Germany is not dependent on China

German Chancellor Olaf Scholz’s recent visit to Beijing has sparked fierce debate over whether Germany is a reliable partner in the West’s strategic competition with China.

On both sides of the Atlantic, many see Germany’s export-driven economy as simply too dependent on the Chinese market to strongly confront Beijing on its unfair trade practices, industrial espionage, and human rights abuses. Even hawkish voices in the German parliament view this reliance as rendering Berlin “helpless” in joining any sanctions deployed by the United States and its allies in response to a possible Chinese invasion of Taiwan.

But Germany is not dependent on China. Be it in trade or foreign investment, there is no single market outside of Europe on which Germany is critically reliant. Rather than national economic interest, it is the special interests of select German multinationals and industries that drive a China-dependency narrative that limits strategic action from Berlin.

In a new article for Foreign Policy DIIS senior researcher Luke Patey demonstrates how conventional thinking on Germany’s economic relationship with China is off the mark.

China has become Germany’s largest trading partner. In 2021, China represented 9.5 percent of its total exports and imports in goods. But focusing on which partner is number one distorts the larger picture of Germany’s trade relations. Diversity, not dependency, characterizes Germany’s trade relationship with the world. Following closely behind China at the top, the United States, France, Poland, and other European countries each represent between 5 percent and 8 percent of Germany’s total trade in goods. Even supply chain links are closely entangled within Europe rather than having critical dependencies on China. Regionalism trumps globalization.

Then there is foreign investment. Germany’s investment in China is not only narrowly defined by the automotive industry, but also limited compared to what its industries invest in the EU and the US. Some German multinationals, such as VW and BASF, are eager to continue to invest in China, and see future growth and innovation opportunities, but overall, the share of global revenue generated by German companies in China is falling and Chinese competition is rising on a playing field favouring domestic players.

Germany does need to lower supply vulnerabilities on China, such as imports of rare earths for green and critical technologies, but other economies such as Australia and Japan are showing the way forward.

Scholz is right to keep lines of communication open with Beijing. Germany does not need to pursue a broad-scale decoupling strategy. But as the German chancellor travels back to Berlin from Asia, he needs to start separating special interests from national interests in Germany’s approach to China.