Editor's note: Liu Lirong is an associate professor at the Institute of International Studies, Fudan University. The article reflects the author's opinions and not necessarily the views of CGTN.

October 11, 2022, marks the 50th anniversary of the establishment of diplomatic relations between China and Germany. In the past 50 years, Chinese-German relations have achieved all-round development in economy, politics, society and culture. Especially in economic and trade cooperation, China and Germany are each other's important strategic markets and indispensable partners. However, due to factors such as China-U.S. relations, the Russia-Ukraine conflict and the COVID-19 crisis, China-Germany relations have undergone some subtle changes recently.

First, different from the tone of the previous government's cooperation with China, the new German government's China policy is confrontational to a certain extent. In its coalition agreement, the Traffic Light government identifies China as a "system rival." This formulation differs from the terminology used in the Angela Merkel era and is closer to the EU's China policy stance.

Economic and trade cooperation is the foundation of Chinese-German relations. With the increasing competitiveness of China's manufacturing industry, trade conflicts and frictions between the two countries have increased.

For quite a long time in the past, the China-Germany economy has been in a good cooperative partnership, with Germany needing markets and China needing technology. However, with the shift of the global value chain, Chinese companies are gradually posing challenges to German companies in areas where Germany has traditional advantages, such as the automobile industry, the machinery manufacturing industry and the chemical industry. On the issue of whether the EU will recognize China's market economy status, two manufacturing powerhouses, Germany and Italy, are the main opponents.

In January 2019, the Federation of German Industries (BDI) published a report "China – Partner and systemic competitor," calling on Germany and the EU to take measures against China's "long-term systemic challenges." In March 2019, the EU released a new China policy paper, defining China as a "systemic rival promoting alternative models of governance."

With the restructuring of the global economic order, the structural power balance and interest demands between China and Germany are constantly changing. The competition between China and Germany in the economic field has intensified and it has become more difficult to manage differences. However, it should be pointed out that cooperation and competition are not necessarily contradictory, and that common interests still outweigh differences in the current China-Germany relations.

Second, recently, the rhetoric of "reducing economic dependence on China" has been widely spread in Germany. German Economy Minister Robert Habeck said in September that the German government is formulating a new trade policy towards China to reduce its dependence on Chinese raw materials, batteries and semiconductor products. In addition, the German Federal Ministry for Economic Affairs intends to formulate a package of measures to reduce the attractiveness of the Chinese market to German companies.

There are a number of reasons for this rhetoric. First, the evolution of the Russia-Ukraine conflict threatens Germany's energy security, and Germany pays more attention to long-term economic security in foreign trade. Besides, at the beginning of the outbreak of the COVID-19 pandemic, there was a shortage of medical protective equipment in Germany, which triggered discussions in German society about supply chains and economic dependence on China.

Third, China-Germany relations are influenced by China-U.S. relations and transatlantic partnership. In recent years, many mergers and acquisitions of Chinese-funded enterprises in Europe have encountered setbacks, and the pressure from the United States is an important reason.

Reducing economic dependence is not the same as economic decoupling, but rather seeking diversification of international cooperation in strategically important industrial areas. At the policy level, the EU and Germany have recently introduced a number of measures.

In 2021, the EU adopted the Global Gateway plan to strengthen investment in China's neighboring countries and seek alternative production. In terms of geo-economics, Germany intends to seek a rebalancing of its Asian policies, attaches great importance to developing relations with Japan, India and other countries, and strengthens Germany's participation in the Asia-Pacific region. The further development of Chinese-German economic and trade relations has been limited by the shelving of EU-China Comprehensive Agreement on Investment (CAI).

Economic interdependence is an inevitable result of globalization and the development of market economy. Unlike France, Germany implements a federal system. Decision makers in politics and economy come from different social backgrounds, and social interests are diverse and dispersed. There are conflicts of interest between companies oriented towards the internal European market and those oriented towards the global market. Therefore these companies are divided over whether to take a hard line against China.

As a major exporter and beneficiary of trade liberalization, Germany has traditionally favored a free market and advocated the reduction of trade barriers. An important interest of Germany's current policy toward China is still to ask China to increase the openness of its market to European companies and their products.

Germany is China's largest trading partner in the EU, and the Chinese market is far more important to Germany than other EU countries. Discussions around "economic decoupling" or "reducing dependence" will have broad implications for Chinese-German political, economic and psychosocial relations. The volume of the bilateral economic and trade relations is far greater than that of German-Russian economic and trade relations, and taking tough measures against China will have a serious impact on the economies of both China and Germany.

Although the rhetoric of Germany's China policy is getting tougher, it remains to be seen how the Traffic Light government will shape Chinese-German relations. Looking at the China policy during the Merkel era, it basically continued the China policy of the Helmut Kohl and Gerhard Schroeder eras, that is, to separate economic cooperation from controversial issues. In his first government statement after taking office, Olaf Scholz emphasized the importance of cooperation with China and called for a pragmatic approach.

China has two expectations of Germany: One is that Germany will maintain the continuity of its China policy; the other is to oppose the cold war mentality. The future development of China-Germany relations depends on whether the two sides can properly handle institutional differences and respect each other's core interests.

China is the second largest economy in the world, and Germany is the largest economy in the EU. Chinese-German cooperation is of great significance in addressing many global challenges such as climate change, the COVID-19 pandemic and global food security.

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