by Ralph Schoellhammer
Friday, 18
November 2022
Debate
07:00

Olaf Scholz is delusional on China

Germany has not learnt from its mistakes with Russia
by Ralph Schoellhammer
Credit: Getty

Karl Marx’s maxim “history repeats itself, first as tragedy, second as farce” is overused. But it comes to mind when one reads statements by German representatives on how their country’s presumed dependency on China is “overblown.” This is almost exactly the same tune then-foreign minister Heiko Maas was playing years ago about Berlin’s dependency on Russian energy: “There is no dependency on Russia, certainly not in energy matters.”

Alas, yesterday’s words can come back to haunt: just as there supposedly was no dependency on Russia in the past, there is no dependency on China in the present. The numbers, however, say different. Starting six years ago, Beijing has become Germany’s largest trading partner, with a yearly volume of €245bn — or 9.5% of its foreign trade, up from 1% in 1990.


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There still seems to be a widespread illusion that China is the factory for German innovation. Unfortunately, the reality is more complicated. Some of Germany’s most innovative companies are fleeing to authoritarian China because their own nation is becoming increasingly uncompetitive as an industrial location. While some newspapers celebrate the reduction of gas consumption, major industries are relocating because they can no longer afford current energy prices, including industry leaders like BASF.

But what is true in the petrochemical industry has been true in other areas as well: there are currently six commercial maglev (magnetic levitation trains) systems in operation, three of them in China. A lot of the technology used in these high-speed trains was spearheaded in Germany, but Berlin’s hostility to innovation and fondness for red tape made it all but impossible to commercialise. After all, this is a country that needs 15 years to build one airport, while China adds 10 airports each year on average. Similarly, the Maglev Train Company created by two of Germany’s oldest industrial companies, Siemens and ThyssenKrupp, was dissolved in 2008.

In other words, German technology and expertise are still sought-after, but are better served outside Germany. It is no surprise that Scholz, on his current tour through Asia, is ringing alarm bells over the end of globalisation: without China, German companies would be in for a lot of pain.

Even in the area of renewable energy, Germany is lagging. In 1978, German assistance was crucial in laying the foundation for China’s solar industry. Now, Beijing is investing almost 10 times more (€49bn) in photovoltaic production capacity than Europe. This means that ambitious plans of replacing fossil fuel dependency with wind and solar would come at the price of switching from dependency on Russia to dependency on China.

Beijing has spent years on trading entry into the Chinese market for access to Western technology. The only way to keep that relationship working for both sides was through keeping the innovative edge, something that is becoming increasingly difficult given Germany’s policy of deindustrialisation. Without the physical presence of companies — regardless of whether they are part of the famous “Mittelstand” (Germany’s small and medium sized enterprises) or multinationals like BASF — it will become impossible to innovate.

And all of that should not blind us to the fact that China has become a less reliable partner in recent years. As the move against Hong Kong demonstrated, the state can close in at any moment and cripple industry on a whim. The billions of euros worth of German exposure could evaporate quickly if, for example, Berlin should decide to support Taiwan in a potential conflict — something that Baerbock has pledged to do.

Nonetheless, the German government still refuses to face reality, and is currently mulling over the idea of higher taxes or a one-time wealth tax to compensate for higher prices, additional steps to make Germany even less appealing for business. Marx might call this a farce, but for Germany’s economy it is suicide in instalments.

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Daniel P
Daniel P
20 days ago

I wont waste my time getting into the whole question of global warming/climate change and whether or not the impact humans are having is consequential. Rather, I will simply say the following…
China, India and most of the developing world care about climate change only to the degree that they can gain economic and financial compensation from the developed world. They happily build more coal and gas fired power plants all the time. Anything we in the developed world do to offset or eliminate carbon is more than offset by growing use in the developing world and that is where all the population growth is and will likely be going forward. Africa in particular.The only outcome of all this hyperventilating and panic over gas, oil and coal, and the ensuing policies by governments, will only serve to make those least concerned about them more powerful while weakening us. One almost has to wonder if climate panic is not funded by China.

Martin Johnson
Martin Johnson
17 days ago
Reply to  Daniel P

Climate panic has been funded by Russia, in order to discourage exploration and developoment of new oil and gas fields and thereby increase dependence on Russian sources. It has worked very well, as is now obvious, despite US efforts under Obama and Trump to point out the risks. I have not seen evidence that China has played that game, though it would not surprise me. China has bought or stolen technology, and moved to increase its dominance of key materials.
The move to renewables may be hostage to Chinese tech and productive capacity, but we are not replacing Russia, which will still control key materials. More like, we will now be hostage to both of them.

Jeremy Bray
Jeremy Bray
20 days ago

The old world’s obsession with deindustrialising to save the planet merely hands the future to China so that we become the colonial backwaters and are less able to address the practical challenges of climate change that for all our posturing will come because we have merely shifted the source of C02 production. That said what choice does Germany have but to find export markets where they can.

