Angela Merkel and China: Trade, the U.S., the South-China Sea, and the Continuation of ‘Ostpolitik’
Klaus Larres, Richard M Krasno Distinguished Professor of History and International Affairs at the University of North Carolina (UNC) at Chapel Hill
Only a short while ago German leader
Angela Merkel returned from her eighth visit as Chancellor to China. Having been in office since 2005 Merkel thus has visited China almost once a year. Chinese leaders have been equally frequent visitors to Berlin. Merkel was accompanied by an impressive number of German CEOs. More than 20 large and smaller German companies were represented in her entourage. During the Chancellor’s visit 13 major economic agreements were signed to the tune of over 18 billion Euro, including an almost 13 billion Euro deal regarding China’s purchase of 130 Airbus aircraft. An agreement to trade Yuan-dominated financial products was also entered into between the Deutsche Boerse, the Shanghai Stock Exchange and the China Financial Futures Exchange. The China Europe International Exchange (CEINIX) is headquartered in Frankfurt and commences trading on November 18, 2015. For the first time authorized renminbi trading will occur outside mainland China. It is a clear sign that Beijing is keen on becoming fully integrated into the global financial markets and interested in further enhancing economic relations with Germany. A deal between Volkswagen AG and China’s ICBC-bank also indicated this as well as the decision to designate 2016 as the year of Chinese-German youth exchanges.
The statistics regarding trade and economic relations between Beijing and Berlin are impressive. With Germany being the world’s third largest exporter as well as the globe’s third largest importer, there are over 5200 German companies registered in China and 900 Chinese companies are operating in Germany. China is Germany’s fourth most important export market. Close to a third of all EU exports to China come from Germany. For China Germany is also a most important country. It is its third largest trading partner.
At the political level Berlin and Beijing are also making great efforts. In 2014 a Sino-German Advisory Committee on the Economy was established and the year 2015 was designated as the Sino-German “Year of Innovation.” Not least, since 2011 Germany has been the only country in the world with which the Chinese conduct institutionalized consultations at governmental level for extensive bilateral exchanges. Not even the U.S. enjoys this kind of special status. In October 2014 the entire Chinese cabinet accompanied Prime Minister Li Keqiang to Berlin and in effect for the first time a joint German-Chinese cabinet meeting took place.
This intensifying relationship has led some commentators, including the New York Times, to refer to German-Chinese relations as an “emerging special relationship.” And there is some truth in this assertion. For instance, Prime Minister Li Keqiang asked Merkel during her recent visit to accompany him on a trip to his home region, the Hefei province. After all, they were “old friends” he explained. No other foreign visitor has ever had this privilege.
While Germany is undoubtedly China’s most important European partner, Beijing, however, is not just focusing on Berlin. The country is making great efforts to improve relations with the EU as such and is also busy bolstering relations with other European countries, such as France and the UK. The Chinese President’s visit to the UK in mid-November 2015 was characterized by London receiving him with great pomp and circumstance (he stayed in Buckingham Palace) and the signing of economic agreements of impressive 61 billion pound sterling. Chancellor Merkel’s own visit to Beijing in November 2015 (that was closely followed by French President Holland’s visit to China) remained well below this volume of deals. In view of China’s huge market and still impressive economic growth (now realistically estimated to be anywhere between 6 and 7 per cent annually), Berlin and the other major European players are busy intensifying bilateral trade relations with Beijing. They thereby run the risk of becoming a victim of China’s ‘divide and trade strategy’.
Merkel did show some backbone during her visit instead of just meekly giving in to all Chinese requests. Chinese pressure to give German support to an EU-Chinese free trade agreement, no doubt to counterbalance the transatlantic trade agreement (TTIP) that is currently negotiated between the US and Europe, was not immediately endorsed by the Chancellor. First, she indicated, the envisaged investment agreement between the EU and China had to be signed as planned in 2016. In fact, Merkel was quite annoyed about British Prime Minister Cameron’s quick endorsement of the Chinese request for such a free trade agreement. Cameron’s decision to reduce visa requirement for Chinese citizens wishing to visit the UK without however asking for reciprocal treatment for Chinese visa requirements for British citizens was also viewed skeptically in Berlin. It was feared that it would set an ill-considered precedent for not asking Beijing to offer something in return for the concessions made. China’s well- known preference for ‘bilateralism’ in its foreign policy toward the EU has not proven to be without success. Beijing’s strategy to undermine the EU as a closely-knit economic and political bloc needs to be carefully watched.
