With €246.1 billion (US$244 billion) in bilateral trade in 2021, China is Germany’s largest trade partner and a key source of revenue for many of its biggest companies.
The timing of the meeting – it will be Xi’s first with a Western leader since securing a historic third time as China’s leader – is taken by many as a sign of the importance that Beijing places on Sino-German relations.
But at the same time business ties have deepened, tensions over issues ranging from the Russia-Ukraine war and the status of Taiwan and human rights have flared.
In Germany, the debate over how to engage with China is exemplified by a deal being hammered out in Hamburg, where Chinese state-owned shipping giant Cosco aims to buy a stake in one of three terminals in Germany’s largest port.
Scholz, a former mayor of Hamburg, has long backed the deal, but six German ministries – including the economy, foreign and finance ministries – and the European Commission all opposed it, in part because China restricts foreign investment in its own ports.
Another fear is that China would be able to “weaponise” its control of critical infrastructure, similar to how Russia has been weaponising its commanding role in Germany’s energy supply since the start of the Ukraine war.
In what is seen as a compromise, Scholz’s government on Oct 26 approved the sale of a 24.9% stake in the terminal. This is smaller than the 35% Cosco has been aiming for and would leave the company without any say in management matters.
Cosco has yet to say whether it will accept the compromise.
The compromise failed to quiet German critics, some of whom are coalition members.
“Although the limitation to a 24.9% stake will prevent direct Chinese influence, we must question how we will deal with protectionist systemic rivals, including China, in economic terms,” Reinhard Houben, the economic speaker of the pro-business Free Democratic Party (FDP), told Nikkei Asia. “Against the backdrop of Chinese state-owned Cosco buying a stake in the Hamburg port, the chancellor must make clear in Beijing that investments in critical infrastructure in Germany are only possible if those are also permitted for German companies in China.”
Several other FDP parliamentarians have explicitly opposed the compromise offered to Cosco. Finance minister Christian Lindner, leader of the FDP, has argued that the foreign trade law should be tightened to counter China’s growing influence.
The German Economic Institute, meanwhile, recently flagged Germany’s growing reliance on China. Exports to China in January-June grew 2.9% year on year, according to official data cited by the private research body, while imports from China grew 45.7%, pushing the trade deficit to a record high of €41 billion.
Businesses, however, appear less ready to cut ties with China. A spokesperson for the Hamburg port told Nikkei Asia that failure to close a deal with Cosco could lead to Hamburg losing business to European ports that do have Chinese investment in their terminals.
Other businesses are similarly keen to keep doing business with Asia’s biggest economy.
German companies’ direct investment in China reached €10 billion in the first half of this year, already surpassing all full-year totals since 2000. Many of Germany’s biggest industrial names are highly reliant on China as a market and a production base.
Carmakers Daimler, Volkswagen and BMW last year each made more than 30% of their sales in the country.
Chemical-maker BASF is building a factory in the port city of Zhanjiang, in China’s economic engine of Guangdong province. Volkswagen recently decided to invest in a joint venture with China’s Horizon Robotics, one of China’s leading designers of artificial intelligence chips, though the automaker did not disclose the size of the investment. Personal care product-maker Beiersdorf and industrial manufacturer Siemens have recently announced intentions to expand their footprints in China.
Lutz Berners of Berners Consulting, which advises German government departments and businesses on China-related projects, told Nikkei Asia that Scholz’s upcoming visit is a positive sign for smaller companies, which have found it nearly impossible to start new projects in China due to its strict Covid measures.
“The Scholz-Xi meeting in the immediate aftermath of the [Chinese Communist Party’s] National Congress is a signal from the Chinese side that there is a willingness to engage,” Berners said. “My expectation for the German chancellor is to leverage the historically good relationship between the two countries, both for an urgent restart of business cooperation as well as a personal exchange on contentious issues.”
Xi cemented his third term at the recent congress.
Volkswagen, Germany’s biggest automaker, is also hopeful that the meeting will provide a chance to revive personal exchanges.
“Having to rely for long periods on video calls for communications between the German headquarters and our partners in China led to some different perceptions” between the two sides, a representative of Volkswagen Group China, the company’s China unit, told Nikkei Asia.
The representative described Volkswagen’s partnership with Horizon Robotics as a logical step for the car company to get deeper into the Chinese auto ecosystem, saying it is completely different from those in Europe and North America due to a higher speed of digital adoption.
“Decoupling from China cannot be the way forward in a highly connected world with, for example, closely knit supply chains,” the representative added.