Watching China in Europe - November 2022

Absolutely Fatal

Europe’s hopes of forging a more coherent, clear-eyed policy toward China depend first and foremost on Germany. If the country with the closest economic ties to China is prepared to forego some of the benefits from its privileged partnership with Beijing, other European countries will follow. But if Germany is seen to be pursuing its own economic interests with China, others will have little incentive to make sacrifices of their own. Over the past few weeks, Germany’s Chancellor Olaf Scholz has shown which path he plans to pursue and it has not been a pretty sight. His decision to travel to Beijing with a dozen German CEOs so soon after the Chinese Communist Party Congress that confirmed many of the worst fears about President Xi Jinping’s China was bad enough. But days before his departure, Scholz chose to ram through approval of Chinese shipping giant COSCO’s bid for a stake in a Hamburg port terminal over the objections of his coalition partners, Germany’s intelligence services, the European Commission, and Berlin’s key partners, from Paris to Washington.

It was a stunning move from the former Hamburg mayor that raises serious questions about the broader foreign policy rethink he promised after Russia’s full invasion of Ukraine in February. It weakens Scholz (a poll released on Monday showed that 55 percent of Germans believe he is out of his depth), deepens divisions in his government, and undermines its quest for a common European policy toward Beijing, a goal that was spelled out in black and white in the three-party coalition agreement. More worryingly, it shows that Scholz and his advisers still have a steep learning curve on China. Germany’s sway with Beijing depends on a united front in Berlin, in Europe, and across the G7. Scholz has managed to torpedo them all in the span of a few weeks. To be clear, the problem is not that Scholz is meeting with Xi. The party congress showed that Xi may be the only member of China’s leadership who is worth talking to these days. And it is normal for Scholz, who has been chancellor for nearly a year but unable to meet with Xi in person because of China’s restrictive COVID-19 rules, to want to sit down for a face-to-face with the country’s newly anointed leader for life. But the when, where, and how of this first meeting are important. And Scholz has whiffed on all three.

The situation is reminiscent of his predecessor Angela Merkel’s decision, two years ago, to hurry through the EU-China Comprehensive Agreement on Investment (CAI) weeks before Joe Biden entered the White House. Like Merkel, Scholz is gifting Xi a geopolitical victory without much in return. And he is voluntarily sacrificing whatever leverage his government might have had with China. He may not realize that but members of his own government—some of whom have been working diligently for months on a new, tougher China strategy—are furious. “As long as the German chancellor doesn’t buy into his own government’s China strategy, then it is worthless,” one German official fumed. “The Chinese can see the divide in Berlin and Europe, and believe me, they will find a way to exploit it. It is absolutely fatal. And what is so stunning is that Scholz has done all of this of his own free will.”

Berlin versus Paris

There is lots to unpack, but I would like to start with the conflicting signals sent by Scholz’s team in the weeks leading up to his Beijing trip. In mid-September, I broke the news that Scholz and France’s President Emmanuel Macron were planning separate trips to Beijing, roughly one week apart, with Scholz slated to visit on November 4. Two weeks later, I reported that the Chancellery had informed members of the government that the trip was off. Then, a week later, I was informed that the trip was back on. It now appears that Macron will travel to China in early 2023 instead of this year. I have managed to piece together the reasons for all the back-and-forth. The picture that emerges is worrying.

First, as has been widely reported, Macron initially proposed to Scholz that they make a joint visit to Beijing, an idea that the German leader rejected. After that, according to diplomats I spoke to in Berlin, Brussels, and Paris, Macron considered going to Beijing on his own. This, apparently, played a role in Scholz’s decision in late September to cancel his own trip to Beijing. “Scholz wanted assurances that his visit would not be one of a series of visits by European leaders,” one European diplomat who was briefed on the matter told me. “On his first trip to Beijing, he wanted to be treated with the special respect that he believes a German chancellor deserves.” His trip to China was back on the agenda a week later, but only after Berlin was sure that Scholz would be the only EU leader heading to Beijing in early November. This may help explain the French fury that led Macron to abruptly cancel a Franco-German cabinet meeting that was due to be held last month in Fontainebleau and then refuse to hold a press conference with his German counterpart when the two met in Paris last week. “We have no idea what the Germans are up to on China,” a French diplomat told me. “We had hoped to send a joint message. The Germans didn’t want that.”

Choosing China

What worries me most about this incident is that Scholz appears to have been willing to lay bare Franco-German tensions over trip planning with Beijing. Chinese diplomats have been trying to play Berlin and Paris off against each other for months. And it appears that they have now succeeded, with an assist from Germany’s chancellor. When taken together with Scholz’s decision to force through the COSCO deal, the hubbub around the China trip raises questions about his strategic compass. In recent weeks, Scholz’s approach to China has been likened to that of Merkel. But, despite all her geopolitical blind spots, I am not sure she would have chosen China over France or Europe. That, by design or accident, is what Scholz appears to have done here.

