Scholz faces tricky balancing act in Germany-China talks

BERLIN - German Chancellor Olaf Scholz faces a delicate balancing act this week at German-Chinese government consultations in Berlin. He is seeking to maintain good ties with Germany’s largest trade partner while complying with a Group of Seven (G-7) pledge to

“de-risk” from Beijing.

Mr Scholz received Chinese Premier Li Qiang for dinner in the chancellery on Monday evening ahead of the China-Germany inter-governmental consultations starting on Tuesday.

Before they met for dinner, Mr Li held talks with German President Frank-Walter Steinmeier, who according to his office told the Chinese Premier that the government in Beijing is in a position “to use its global political clout and its influence on Russia to work towards a just peace” in Ukraine.

Mr Li landed in Germany on Sunday. The fact that Mr Li chose Germany for his first overseas trip as premier reflects the special relationship between Europe and Asia’s largest economies.

Rapid Chinese expansion and demand for German cars and machinery fuelled Germany’s own growth over the past two decades.

China became Germany’s single biggest trade partner in 2016 and is a core market for top German companies including Volkswagen, BASF and BMW.

“The China-Germany government consultations are very distinctive among China’s relations with large Western countries,” said Mr Wang Yiwei, director of the Centre for European Studies, Renmin University of China.

The relationship has however come under strain amid concerns in the West about rising Communist party control over society and the economy, unfair competition and Beijing’s territorial ambitions.

Mr Scholz joined other leaders of the G-7 rich democracies in May in pledging to “de-risk” without “decoupling” from China.

The meaning of “de-risking” however remains to be defined, say analysts, with China hawks pleading for a general reduction of business and doves singling out areas like critical minerals.

Mr Scholz’s government is divided between the more hawkish junior coalition partners, the Greens and Free Democrats, and his centre-left Social Democrats.

At a business lobby conference in Berlin on Monday, Mr Scholz told delegates: “The G-7 has no interest in impeding China’s economic rise. At the same time, we are watching closely to avoid dangerous economic dependencies.”

Analysts in Berlin said the Chinese delegation would likely lobby the German government directly and indirectly via big business to press the European Union not to go too far in regulating business in China.

“They know German companies will run up direct channels to the chancellery,” said Mr Andrew Small, a senior fellow at the German Marshall Fund’s Asia programme.

Avoiding political escalation

Mr Mikko Huotari at the Mercator Institute for China Studies in Berlin said the talks were a coup for Beijing, showing it still had important partners in the West.

“That said it is up to us, to get something out of it – and we have an interest to remain in close contact with China on questions like sustainability and in general, for stable economic relations,” he said.

“We also have an interest not to let political tensions escalate.”

The talks come after Mr Antony Blinken on Sunday became the

first US Secretary of State to visit China in five years

, stressing the importance of keeping open lines of communication to reduce the risk of miscalculation.

They also come as Germany’s Foreign Ministry finalises a paper on its China approach that is likely to reflect the tougher stance it outlined in its first national security strategy published last week.

China poses a growing threat to global security, aggressively claiming supremacy in Asia and seeking to use its economic might to achieve political goals, the strategy said.

The government is urging companies to diversify away from China, but many German chief executive officers have warned of the risks of cutting or reducing links with the world’s second-biggest economy while Germany is in recession.

The Chinese delegation will meet with some of those CEOs on Monday, according to people familiar with the plans.

On Tuesday, after the government consultations, it will head to Munich to meet regional officials and corporate executives reflecting the level of Chinese business with the southern German state of Bavaria.

The Chinese delegation will head to Paris for an official visit and to attend a financial conference on June 22 and 23. REUTERS, BLOOMBERG