But there is another, perhaps even more important issue that the Europeans ignore at their peril: the world’s only superpower has become much less enamored with China during the last few years. In fact U.S. relations with China are becoming increasingly strained. In particular with a view to China’s ambitions in S.E. Asia and the South China Sea, conservative news outlets in the U.S. are claiming that “China and the U.S. have started to view each other not as partners, competitors or rivals but as adversaries.” While there is some evidence to support this assertion, this certainly is not how Berlin views its relationship with Beijing. German analyst Sebastian Heilmann recommends that both Germany and the EU “must avoid being dragged into the intensifying great power rivalries between China and the U.S. that imperil a core European interest: keeping the Asia Pacific as open as possible for European and multilateral engagement.”
This is good advice but how feasible is its implementation? And what actually is Chancellor Merkel’s China strategy? Does the German government even have something approximating a comprehensive strategy for dealing with China?
Merkel’s China Philosophy – the Continuation of ‘Ostpolitik’
Contrary to the American approach the Merkel government is keen on de- emphasizing confrontation and attempting to enhance cooperation with China. Not least it is her country’s economic export vulnerability that is influencing her. And the Chinese are aware of their own vulnerability. In fact both countries have a mutual export dependency on each other. While the U.S. only exports 14 per cent of its GDP, China exports 23.8 per cent of its GDP (and as recent as 2007 it was as much as 38 per cent). German exports even consist of a staggering 45.7 per cent of the country’s GDP. The “economic viability” of both nations, as George Friedman has pointed out, “depends largely on maintaining exports.” They both have limited capabilities to increase their domestic consumption or to develop new export markets to take care of their production overcapacities. And full employment and, particular in the case of China, domestic social stability and order thus depend on the maintenance of a high level of exports. A quarter of Germany’s total employment depends on exports, either directly or indirectly. The smooth running of the global economy, therefore, is essential for both China and Germany if they are to maintain their standards of living and political and social stability.
This presents both nations with a fairly precarious situation. The economic and social stability of their countries are largely out of their own control. They are highly dependent on the outside world. As most of Germany’s exports (58 per cent) go to other EU countries, the Euro crisis for instance and the sharp decline of many EU countries’ financial ability to import goods was a highly dangerous situation for Germany and to some extent also for China. The EU countries are important trading partners for Beijing. 16 per cent of all of China’s exports go to the EU (of which 3.1 per cent go to Germany) while 17 per cent go to the U.S. With 6.6 per cent China is Germany’s fourth largest export market after France (9 per cent), the U.S. (8.5 per cent) and the UK (7.5
per cent). The Netherlands follows with 6.4 per cent.
It is therefore little wonder that Chancellor Merkel pursues a China policy that is free from political friction and tension as much as possible. This explains, for instance, why the German government supports a ‘one China policy’ that has no room for constructive separate relations with for instance Tibet or Taiwan. Human Rights have also taken a backseat ever since Merkel was badly burned by Beijing’s strong reaction when she received the Dalai Lama in the Chancellery in 2007 (a similar experience was made by British Prime Minister David Cameron in 2012). It took great efforts by Foreign Minister Steinmeier and a secret letter in which he apparently described Tibet unambiguously as Chinese territory to appease Beijing and re-establish close economic and political relations.
Berlin’s policy toward China is thus characterized by a policy of economic realism, political accommodation and neglect of human rights. During German-Chinese meetings and summits the latter is mentioned only en passant. Still, during her recent visit Merkel seems to have referred to a number of human rights cases and asked her Chinese counterpart to re-consider the envisaged and globally much criticized law that would severely curtail the work of non-governmental organizations and political foundations in China. Many western activists, however, regard quiet diplomacy, as insufficient. After all, massive human rights abuses still routinely occur in China. During her visit
Merkel also wondered respectfully if China could assume a mediation role to help resolve the vicious war in Syria and thus contribute to defuse the refugee crisis engulfing Europe. By contrast, Washington’s is increasingly less prepared to accommodate China. Above all Washington is determined to maintain and re- enforce the role of the US as a Pacific power with responsibilities for important allies in East and Southeast Asia (such as Japan and Vietnam).
But Merkel’s more accommodating approach to China cannot just be explained with the help of economic and export statistics. Instead to a significant extent the explanation for these differing approaches can be found in Germany and America’s different foreign policy cultures as they developed during the Cold War and since then. In Germany the consensus view on the left and the political right is that a policy of rapprochement and economic and political cooperation was responsible for overcoming the East-West conflict. Already previously the rapprochement with France in the 1950s by means of deep economic cooperation in the context of the Schuman Plan provided important lessons regarding the value of engagement and the partial pooling of national sovereignties. By contrast in the U.S. a consensus regarding the benefits of an aggressive anti-communist policy as practiced by administrations from Truman to Reagan prevails. In particular the rearmament program of the early 1980s is given credit for having exhausted and bankrupted the Soviet Union, which eventually led to its disintegration. In the U.S. the policy of superpower détente of the 1970s is still a highly contentious issue.
