Germany Between De-Risking and Strategic Partnership – The Diplomat

German Chancellor Friedrich Merz concluded his inaugural go to to China on February 26. The 2-day journey noticed Merz main a senior enterprise delegation, and committing to advance a “complete strategic partnership” in conferences with President Xi Jinping and Premier Li Qiang. Merz’s go to adopted journeys to China by France’s Emmanuel Macron and the UK’s Keir Starmer, reflecting a broader European effort to stabilize relations with Beijing regardless of ongoing tensions over commerce, market entry, and strategic competitors.

Regardless of speak of a “reset” in Sino-German relations, Merz’s journey was much less about romance and extra about realism. It shouldn’t be seen as a strategic pivot, however as a targeted try to rebalance an more and more uneven financial relationship. Merz brazenly spoke about persistent commerce distortions, pointing to Chinese language overcapacity as a driver of widening imbalances. 

The go to displays the China coverage of the present authorities, which has been pretty constant: demand fairer market entry for German corporations, entice Chinese language funding the place it serves German pursuits, and cautiously pursue a “strategic partnership” that acknowledges China’s rising international weight, but in addition the tasks that include it. On the identical time, Merz signaled that financial engagement can’t be divorced from geopolitics, urgent Beijing to imagine a extra constructive function in restraining Russia’s battle in opposition to Ukraine.

Financial cooperation has been the spine of the China-Germany partnership, outlined by industrial complementarity and mutual profit. This framework, formalized in a 2004 strategic partnership and upgraded in 2014, generated prosperity but in addition entrenched structural dependencies. Beneath former Chancellor Angela Merkel’s doctrine of “Wandel durch Handel” (“change via commerce”) financial pragmatism set the tone. 

That tone shifted in 2019, when for the primary time the Federation of German Industries (BDI) labeled China a “systemic competitor,” influencing the EU’s “companion, competitor, rival” system. The 2020s marked a decisive shift: the pandemic, provide chain shocks, and Beijing’s alignment with Moscow uncovered the vulnerabilities of overreliance. Beneath Chancellor Olaf Scholz, Berlin started extra brazenly describing China as a rival, and the 2023 China Technique aimed to cut back vital dependencies whereas preserving selective cooperation. Beneath Friedrich Merz, Berlin moved additional towards the EU’s “de-risking” agenda, inserting higher emphasis on competitors, resilience, and systemic rivalry. Germany’s method displays the EU’s broader shift from optimism to warning, formed by financial publicity, transatlantic pressures, and European ambitions. 

Over the previous many years, Germany and China developed a extremely interdependent financial relationship rooted in industrial complementarity. German automobiles, equipment, and chemical substances fueled China’s fast industrial rise, whereas booming Chinese language demand sustained Germany’s export-led progress. Since 2001, bilateral commerce has elevated practically tenfold, from $27 billion to $298 billion in 2025, making China Germany’s most necessary buying and selling companion, and accounting for greater than 35 p.c of whole EU-China commerce. 

Funding ties replicate related depth. By 2024, German International Direct Funding in China had reached $80 billion, practically 60 p.c of all EU funding there, whereas China’s cumulative FDI in Germany stood at $35 billion, making it Germany’s tenth-largest investor and third-largest supply of latest FDI initiatives that yr.

But, the lengthy portrayed “win-win” cooperation mannequin has uncovered massive structural imbalances. Chinese language imports to Germany have risen sharply whereas German exports have stagnated, pushing the commerce deficit to nearly $100 billion in 2025, quadruple its stage 5 years earlier. Controversial acquisitions corresponding to Kuka and Aixtron, and mounting manufacturing job losses, round 10,000 per thirty days in Germany, have additional heightened perceptions of financial vulnerability.

Strains are most evident within the automotive and equipment sectors. German carmakers, the spine of the German financial system, entered China within the Eighties via joint ventures, transferring know-how in trade for market entry and contributing to the rise China’s trendy auto trade. Supported by heavy subsidies and insurance policies corresponding to “Made in China 2025,” Beijing constructed a complete EV worth chain by the mid-2010s, whereas German corporations remained targeted on combustion-engine know-how.

