Germany’s strategy for ‘de-risking’ its ties with China

Germany and the UK are two of Europe’s largest economies. They took a more chilly stance toward China on Thursday. They show how China’s authoritarian tendencies, its ruptured relationship to the US, and its sabre rattling toward Taiwan, as well as European concerns over Beijing’s close relations with Moscow, have impacted the world.

Germany’s first China Strategy reflects the changes in the world. China is Germany’s largest trading partner and the most important market for its industrial giants. Berlin announced that it was “derisking” its ties despite a warning from Qin Gang. China’s Foreign Minister. De-risking can mean “destabilising, dedevelopment, and de-opportunity”.

A scathing British parliamentary report concluded that London’s response against China’s “increasingly complex” spying activities was “totally inadequate”. It added that the UK was “singularly failing to deploy a ‘whole-of-government’ approach” to the problem of China.

Berlin’s comprehensive policy shows how important it is to reduce its exposure to shocks from outside by diversifying its export markets and supply chains. The strategy is designed to identify weaknesses, increase awareness of the risks associated with doing business in China and let German companies know that Berlin won’t bail them out when they run into trouble. This 64-page document should be read by those who live in other EU capitals. The document could be a guide for the UK.

The UK and Germany both want to keep access to the Chinese middle class market, which is estimated to have 550 million consumers. The goal of the UK and Germany should be to create what Biden’s administration called a “small-yard, high-fence” – tight restrictions on trade and investment in a limited number of technologies that are linked to national defense, while allowing other forms of commerce. There will be some grey areas in practice because many technologies have dual-use. Janet Yellen , US Treasury Secretary, told China’s premier Li Qiang last week that, while the US may need to take targeted measures to protect national security at times, it should not “needlessly deteriorate our bilateral economic relationship”.

Germany is concerned about becoming too dependent on both the Chinese supply chain for industrial components as well as on the Chinese marketplace. UK concerns are more espionage-related. Under the 2021 National Security and Investment Act, the UK began to thoroughly vet Chinese inward investments. It used its powers last year to “call-in” eight transactions that involved Chinese-linked investment into British companies, weeding out some perceived security risks.

Like Germany, however, the UK must be more clear about the parameters which should govern its future relationship with China. It should describe in what sensitive technology areas trade should be prohibited, or be subject to regulatory scrutiny. This is mainly applicable to Chinese companies investing in UK critical infrastructure and Chinese acquisitions by UK companies. It should also include UK companies that transfer technology to Chinese counterparts.

Since Xi Jinping has instilled suspicion into the worldview of China’s leader for the US-led West, security tensions have increased between China and Europe. There may not be a way to protect every sector in Europe against Chinese security concerns. Germany and the UK must strike a balance to protect vital infrastructure and sectors while maintaining trade and commercial relationships.