Since unification and in particular since the late 1990s Germany has developed new confidence in its nation state and the country’s economic prowess. Not least for generational/demographic reasons, the legacy of the Nazi past is holding Germany much less back in assuming a leadership role in international affairs than was the case in the previous decades.  Due to its economic strength and the relative economic weakness of its EU partners, Berlin has also clearly turned into the most influential and powerful EU member state (as could been seen in the Euro crisis, including the Greek crisis, and for different reasons in the present refugee crisis).
Germany has become convinced that it has developed its own uniquely modern, fairly refined, and quite non-ideological and non-militaristic foreign policy approach. The country’s policymakers believe that with this approach they are capable of managing some of the world’s pressing issues in a much more sophisticated way than is feasible with America’s ‘rough and ready’- foreign policy strategy. Berlin’s new post-Cold War foreign policy has two major characteristics:
- Berlin strongly believes in a foreign policy of “change through rapprochement” as developed by Willy Brandt’s adviser Egon Bahr in the 1960s and practiced by Brandt in the 1970s. This ‘soft power’ approach is characterized by the ‘weaving together’ of political, economic and cultural ties between antagonistic countries to bring about a gradual softening and ultimate resolution of the conflicts of the day. In the 1970s and 1980s this led to the gradual rise of an internal dissenting movement and a significant increase of the influence of Western values and economic practices in the former Soviet Union.Berlin clearly expects that in the long run present-day China and
Russia will not be immune from the beneficial influence of economic, cultural and also deeper political engagement with the West.
- As the world’s third-largest exporter of goods, German foreign policy continues to emphasize the importance of economics and trade. Ostpolitik’s “change through trade” is the role model. In its relations with China – but also regarding Putin’s Russia – the Merkel government is convinced that this is the right strategy. That way, over time western values will penetrate both countries and change them fundamentally from beneath. This, it is obvious, requires a significant period of time; it can only succeed in the long run. Still, in Berlin such a patient long-term strategy is seen as greatly more desirable than embarking on a militaristic foreign policy as advocated by some in the U.S. Congress and within the administration itself. The neo-isolationist noises that at times come also out of the Congress are not regarded as a sound alternative either. After all, Germany, the country that relies like almost no other country on its exports to maintain its standard of living, needs to engage with the world. German foreign policy is intricately mixed up with the country’s export policy, giving its economic elite a large informal influence over the country’s foreign policy.
Germany, the EU, the US, and China’s South-East Asia Policy
In international relations Germany and the EU are focused to a large extent, as analyst Gudrun Wacker writes, on making China adhere to international law and global rules as well as on persuading China to participate in tackling climate change. A coherent EU strategy toward China is only noticeable due to its absence, she explains. By contrast, the U.S. is much more concerned about China’s new geo-strategic and increasingly global military ambitions, in particular in South-East Asia and in the South-China Sea. Apart from maintaining peace, stability and the unhindered economic access to the region, Germany and the EU have no particular stake in this vast area. This is very different for the U.S. Washington has important allies in this part of the world (Japan, Indonesia, Vietnam, Philippines, Thailand) and has been the foremost protective power in Southeast Asia since World War II. It certainly intends to continue this role. President Obama’s so-called “Asian pivot” indicated quite unambiguously the importance with which Washington views the region.
For China South-East Asia is its natural backyard, however. It even sees the islands in the South-China Sea as part of its sovereign territory. And, as Eberhard Sandsteiner, the head of the German think tank Deutsche Gesellschaft für Auswärtige Politik (DGAP) has expressed it, “sovereignty is and remains of supreme importance for Chinese foreign policy.”  Furthermore being the dominating power in the South-China Sea for Beijing is part of its ambition to become a globally influential power, if not the world’s leading power (a position it lost to the West almost 800 years ago). Accepting the dominating presence of another outside power in its backyard is regarded as humiliating and unacceptable in Beijing. A serious conflict with the U.S. is almost inevitable. It only remains to be seen if this conflict can be contained and will be fought in the political and economic realms only or also by military means.
