Last month, German Chancellor Olaf Scholz acknowledged something every German knew but was afraid to say: the country’s business model is broken.
Germany’s strategic national business model, predicated on globalization and interdependency, is backfiring. It’s the nation-building equivalent of putting all of your eggs in one basket. In this case, two baskets: Russia and China. Germany depends on Russia for most of its energy needs, and it depends on China for most of its export-driven economy.
Scholz said Germany’s “one-sided dependence” on China and Russia must end.
The chancellor is shifting Germany’s longstanding policy. The country is committing 2 percent of its gross domestic product (GDP) to defense and bolstering NATO’s eastern defenses, accelerating the move away from Russian energy, building more liquid natural gas (LNG) terminals, and committing to becoming a nuclear nation.
However, Scholz isn’t blameless in Germany’s present plight. For years, he served as finance minister and vice chancellor in then-Chancellor Angela Merkel’s government.
In early December, local German media published excerpts of a leaked Economy Ministry strategic paper that predicts increasing tensions between Germany and China, and that China would move to annex Taiwan by 2027, at the latest. If this comes to fruition, it all but paves the way for more economic pain for Germany.
The paper further states that while China has worked for years to reduce its foreign dependence—a development that The Epoch Times has covered extensively—Germany and Europe have played right into China’s hands and instead doubled down on their dependency on China.
But changing course is easier said than done.
Germany is an advanced industrial nation. Its energy source isn’t very diversified. Fossil fuels such as oil and gas make up 60 percent of Germany’s energy, and Russia is the biggest supplier of both.
“Germany has been importing around 1.8bn euros (around US$2 billion) worth of Russian gas, oil, and coal a month, thereby helping to finance Vladimir Putin’s war in Ukraine,” The Economist wrote in April.Now, the country is desperately building new LNG terminals to supplement its energy needs. LNG is delivered by ship and the United States is a major exporter. In late September, Scholz’s government announced a 200 billion euro ($209 billion) “defensive shield” program to limit gas prices for consumers and businesses as well as to subsidize energy-importing companies.
On the trade front, German politicians last month made their rounds across Asia, reassessing existing ties and forging new ones.
Several captains of German industry were in tow, including leadership at industrial giants BASF and Siemens, as well as financial giant Deutsche Bank.
The previous German governments hitched the country’s wagon to China, a country whose communist regime has grown increasingly hostile toward the West and its allies. That policy was shaped almost entirely by the interests of German businesses, which depend on Chinese demand and have invested heavily in Chinese production.
Germany must prepare for a world in which China becomes increasingly isolated and cut off from the rest of the world.
No country can replace China’s appetite for German exports including industrial machinery, technical equipment, and automobiles. But Germany had to start somewhere.
“It would certainly not be an option to renounce China completely,” Volker Treier, head of foreign trade at the DIHK lobby in Berlin, said in an interview with Bloomberg in November.
“German businesses are trying to diversify and guard themselves against the possibility of a stronger decline in trade relations with China.”
German businesses must be incentivized to diversify away from China. It will cost money, and it will hurt companies’ bottom lines, at least temporarily. And it takes commitment from the business community, German politicians, and its European Union allies.
So far, its pivot has had limited traction. While Germany last month blocked the Chinese acquisition of a domestic chip plant, in early December it declined to follow the United States’ lead to enact a full ban on importing telecom equipment made by Chinese telecom giant Huawei. In October, Berlin allowed Chinese government-owned shipping giant COSCO to buy a terminal in the port of Hamburg, albeit it settled on a smaller investment than the Chinese company had originally planned.
All of this begs the question: Is it too little, too late?
