Insight: German Chancellor Olaf Scholz completed a three-day visit to China earlier this month. Accompanied by a group of leading CEOs, his focus was mainly on German business interests and the wider market environment, as well as key diplomatic issues such as the Russia/Ukraine war. Over a week after his return, however, the visit continues to prompt heated debate in Germany. His critics in the media and political class are unhappy at what they perceive as his overly non-confrontational stance and emphasis on continued economic cooperation. This reflects increasing concern about overdependence on China in key industrial sectors, such as automotive, amid a riskier geopolitical environment.
Impact I: In particular, the visit was seen by critics as a return to the more optimistic ‘change through trade’ era championed by Angela Merkel. But some analysts believe the Federal Chancellery is well aware of the need to balance Germany’s significant economic interests in China with the security concerns it shares with its Western allies. They predict it will continue to pay close attention to possible economic security risks stemming from China on a case-by-case basis, while pushing for diversification. For German MNCs, this means that scrutiny of their China business will remain high, particularly potential exposure to market risks such as industrial overcapacity, supply chain decoupling, and alleged human rights issues. This creates a balancing act for corporate leaders too. They must prepare a careful narrative that not only reassures stakeholders in Germany they have a strong business rationale that does not ignore ethical concerns, but also convinces those in China of their continued commitment to the market.
Impact II: The Scholz visit was just the start of a flurry of high-level diplomacy. U.S. Secretary of State Antony Blinken is holding meetings in Beijing this week, Chinese President Xi Jinping is expected to visit France, Hungary and Serbia in early May, and other senior German politicians will be visiting various Chinese cities over the next few months. The fact these visits are taking place at all is a positive result in itself given wider tensions. Expect the choice of timing and locations to possibly be more telling than the official read-outs.