While the Europeans traditionally sympathize with the global strategic considerations of the U.S., regarding Asia this has never been an automatic policy. For instance, during the Vietnam War not a single European country supported the U.S. wholeheartedly; even the British refused to send troops to Indochina despite repeated American requests. At present within Germany and the EU there is a great deal of understanding for Washington’s view of the conflict with China in the South-China Sea. Still, no clear position has been taken. Chinese overtures to Europe thus have not only an economic and trade dimension, they also have very much a political dimension (as could also be seen recently, as mentioned above, with regard to the Chinese request for the conclusion of a EU-China free trade agreement to undermine the effectiveness of any TTIP deal with the US).
The political dimension of Chinese-European relations clearly includes (at least from Beijing’s point of view) the rivalry with Washington about South- East Asia and the South-China Sea. At some stage the EU and Germany will have to take sides. At least this is the expectation of both China and the U.S. Still, the EU has always been good at fudging important issues and avoiding clear positions in favor of working out compromise solutions based on multiple concessions to all sides concerned. The EU, including Germany, clearly has no interest in pursuing a geo-politically guided policy toward China.
It is trade and exports and political stability and cooperation with Beijing that are at the heart of Chancellor Merkel’s China policy. It is not geopolitics. The core tenet of Ostpolitik consists of the build-up of good and constructive relations by ever-closer trade, political and cultural relations. Engaging the other country by means of small steps in these areas is meant to lead to ever more trusting, stable and reliable relations. Predictability, consistency and the gradual converging of both countries’ political philosophies are the ultimate long-term objective. Imposing one’s grand strategy on the other partner is not part of the game, in particular if one doesn’t even have a grand strategic game plan. Instead the short- to middle term aim is peaceful cooperation based on mutual economic interests. Come to think of it, this may not be a bad strategy at all. Yet, as always, it still needs two to tango.
 Johnny Erling, “China braucht Merkel mehr, als Merkel China,” Die Welt, October 29, 2015: http://www.welt.de/politik/ausland/article148210729/China-braucht-Merkel-mehr-als-Merkel-China.html; Cerstin Gammelin, “Merkel kontert Camerons China-Offensive,” SZ, October 29, 2015: http://www.sueddeutsche.de/wirtschaft/kanzlerin-in-peking-wie-merkel-camerons-china-offensive-kontert- 1.2713552; “Airbus zieht Milliarden-Auftrag an Land,” FAZ, October 29, 2015: http://www.faz.net/aktuell/wirtschaft/unternehmen/angela-merkel-vereinbart-engere-zusammenarbeit-mit-china- 13882461.html.
 In 2014 China’s world wide trade was 11.3 per cent and Germany’s was 7.2 per cent (the U.S. stood at 10.6 per cent). Federal Ministry for Economic Affairs and Energey (ed.), Facts about German foreign trade in 2014: https://www.bmwi.de/English/Redaktion/Pdf/facts-about-german -foreign-trade-in- 2013,property=pdf,bereich=bmwi2012, sprache=en,rwb=true.pdf.
 Chris Bryant, “Germany’s export machine braced for China slowdown,” Financial Times, September 13, 2015: http://www.ft.com/intl/cms/s/0/c7b9f71e-52f2-11e5-8642-453585f2cfcd. html#axzz3qOfKZkam.
 See Gudrun Wacker, “Deutsche China-Politik: Doppelte Einbettung gebraucht,” SWP, October 24, 2014: http://www.swp-berlin.org/de/publikationen/kurz-gesagt/deutsche-china-politik-doppelte-einbettung- gebraucht.html.
 See http://www.thelocal.de/20141010/merkel-welcomes-entire-china-cabinet-to-berlin.
 “Germany and China: Too Close for Some,” New York Times, May 16, 2012: http://rendezvous.blogs.nytimes.com/2012/05/16/germany-and-china-a-special-relationship/?_r=0; also “Germany and China: A special relationship?,” Deutsche Welle, July 4, 2014: http://www.dw. com/en/germany-and-china-a-special-relationship/a-17759575. But see above all Hans Kundnani and Jonas Parellao-Plesner, “Why the Emerging Special Relationship matters for Europe,” Policy Brief, European Council on Foreign Relations (ECFR), May 2012):http://www.ecfr.eu/page//ECFR55_CHINA_GERMANY_BRIEF_AW.pdf.
 Neue Zürcher Zeitung, October 29, 2015: http://www.nzz.ch/international/deutschland-hat-nur-keine-queen-1.18637682.
 Neue Zürcher Zeitung, October 29, 2015.
 Andrew Browne, “The China Rethink,” The Wall Street Journal, June 13-14, 2015: http://www.wsj.com/articles/can-china-be-contained-1434118534.
 Sebastian Heilmann, “Niche Diplomacy at Work,” Berlin Policy Journal (April, 27, 2015): http://berlinpolicyjournal.com/niche-diplomacy-at-work/.
