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Merkel looks east as ties fray between Germany and US

16/07/2020

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Berlin aims to reenergize commercial links with Beijing amid the coronavirus crisis.

By Matthew Karnitschnig
7/8/20

BERLIN — Just after Germany agreed last month to rescue Lufthansa with a €9 billion emergency injection, the airline announced it would resume service on a route that had been dormant for months: Frankfurt-Shanghai.

Whether by serendipity or design, the move by Germany’s flag carrier symbolized the priority Berlin places on repairing commercial links between the two countries as they emerge from what leaders on both sides hope was the worst of the pandemic.

As Germany reappraises its long-standing reliance on the United States amid growing tensions with Washington over security and trade, there is less doubt among the country’s leaders about the necessity to re-energize its partnership with China, Germany’s largest trading partner.

While China has come under criticism across much of the Western world, in particular in the U.S. and U.K., for not being more transparent about the origins of the coronavirus outbreak and, more recently, for its suspension of democratic norms in Hong Kong, the German government has been more cautious in its response.

Asked during a press conference last week whether she would support the kind of sanctions against China under consideration in the U.S., Merkel evaded the question.

“The ties to China are important,” Merkel stressed, adding “they are of strategic importance.”

In fact, it’s difficult to overstate the importance of China as an export market for German goods, especially cars and machinery. Since Merkel took over as chancellor in 2005, German exports to China have risen fivefold to just under €100 billion last year. While some economists argue that Chinese demand for German capital goods is waning as its economy matures, the country remains a pillar of Berlin’s economic strategy and a key driver of growth.

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When demand from the U.S. collapsed in the wake of the financial crisis in 2008 and 2009, Germany relied on China, which was largely unscathed by the turmoil, to fuel its own rebound — an expansion that continued virtually uninterrupted until the pandemic hit.

There’s no doubt Merkel has that history in mind as she seeks to protect Germany’s economy in the current crisis, which the European Commission predicts will trigger a 6.3 percent decline in the country’s output this year.

While China is also coping with the economic fallout of the pandemic, German exporters are seeing early signs of hope. In June, for example, car sales in China rose by 11 percent, the third straight monthly increase, following months of decline.

As the U.S., still Germany’s largest export market overall, continues to struggle to get the coronavirus outbreak under control, China is gradually returning to business as usual.

Merkel’s reluctance to call out China on the crackdown in Hong Kong may seem at odds with the popular image of her as a leader guided first and foremost by her moral compass, a reputation she earned with her decision to accept more than a million refugees fleeing Syria and other countries after the 2015 crisis.

In fact, the chancellor’s present course is consistent with how she has handled China over the past 15 years: expressions of concern over human rights and pledges to continue “dialogue,” coupled with a deepening of the commercial relationship.

Whether the issue was oppression in Tibet, the detention of Uighurs or the Chinese leadership’s pervasive surveillance of its own citizenry, Merkel has always put business first.

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And business is good. That’s especially true for Germany’s biggest companies (and employers), from Volkswagen and Mercedes to engineering giant Siemens.

Berlin’s priorities vis-à-vis China have also had a profound impact on the EU’s own approach. Even as Ursula von der Leyen hasn’t shied away from criticizing China since becoming Commission president, she has been careful not to veer too far from Berlin’s line.

“It is not possible to shape the world of tomorrow without a strong EU-China relationship,” she said last month after a videoconference with Chinese leaders.

Germany accounts for about one-third of China’s trade with the EU, but China has made important inroads into other economies as well, from France to Italy. The recent spate of bad press Beijing has received over Hong Kong and the coronavirus is unlikely to hinder China’s push into the EU, even if the rhetoric out of Brussels becomes more critical.

“China’s practical goal now seems to be to ensure that there are enough people in important positions in Brussels and in national capitals who are prepared to compromise European values, such as fundamental freedoms, and accommodate China’s positions for the sake of maintaining relations with China,” said Michito Tsuruoka, an associate professor at Japan’s Keio University, in a recent analysis.

If Germany is any indication, it won’t be difficult. While some prominent German politicians, including to Norbert Röttgen, a conservative who hopes to succeed Merkel as chancellor, oppose her course on China, the country’s business establishment is behind her. In the German electorate at large, China policy has not been an issue.

A bigger headache regarding China for Merkel — and Germany — is Washington.

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While many in Berlin are waiting for November (and praying U.S. President Donald Trump will lose), America’s China policy is unlikely to change much. Even many Democrats have begrudgingly endorsed Trump’s hard-nosed approach toward China on trade and human rights.

There is also bipartisan unity on the question of allowing China’s Huawei to install 5G networks. The Trump administration has threatened to limit intelligence sharing with Germany and other allies that allow the Chinese network supplier in. So far, Merkel has stalled, arguing that while there should be higher security standards for companies involved in 5G, firms shouldn’t be shut out outright.

In the meantime, Merkel’s main priority with China is to get a planned trade deal with Europe back on track. The aim of the proposed “investment agreement” is to improve conditions for European companies in China, a potential boon for German business, which has complained for years about anti-competitive practices and intellectual property theft in the country.

The coronavirus forced Merkel to postpone an EU-China summit scheduled during Germany’s Council of the EU presidency in September, when she hoped to secure a deal. Yet she has made clear she is keen to reschedule it as soon as possible.

“In the meantime, we’re going to continue the dialogue with China on all fronts,” Merkel said last week, citing everything from trade to human rights. “It’s in Europe’s utmost interest to work together closely.”

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SOURCEwww.politico.eu

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