Germany’s Scholz between tough talk and trade on China trip

Berlin – Chancellor Olaf Scholz travels to China this weekend, walking a fine line in shoring up economic ties with Germany’s biggest trading partner at a time when the West is sharpening its tone towards Beijing.

With the economies of both China and Germany currently underperforming on the world stage, Scholz will travel with a bumper delegation of ministers and business executives.

The chancellor will have to balance encouraging words on economic cooperation with the European Union’s strident message accusing China of unfair subsidies.

The German leader could also deliver a stern warning to China over its refusal to turn its back on President Vladimir Putin despite Russia’s invasion of Ukraine.

China’s President Xi Jinping and Scholz will hold talks in the Chinese capital on Tuesday at the conclusion of the trip, which will first take the chancellor to Chongqing and Shanghai.

The three-day tour is Scholz’s second since taking office, the first coming in November 2022 with China still applying strict coronavirus rules. 

Around 18 months on, the two major world economies are still struggling.

And the lineup of Scholz’s delegation underlines his focus — Volkswagen, Siemens and Bayer will count among bosses of blue-chip firms on the plane, German media reported.

Three cabinet ministers including transport minister Volker Wissing will also be on the tour. 

The extended lineup was “really remarkable” and an indication that the emphasis of the trip would be on business ties, said Max Zenglein, chief economist at the Mercator Institute for China Studies in Berlin.

– ‘Trade tensions’ –

Western policymakers have become more circumspect in their attitude towards Beijing, with concerns that an overreliance on Chinese imports could become a liability.

Washington has moved to limit access for Chinese firms to the US market, while the European Union has taken aim at what it sees as unfair subsidies from Beijing for green technologies.

The European Commission on Tuesday opened a probe into Chinese wind turbine suppliers, following investigations into state aid for solar panels, electric cars and trains.

The EU moves have cranked up trade tensions, with China saying Wednesday it was “highly concerned” by the Commission’s “discriminatory measures”.

By contrast, Germany has shown a “friendlier face” to Beijing, attempting a “balancing act” in its economic relations with China, Zenglein said. 

Scholz himself has characterised his approach as “derisking”, urging companies not to “put all your eggs in one basket” and to nurture ties with other trading partners.

German businesses, however, remain highly dependent on the Chinese market, according to the IW economic research institute in Cologne.

In key areas such as chemicals or electronics there had been “no notable structural derisking”, IW analyst Juergen Matthes told German financial daily Handelsblatt.

– ‘Missed opportunity?’ –

But analysts believe that Germany’s economic clout gives it leverage over China, as they urged Scholz not to squander the opportunity.

While other countries were less receptive to Beijing’s overtures, Germany “might underestimate how valuable of a partner they are for China”, Zenglein said.

Failing to recognise its own importance would be “a bit of a missed opportunity” for Germany “in delivering really strong messages to Xi Jinping”, Zenglein said.

US officials have repeatedly warned China against providing indirect aid to the Russian war effort.

With Scholz’s visit coming on the heels of Russian Foreign Minister Sergei Lavrov’s trip to Beijing, the German chancellor could use the occasion to push against further cooperation with Russia. 

Beijing has gained more sway over Russia as Moscow has become more internationally isolated after invading Ukraine two years ago.

Ahead of the trip, Scholz’s spokesman Steffen Hebestreit said it was clear that “China has influence on Russia”.

“Our wish would be for China to be able to exercise the influence it has,” Hebestreit said.