 George Friedman, “The Similarities between Germany and China,” Geopolitical Weekly, October 21, 2014: https://www.stratfor.com/weekly/similarities-between-germany-and-china; see also Georg Erber, “German- Chinese Economic Relations – Opportunities and Risks for Germany,” DIWEconomic Bulletin, Vol.4/2
(February 14, 2014): https://www.diw.de/ documents/publikationen/73/diw_01.c.437630.de/diw_econ_bull_ 2014-02-3.pdf.
 See Federal Ministry for Economic Affairs and Energy (ed.), Facts about German foreign trade in 2014:
The figures refer to 2014. See Federal Ministry for Economic Affairs and Energy (ed.), Facts about German foreign trade in 2014 (see note 2 above). See also Germany Exports, 1950-2015: http://tradingeconomics.com/ germany/exports.
 Stefan Kornelius, Angela Merkel: Die Kanzlerin und ihre Welt (Hamburg: Hoffmann und Campe, 2013), pp.206-08.
 “Merkel-Besuch in China: ‘Stille Diplomatie reicht nicht’,” interview with Sophie Richardson of Human Rights Watch, in Der Spiegel, October 29, 2015: http://www.spiegel.de/politik /ausland/china-human-rights- watch-kritisiert-angela-merkel-a-1059898.html.
 See Klaus Larres, “Mutual Incomprehension: German-American Value Gaps over Iraq and Beyond,” Washington Quarterly, 26/2 (2003): https://muse.jhu.edu/journals/washington_ quarterly/v026/26.2larres.html.
 See the somewhat triumphalist account by John Lewis Gaddis, The Cold War: A New History (New York: Penguin, 2006).
 Klaus Larres and Peter Eltosv, “How Adolf Hitler Haunts Angela Merkel,” Politico magazine online (May 26, 2015): http://www.politico.com/magazine/story/2015/05/angela-merkel-hitler-118287.
 See Hans Kundnani, The Paradox of German Power (London: Hurst and Company), 2014.
See Peter Bender, Die “Neue Ostpolitik” und ihre Folgen: vom Mauerbau bis zur Vereinigung, 3rd ed. (Munich: dtv, 1995).
 See Werner D. Lippert, The Economic Diplomacy of Ostpolitik. The Origins of NATO’s Energy Dilemma
(New York: Berghahn Books, 2011).
 See Stephen Szabo, Germany, Russia, and the Rise of Geo-Economics (London: Bloomsbury, 2015), chapters 1 and 4.
 See Gudrun Wacker, “Deutsche China-Politik: Doppelte Einbettung gebraucht,” SWP, October 24, 2014: http://www.swp-berlin.org/de/publikationen/kurz-gesagt/deutsche-china-politik-doppelte-einbettung- gebraucht.html.
 See Gudrun Wacker, “China und die EU. Keine Strategie, keine Partnerschaft,” in Kai-Olaf Lang and Gudrun Wacker (eds), Die EU im Beziehungsgefüge großer Staaten. Komplex, kooperativ, krisenhaft (Berlin: SWP,
2013), pp.29-40: http://www.swp-berlin.org/fileadmin/ contents/products/studien/2013_S25_lng_wkr.pdf.
 See Gerhard Will, Tough Crossing: Europa und die Konflikte in der Südchinesischen See (Berlin: SWP, 2014): http://www.swp-berlin.org/fileadmin/contents/products/studien/2014_S10 wll.pdf.
 Kurt Campbell and Brian Andrews, “Explaining the U.S. Pivot to Asia,” Chatham House paper (London, January 2013): https://www.chathamhouse.org/sites/files/chathamhouse/public/Research/Americas/0813pp_pivottoasia.pdf
 Eberhard Sandsteiner, “Weltmacht: China steigt so schnell nicht ab,” Die Zeit online, September 16, 2015: http://www.zeit.de/wirtschaft/2015-09/china-regierung-politik-xi-jinping.
 See Henry Kissinger, On China (New York: Penguin, 2011); Jonathan Fenby, Will China Dominate the 21st Century? (London: Wiley, 2014).
 This, however, is not the view of leading scholar Graham Allison who believes military conflict between the US and China can be avoided. See the video of his talk at UNC-Chapel Hill on April 20, 2015, “Destined for
War? Can the U.S. and China Escape Thucydides’ Trap?” https://www.youtube.com/watch?v=7f0Ip81oMUo.
 See Eugenie M Blang, Allies at Odds: America, Europe, and Vietnam, 1961-1968 (Rowman and Littleifield, 2011).