It is now extremely difficult for Olaf Scholz to pursue an independent foreign policy
The war in Ukraine has asked a fundamental question of Germany: how far does an aggressor need to go before Berlin rethinks its economic ties to the regime? The answer may be uncomfortable in relation to Russia. But Germany’s reliance on China is even more worrying.
Amidst inflation, war and domestic politics, the Xinjiang Police Files are only the latest cache of evidence about human rights violations in China. Yet, according to one recent survey, 94% of German companies want to maintain their presence in China; 71% want to even increase investment. Volkswagen Group China alone employs 90,000 people including in a factory in Ürümqi, the capital of Xinjiang province.
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But the problem goes far beyond the morality of individual private businesses. The bigger picture of Germany’s economic ties to China reveals a dependency that dwarfs that of Russia, seriously impeding Berlin’s ability to enact an independent foreign policy.
No other European country maintains trade closer relations with China than Germany. Since 2015, China has been its most important economic partner year on year. Trade between the two nations was worth nearly €250 billion in 2021 alone. But while Germany once dominated this relationship, having been the biggest exporting country in the world in the early 2000s, the tables have turned. Germany is only China’s sixth most important trading partner and has long been overtaken in exports.
The most vulnerable sector is Germany’s car industry, which still sits at the heart of its economy. It relies on China as an export market but also for the import of parts (the latter sector was worth €113,8 billion alone last year). With the rise of electric cars, batteries and their chemical components have become essential, also largely imported from China.
Volkswagen CEOs have at best pretended to be ignorant of the morality of their business in China, but at worst, outright callous. Stephan Wöllenstein, head of the China group, said: “We must stand by our commitment in China as a whole, and we will also stand by our commitment in Xinjiang as long as we believe that it is economically feasible.” The truth is, he would find it difficult to shut the factory in Ürümqi down, even if it wasn’t feasible. China holds all the economic cards. It is in a position to blackmail its German trading partners while the same can no longer be said in reverse.
German companies have lost control over the dangerous dependencies they have created in their search for profit while the German government is only just waking up to them. The economics ministry has made a small start by denying VW government guarantees for further investment in China, but there does not seem to be a grand strategy on how Germany can regain its economic and political independence.
It has allowed both Russia and China to worm themselves so deeply into the nervous system of the once mighty German economy. Germany will find it difficult to walk away from the brutal dictatorships it has courted for too long.