Germany’s Proposed De-Risking China: A Self-Destructive Path

Editor's Note: The author is Executive Director of the Center for South Asia & International Studies (CSAIS) Islamabad and Regional Expert on China, BRI & CPEC. The article reflects the author's opinions and not necessarily the views of Gwadar Pro.

It seems that Germany is another country which has now ultimately surrendered its independent economic and security policies before the wish-list of the Washington and Brussels by declaring China as competitor and also pledging de-risking.  

Although we live in the era of geo-economics but the US and the EU’s manipulated designs of geopolitics have now influenced Germany to curb its socio-economic ties with China which is not good omen for the global economy and connectivity alike in the days to come.

The most recently issued Germany’s Economic and Security Strategy comprised of the westernized notions of de-risking and decoupling and is complimentary to each other because both have same intentions, designs, end-goals and parameters of containing China’s economic rise in the world. Both are holding the spirits of anti-globalization, anti-WTO free trade and pro-protectionism which would create borders of economic isolation, trade embargos, social sanctions and last but not least would encourage more division among the countries, communities and companies alike in the days to come. 

Simply, the Germany’s coalition government puts its country on the path of economic collusion with China which would be self-destructive and contrary to its own economic policy of further diversification, green development, industrialization and last but not least openness. The ongoing Russia-Ukraine conflict has already strained Germany’s state, political system and society and this newly announced policy would further deteriorate its economic outlook in the days to come.

This new China’s strategy was introduced as a result of its political decisions, and leveled so-called accusations against China as it says China’s economic policy so-called aims to make it less dependent on other countries, while trying to make others more dependent on China. 

On the other hand, China has been the biggest economic stimulator in the world having trading ties with more than 140 countries showing its openness, inclusiveness and qualitative modernization attracting more and more countries, communities and companies to jointly work for achieving and securing mutually befitting socio-economic propositions around the globe. 

Moreover, it says China is so-called acting against German interests, risking international peace by creating pressure and by being so-called assertive and ignoring human and civil rights. Ironically, this has made Germany change their policy towards China. 

Conversely, China has never been tagged as risk or potential threat to world peace since its inception because of its constant and continued striving hard for socio-economic prosperity, integration of human wisdom and last but not least maintaining stable and sustainable global supply chain befitting for every country in the world. 

The Germany’s strategy says Berlin aims to reduce its critical dependencies in future upon China but not to completely dissociate itself from its biggest trading partner since 2016. Unfortunately, the said approach has put Germany parallel to EU’s approach which EU had asked for from Berlin as Berlin was seen as a weak link in the western front against China due to its close economic liaison with Beijing. 

According to analysts, for the same reasons the report backed the idea of potentially screening outbound investment controls on cutting-edge technology with military use, as this idea is already being used by EU Commission.

It seems that Germany being Europe’s largest economy has succumbed to Western pressure and has made it clear that it is now aligning more with Brussels and Washington on everything from supply chain risks and technology export controls to civil rights concerns, after always viewing China as a profitable market.

The strategy has asked the German companies that are overly dependent upon China to strongly internalize the geopolitical risks of doing business in China, to prevent the need to tap state funds in a crisis. The strategy asked companies to diversify their businesses beyond China.

However, critical analysis suggests that the concept of “de risking” is too vague and impractical at this stage. German corporate giants such as Volkswagen, Chemical giant BASF rely heavily on the huge market of China. It estimates that the concept of Germany’s de risking would be very painful for German companies and could inflict massive repercussions on German economy in the future.  

This can be further illustrated by the fact that China Volkswagen's largest market, accounting for around 40 percent of Volkswagen's global unit sales in 2022. A survey by IFO institute further tells that more than half of German firms in manufacturing sector depend upon intermediaries from China.

Moreover, CEO of German software and cloud company SAP SE, Christian Klein has said that SAP opposes ‘decoupling’ and other related activities. According to Germany's Federal Statistical Office (Destatis), the trade between China and Germany has now reached value of nearly €300 billion ($335 billion). This shows that the strategy of de risking or de coupling would be very damaging for the German companies and deadly for its macro- economy too. 

Despite the baseless and inaccurate accusations against China, Beijing gave a rational response to the Germany’s strategy. China's foreign ministry criticized Germany's "Strategy on China" and called it counterproductive. It said Germany’s China relationship is win-win for both countries and Germany should “formulate rational and pragmatic policies toward China”. 

In summary, Germany should avoid discriminatory economic policies of de-risking and de-coupling against China because mutually beneficial and progressive economic ties should be scapegoated just because of grand geo-political agenda of the US and the EU. 

It would in the best interest of Germany not to use or going to use de-risking and de-coupling polices just to appease the US and the EU’s companies against China and its companies alike. It fears that institutionalization of de-risking and de-coupling polices would drag down the Germany’s national economy, slow down global quick economic recovery and produce disturbance in global supply chains. Thus Germany should complete avoid the term de-risking which is premised on distorting and exaggerating the perception of China as a threat to security and values.