Signal for India from Scholz’s overture to China: step it up

While there seems to be an evolving view within German strategic circles that China is increasingly a threat to democracy, international law and fair trade, Scholz’s decision to visit China — announced by the German side even before the Congress had started — indicates at least two pressures that German foreign policy faces.

The first is domestic pressure on the economic front. There are now concerns about a looming economic recession in Europe’s largest economy in the wake of the Russian invasion of Ukraine — “a serious energy crisis… is slowly turning into an economic and social crisis" according to the German economy minister. Meanwhile, China is Germany’s top trading partner in goods with a 9.5% share and German investments in China between January and June of this year rose to a record 10 billion euros.

While threats from China over data protection and unfair or coercive technology acquisition strategies are increasingly coming out into the open, German industry seems either unsure how to go about dealing with the problem or willing to ignore these altogether. The German automotive industry, for example, is deepening its integration with China's innovation system by increasing investments in R&D in China both as a way of retaining their market shares in China's emerging electric vehicle (EV) market as well as of expanding production for global markets.

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Indeed, German companies are pouring money also into new medicine and equipment manufacturing, new materials, artificial intelligence and semiconductors. BMW recently announced the shutdown in the UK of production of the electric Mini and its relocation to China. German optical systems major Zeiss and chemicals giant BASF are among others opening new plants in China.

Beijing has used the opportunity to promote the narrative that Germans apparently “understand clearly that China is their most reliable business partner" and as a case of the “decoupling hype" waning. Scholz reinforced that message by taking along with him a dozen business executives despite saying he aimed to “dismantle one-sided dependencies" and threatening “consequences" for lack of Chinese reciprocity.

The second pressure Scholz faces — or perhaps it’s a motivation — is the German/EU desire to chart a path in global politics independent of the United States. The German Chancellor in an op-ed on the eve of his visit argued that “the world [had] fundamentally changed" since his predecessor last visited China. Pointing to the COVID-19 pandemic and Russia’s war against Ukraine, he justified his travel to China declaring “‘business as usual’ is no longer an option".

Meanwhile and astonishingly so, even as Scholz acknowledged that China’s “quest for national security — synonymous with the stability of the communist system — and national autonomy will be more significant going forward", he appeared also to believe that he could get China to somehow persuade Russia to walk back from Ukraine. Before Scholz’s visit, his government even agreed to the Chinese state-owned shipping company COSCO picking up a minority stake in a terminal at Hamburg, its largest port, drawing protests from its own foreign ministry.

Clearly, Germany’s China policy is not yet in competent hands. And without getting China policy right, Berlin cannot hope to achieve true strategic autonomy either.

For India, the implications are two-fold.

One, New Delhi needs to pay attention to differences in Western approaches to China. A divide between the Americans and the Europeans or within the EU itself on political, economic or security issues related to China offers Beijing opportunities to play one off against the other and considerably complicates India’s own options as well as undermines the reality that India is trying to get the rest of the world to understand of China being an irresponsible and potentially dangerous international actor. The Ministry of External Affairs will, therefore, need to step up — while its role as a potential mediator between Russia and Ukraine has garnered some attention, India’s ability to bring European capitals in line on China will be just as important.

Two, the fact that industrial majors in Germany — and elsewhere — continue to find the Chinese economy attractive is a warning sign that India’s ‘ease of doing business’ or market conditions are not attractive enough to pull in big-ticket investments from developed economies. This is also then a call for India — its central government, federal entities and entrepreneurs — to innovate in policy design rather than try to simply replicate the Chinese industrial model.

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