Scholz’s aides have been scrambling to contain the damage. Jens Plötner, his national security adviser, spent two days in Washington in late October trying to reassure the Biden administration that Berlin was indeed a reliable partner on China. He used the visit to fine-tune messages that Scholz plans to deliver in Beijing. According to diplomats, these include expressions of deep concern about China’s support for Russia’s President Vladimir Putin and the risks of a Russian escalation in Ukraine, China’s attempts to change the status quo in the Taiwan Strait, and China’s human rights abuses in Xinjiang. Whether these messages resonate is another matter. People who met with Plötner in Washington said he was unable to explain how Scholz could reconcile these tough messages with the presence of a large business delegation. “Bringing a business delegation is a mistake,” a US diplomat told me. A German industry official was more scathing: “I don’t think there is any real strategy behind this trip. Scholz and his team haven’t thought through how it will be seen or what they will get out of it. They are being driven by what China and a handful of German CEOs want.”

Propaganda Group

The big surprise is that Siegfried Russwurm, the president of the Federation of German Industries (BDI), will not be part of the 12-strong business delegation, which includes the CEOs of German blue chips Adidas, BASF, Bayer, BMW, Deutsche Bank, Merck, Siemens, Volkswagen, and Wacker, as well as of smaller firms BioNTech, Hipp, and GeoClimaDesign. It is the first trip by a chancellor that BDI officials can remember from which the president of the influential industry lobby has been excluded after expressing an interest in travelling. The BDI has been at the forefront of warning German companies about mounting risks in the Chinese market and encouraging them to behave responsibly in the face of human rights violations in China. At the BDI’s annual conference in June, Russwurm described the position of German industry on the US-China competition as “crystal clear,” saying: “We are firmly anchored in the transatlantic relationship. There is no equidistance in the European Union’s relationship with the US and China.” His comments drew a rare public rebuke from China’s ambassador to Germany and stoked unease, I was told, in parts of German industry. Some officials I spoke to believe the Chancellery is leaving Russwurm off the plane because his comments have rubbed China the wrong way. Others reject that explanation and warn against overinterpreting his exclusion.

Regardless, Scholz will have a delicate balancing act in Beijing. In the run-up to the trip, he was being celebrated in Chinese state media and ripped apart in the German media. For a politician who is not known for his communication skills, the visit is high-risk. Scholz will meet privately with Xi and with Premier Li Keqiang, who is being sent into premature retirement. Scholz and Li are expected to hold a joint press conference and participate in a meeting with German and Chinese business executives. I was told that the Chinese side has signaled its readiness to announce a package of business deals during the visit. But it is unclear if the German side will bite. Officials in Berlin are aware that the trip could turn into a propaganda coup for Xi and are keen to avoid this. A focus of the talks will be to prepare bilateral government consultations, which have been set for January 9 in Berlin. Some German diplomats are now questioning whether it makes sense to hold the high-level talks with Li or delay them until the spring, when his successor is in place.

China Strategy

Ironically, the backlash over the COSCO deal and Scholz trip erupted just as Germany’s Foreign Ministry was putting the finishing touches to a 60-page draft of its new China strategy, which is being circulated to other ministries and the Chancellery for feedback. Foreign Minister Annalena Baerbock and her aides have resisted attempts by Scholz’s entourage to limit the number of ministries involved in the approval process, convinced that a larger group will give them more leverage. I was told that the Chancellery has now agreed to proposals from the Economy Ministry for a more restrictive approach to investment guarantees that would reduce incentives to invest in China. The plan is to introduce a “double ceiling,” which would limit the amount of guarantees Germany offers for investments in any given country and the volume of guarantees that any one company can receive. However, I was told that the Chancellery insisted that guarantees for two Volkswagen and BASF investment projects in China were approved before agreeing to the change.

Xinjiang, Lithuania, Taiwan

Officials in Brussels and other European capitals are closely watching developments in Berlin. They say that a series of top-level meetings on China in recent weeks, including of foreign ministers in Luxembourg, of EU leaders in Brussels, and of national Asia directors in Prague showed a high degree of convergence on China. But they also acknowledge widespread unease with Scholz’s actions of the past weeks. “No one is going to tell the German chancellor not to travel. No one is going to tell him how to protect Germany’s critical infrastructure,” one EU official told me. “But there are many in Europe who had hoped that he would not go to Beijing directly after the party congress. And there are many who had hoped that he would say no to the COSCO deal.”

Two important EU-wide decisions are looming in the weeks ahead. I was told that the member states will agree this month to extend by another year the Xinjiang sanctions they first imposed in March 2021. Separately, the European Commission is likely to ratchet up pressure on Beijing over its economic coercion of Lithuania, sending its World Trade Organization complaint against China, which has been in the consultation phase since January, to an arbitration panel. EU officials also speak of an emerging consensus among member states about the need to prepare for scenarios related to a conflict in the Taiwan Strait. This is likely to be a top theme when senior officials from the European External Action Service and the US State Department hold their regular China dialogue in Washington on December 1–2. “Preparedness is the new watchword, alongside diversification and resilience,” the EU official said. “Taiwan will be a greater focus going forward.”