Germany has not learnt from its mistakes with Russia
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.