Michael Marron
Michael Marron
20 days ago
Reply to  Jeremy Bray

Leave the Euro and allow the REU to rebuild their own industrial and commercial industries would be a start.

Steve Jolly
Steve Jolly
20 days ago
Reply to  Jeremy Bray

This is the reasoning I always used to argue against national CO2 regulation. It really doesn’t matter whether the climate is changing or not because global regulation of CO2 emission is not realistic. It isn’t like arms control where just a handful of nations need to be on board. Everyone uses energy, and in a world with hundreds of countries, many of which hate each other, somebody is going to use the cheapest energy available, and for the foreseeable future, that is likely to include a significant amount of fossil fuels. What is our answer to that? Do we make war on the transgressors? Is that really better for the environment? Is it worth the lives lost? The whole notion is absurd.

Paul Walsh
Paul Walsh
20 days ago

The saddest thing about this article, is that 15 years to build an airport sounds good from a UK perspective.

Jerry Carroll
Jerry Carroll
19 days ago
Reply to  Paul Walsh

California stopped building its bullet train from L.A. to S.F. after squandering $100 billion or so, and the disconnected parts bring to mind the stately pleasure dome that Kublai Khan did decree at Xanadu.

Last edited 19 days ago by Jerry Carroll
Martin Johnson
Martin Johnson
17 days ago
Reply to  Jerry Carroll

Yes, but at least the Khan had a useful stately pleasure domw to show for it.

Steve Jolly
Steve Jolly
20 days ago

This is happening in the USA to an extent as well. Big businesses, especially tech, are still quietly pushing against more thorough China decoupling. Here, however, they’re losing ground. The difference is that here, the military industrial complex sees China as a threat and still cares about maintaining military advantage. They have significant influence in both parties and are using it . Second, the voters here hold significantly more anti-Chinese sentiment as a result of COVID and frankly as a result of the CCP’s actions, which have managed to piss off both Republicans and Democrats for very different reasons. The anti-China consensus here is strong enough that both parties ran ads this midterm accusing the other party’s candidate of being soft on China, having ties to China, owning stock in a firm that sent jobs to China, etc. Cold War 2 is here. It won’t be exactly like the last one, but it will be the primary factor driving geopolitics in the next several decades.

John Hicks
John Hicks
19 days ago
Reply to  Steve Jolly

German taxpayers are also encumbered with an additional €28 billion under a security guarantee scheme protecting German business from the risks of operating in China. Companies in Germany continue to enjoy both encouragement and National shelter from harm; a phenomenon more recently dating from June 1948. Then favoured currency conversion of Riechmark to Deutschmark punished savers and citizens who managed a mere 100:6.5 new DM, whilst companies and asset/property owners received 1 new DM for every 1 old Riechmark. An economic miracle? The German “savers and citizens” are again in the slot. China capture is growingly considered to be very short term throughout the West. Hopefully we can find a way through this?

Warren Trees
Warren Trees
19 days ago

“There is no dependency on Russia, certainly not in energy matters.”
That is in the top 10 of laughable and haunting quotes. Just behind:
“Read my lips, no new taxes”
“The Inflation Reduction Act”
“The Affordable Care Act”
“There are no American troops in Iraq”
“The Hunter Laptop Story is Russian Misinformation”
“Masks work”

Tony Price
Tony Price
18 days ago
Reply to  Warren Trees

Oh dear, The only one I can comment on is the last – the overwhelming conclusions of rigorous research is that masks DO work – not massively but probably reducing Covid transmission by c.10%.

Phil Bolton
Phil Bolton
19 days ago

I’m amazed that European companies do not see the risk they are taking by investing in China. Are they so blind to ambitions of the Party ? They want a new world order. They want to control. And the writer of the piece is right … once you are in situ there you are in their domain and they can close you down with a click. And you are stuffed !

Jeff Andrews
Jeff Andrews
19 days ago

I’ve got an idea. Cut Europe off from the world and survive the best you can on the resources you’ve got, while of course preventing global warming.

R Wright
R Wright
19 days ago

If it takes a return to Weimar for the German elite to figure it out then so be it. Their short sighted stupidity is incredible. These are the same people that whined about Brexit.

Josef O
Josef O
20 days ago

Classical case of drugs’ addiction. No solution.

Last edited 20 days ago by Josef Oskar
Josef O
Josef O
20 days ago

Classical case of drugs’ addiction. No solution in sight.

Jerry Carroll
Jerry Carroll
19 days ago

There is something about looking China in the face that discourages self-interest and promotes suicidal policies. It is like rabbits transfixed by snakes.

Samuel Ross
Samuel Ross
18 days ago

The Germans are a clever people who have a bad habit of electing stupid leaders. #toughTruths

Samuel Ross
Samuel Ross
18 days ago

The USA underwrites German security. While Germany pays a measly <1% of its GDP on defense. #notFair