‘China has changed.’ Germany unveils strategy to cut reliance on world’s no. 2 economy

By Hanna Ziady and Nadine Schmidt, CNN

London/Berlin (CNN) — Germany announced Thursday that it would reduce its dependence on China in “critical sectors” including medicine, lithium batteries used in electric cars and elements essential to chipmaking.

The government published its first ever “Strategy on China,” a 40-page document that highlights the tightrope Berlin must walk in managing its dependence on the world’s second-largest economy amid growing criticism of Beijing’s human rights record and attitude towards international law.

China is Germany’s most important trading partner, with imports and exports between the two nations reaching nearly €300 billion ($335 billion) in 2022, according to the government.

“China has changed. As a result of this and China’s political decisions, we need to change our approach to China,” said the document, which the cabinet agreed following months of delays and debate within Chancellor Olaf Scholz’s three-way coalition.

China is a crucial partner in tackling climate change, pandemics and sustainable development, the strategy paper added. However, it is “pursuing its own interests far more assertively and is attempting in various ways to reshape the existing rules-based international order,” with consequences for global security.

The document stressed that Europe’s biggest economy wanted to maintain trade and investment ties with China, while reducing dependencies in critical sectors by diversifying its supply chains — a goal referred to as “de-risking.”

Scholz tweeted: “Our aim is not to decouple [from Beijing]. But we want to reduce critical dependencies in the future.”

The document said Germany was overdependent on China for medical technology and pharmaceuticals, including antibiotics, as well as for information technology and products needed to manufacture semiconductors, and for the various metals and rare earths needed for the energy transition.

“In key areas, the [European Union] must not become dependent on technologies from [non-EU] countries that do not share our fundamental values,” the paper stated.

It reaffirmed the government’s commitment to adjust lists of products subject to export controls against the backdrop of new technological developments, including in cybersecurity and surveillance technology.

The government will also issue provisions so that research and development projects with China “in which knowledge drain is likely” are not supported by federal funds or only under certain conditions, the document said.

China is a key market for several major German companies, including Volkswagen (VLKAF) and BMW, and the government said it planned to hold talks with firms “particularly exposed to China” with a view to “identifying concentration risks.”

The group representing German companies doing business in China welcomed the strategy but flagged some concerns.

“Many German companies operating in China have already taken steps to mitigate risks on their own and see the strategy as confirming their course,” Jens Hildebrandt, executive director of the North China branch of the German Chamber of Commerce, told CNN Friday.

“It is positive that the government has refrained from adding bureaucratic burdens to companies such as reporting and notification requirements, stress tests, or outbound investment screening measures,” he added.

“However, some German companies had hoped that the strategy would provide more framework for cooperation rather than focusing on de-risking only.”

Hildebrandt also suggested the paper was not comprehensive enough, saying it did “not address how Germany can participate in China’s economic growth and innovation capacity to strengthen its economy, without becoming overly dependent [on it].”

— Michelle Toh contributed reporting.

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