China now produces over 30 million autos yearly, round 40 p.c of them new vitality autos, and is increasing quickly into international markets. By 2024, practically half of automotive gross sales in China have been electrical, with native manufacturers capturing round 70 p.c of the market. BYD surpassed Volkswagen as China’s top-selling auto model. 

Amid shrinking market share, Volkswagen and its companion SAIC are closing their joint plant in Nanjing, whereas mounting aggressive stress has additionally compelled the corporate to halt manufacturing at its Dresden facility, its first full manufacturing unit closure in practically 90 years. German producers face a twin squeeze: eroding margins in China and rising competitors from Chinese language EV makers in third markets.

Germany’s technological relationship with China has shifted from one-way switch to simultaneous cooperation and competitors. Now, German corporations co-develop EV, sensible manufacturing, and inexperienced applied sciences in China, whilst Chinese language upscaling and import substitution erode German market share in EVs, batteries, and AI-driven software program.

The 2016 takeover of Kuka by the Chinese language Midea Group marked a turning level for Germany, prompting stricter overseas funding guidelines in delicate sectors, de-risking, and stronger commerce defenses. Considerations have intensified amongst German small and medium enterprises, and even IG Metall has backed protectionist measures as soon as seen as taboo, signaling a shift in German industrial coverage. China’s dominance in areas like chip manufacturing and significant mineral has left German producers susceptible to produce shocks, vital for technological growth.

But German trade stays divided. Whereas chemical substances and equipment industries have tailored, some executives argue de-risking has gone too far, stressing the significance of China’s marketplace for competitiveness and jobs.  Automakers opposed the EU tariffs on Chinese language EVs over fears of retaliation and market losses, and Germany voted in opposition to these measures. Moderately than de-risking, some firms pursue “in China, for China” localization and selective partnerships. A latest survey by the German Chamber of Commerce in China discovered that over 90 p.c of members plan to remain, with greater than half looking for to increase.

Past financial issues, Germany’s safety outlook towards China has hardened amid rising issues over espionage, cyberattacks, and Beijing’s international assertiveness. Chinese language-linked hacking and high-profile espionage circumstances within the final years have eroded confidence in viewing China as a simple companion. In 2024, Berlin restricted Chinese language distributors corresponding to Huawei and ZTE from components of its 5G community beneath the EU’s 5G Toolbox, but Chinese language tools stays deeply embedded in Germany’s telecom infrastructure, highlighting the issue of decreasing technological dependence. New measures, together with the 2025 KRITIS legislation implementing EU requirements, underscore Berlin’s shift towards resilience in opposition to sabotage and cyber threats, reflecting a extra strategic and guarded China coverage. 

From a extra conventional safety perspective, China’s actions within the South China Sea are seen as a problem to the rules-based order, posing dangers to Asia’s safety and Europe’s financial pursuits, in keeping with International Minister Johann Wadephul. Above all, Beijing’s sustained backing of Russia for its battle in Ukraine has strengthened views of a systemic rivalry.

Because the China-Germany relationship has grown extra uneven and aggressive, Berlin has reassessed its long-standing assumptions in response to China’s industrial ambitions, financial headwinds, and intensifying geopolitical competitors. As Europe’s largest financial system, Germany, has been central to shaping the EU’s de-risking technique towards China, whereas looking for strategic pragmatism over confrontation and advocating for a “dependable and honest partnership,” regardless of mounting doubts about its viability. 

On the opposite facet, conscious of Berlin’s weight, Beijing has adopted a dual-track technique: participating Germany via selective market entry and focused cooperation, whereas resisting Brussels when EU initiatives are seen as undermining Chinese language pursuits. In his assembly with Merz, Xi Jinping known as for stronger strategic dialogue and higher mutual belief, underscoring that secure China — Germany relations are important to each European and international stability.

Translating de-risking right into a coherent technique stays politically and economically fraught for an export-driven nation like Germany, so deeply economically tied to China. Amid shifting transatlantic dynamics, Berlin’s decisions can be decisive for Europe. As Merz heads to Washington subsequent month, the path he charts might show decisive for whether or not the EU can forge a complete China coverage, balancing resilience with competitiveness whereas aligning European unity with stronger transatlantic coordination.