Germany’s China Strategy: A Tightrope Walk Between Trade and Assertiveness
German Chancellor Friedrich Merz’s upcoming visit to China marks a pivotal moment for Europe’s largest economy. As China’s economic influence grows, Germany finds itself navigating a complex relationship – one defined by substantial trade ties, increasing competition, and a growing awareness of systemic rivalry.
The Economic Balancing Act
Germany and China share a deeply intertwined economic relationship. In 2023, China reclaimed its position as Germany’s largest trading partner, with a total trade volume of €251.8 billion (approximately $297 billion). This resurgence, following a brief period where the United States held the top spot in 2024, underscores the enduring importance of the Chinese market for German exports. However, this reliance is not without its challenges.
German companies, including automotive giants like Volkswagen, BMW, and Mercedes-Benz, are facing increasing pressure from Chinese competitors, particularly in the electric vehicle (EV) sector. BYD, a leading Chinese EV manufacturer, saw its sales in Germany increase by over 700% last year, disrupting the established European automotive market. This competition extends beyond cars, impacting various industrial sectors and contributing to a decline in German exports to China – a 9.3% drop was recorded in 2023, reaching a decade low of €81.8 billion.
A Shift in Dynamics: From Complementary to Competitive
The relationship between Germany and China is evolving. Historically, the two economies were largely complementary, with Germany providing high-quality manufactured goods and China offering a large market and lower-cost production. However, this dynamic is shifting as China invests heavily in high-tech industries and emerges as a direct competitor. As Andrew Minor, director of the Asia program at the European Council on Foreign Relations, notes, the two economies are now “functioning as competitors.”
This shift is compounded by concerns over China’s assertive foreign policy, particularly regarding Taiwan and its actions in the South China Sea. Chancellor Merz himself acknowledged China’s increasingly aggressive stance, though critics point out this recognition comes belatedly, as China has been pursuing this course since 2012.
Internal Challenges and a Lack of Strategic Clarity
The new German coalition government, led by Friedrich Merz, faces internal challenges in formulating a coherent China strategy. The coalition agreement dedicates a mere eleven lines to China within a 146-page document, outlining a continuation of the “de-risking” policy and a commitment to alignment with EU partners. However, a clear vision for navigating the complexities of the relationship remains elusive.
Critics argue that German policy towards China has been “outsourced” to large corporations like BASF and Volkswagen, prioritizing short-term economic interests over long-term strategic considerations. Here’s further exacerbated by a perceived lack of deep China expertise among key government officials, including Chancellor Merz and his ministers.
The Power Struggle Within China
Adding another layer of complexity, a significant power struggle is currently unfolding within the Chinese Communist Party (CCP). The recent wave of purges within the People’s Liberation Army, particularly the arrest of General Zhang Youxia, represents the largest internal upheaval in China since the Cultural Revolution. This internal instability adds uncertainty to the already challenging landscape for German businesses and policymakers.
Merz’s Trip: A Focus on Competition and Cooperation
Chancellor Merz’s visit to Beijing, scheduled for next week, aims to address these challenges. Government spokesperson Sebastian Hille emphasized that the trip’s theme will be “competition” and finding the “right balance of cooperation.” Germany seeks to maintain collaborative ties where mutually beneficial, whereas also safeguarding its economic interests and addressing concerns about unfair trade practices.
Merz will meet with Premier Li Qiang and Chinese leader Xi Jinping, as well as visit Hangzhou. The trip comes as Germany seeks to diversify its trade relationships and reduce overreliance on China, while simultaneously navigating the complexities of a rapidly changing global order.
Bernd Ziesemer is a Capital columnist. The business journalist was editor-in-chief of Handelsblatt from 2002 to 2010. He then served as managing director of the corporate publishing division of Hoffmann und Campe Verlag until 2014. Ziesemer’s column appears regularly on Capital.de. You can follow him on X here.
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