellectual property theft, and protectionist barriers to investment.
During the global financial crisis and the eurozone unrest that followed, Germany’s close links with China’s growing economy helped it weather the storm. Top aides to the chancellor, when asked about her views on China, stress that she has not forgotten the supportive role China played during this time of existential turmoil for Europe.1 In private, she has expressed admiration for the Chinese Communist Party’s success in lifting millions out of poverty.
When Xi came to power in 2012, Europe’s leaders were still very much preoccupied with their own troubles. China’s controversial 16+1 forum with Central and Eastern European countries (launched the same year), the BRI (unveiled in 2013), and the Made in China 2025 strategy—a blueprint for Chinese domination of ten key emerging technologies announced in 2015—did not cause a big stir in Berlin when they were first unveiled.
In 2016, however, Germany experienced what senior officials now acknowledge was a wake-up moment. The trigger was not Xi’s growing crackdown on political dissidents at home, but rather a $5 billion offer, announced in May of that year, by China’s Midea Group for Kuka, a German robotics manufacturer. The bid for a company some saw as a crown jewel of German industry caught the government off guard.
With no obvious legal options to block the takeover, it scrambled to find another suitor. But no German or European company was prepared to top Midea’s hefty offer, and Kuka fell into Chinese hands. Months after the Kuka surprise, the Obama administration forced Germany to withdraw its approval for a Chinese takeover of Aixtron. The German chip maker’s technology, it turned out, was being used to upgrade U.S. and foreign-owned Patriot missile defense systems.
That Berlin gave the Aixtron takeover a green light exposed the inadequacies of its own defenses, and a sense of panic began to set in. As the Kuka and Aixtron cases suggest, Germany’s concerns about China were driven by economic, rather than political, considerations. Chinese companies had moved up the value chain much faster than expected, developing into major competitors to German industry leaders.
At the same time, business conditions in China were becoming more difficult as Xi pushed for greater state control over the economy. German businesses, rather than discouraging politicians in Berlin from pushing back, as they had once done, began demanding action against Beijing.
China’s buying spree in Europe, part of the drive to deliver on Xi’s grand industrial policy plan, was what finally spurred German politicians to act. It also forced them to confront other concerns about China that went beyond the economic sphere.