Germany is considering scaling back its plans to strengthen government scrutiny of Chinese investments, according to a recent report by The Wall Street Journal. The move comes amid concerns that stricter reviews could hinder foreign investment and hamper the country’s economic recovery.
Background
Under outgoing Chancellor Angela Merkel, Germany pursued a more economically friendly approach towards China. However, since taking office in 2021, Chancellor Olaf Scholz has taken a more assertive stance, resisting Chinese influence, tightening export controls on sensitive technologies, and blocking some Chinese investments citing security concerns.
Proposed Investment Review Law
Last summer, the German government unveiled its long-awaited China strategy, labeling China as a “partner, competitor, and systemic rival.” The strategy criticized Beijing’s actions that contravene European interests and outlined a “de-risking” policy to reduce economic dependence on China.
Concurrently, the German Ministry of Economic Affairs began drafting a new investment review law that would subject foreign investments to security risk assessments and encompass a broader range of investment types. While the new law did not explicitly mention China, analysts believed it was primarily aimed at the country.
Potential Changes to the Plan
However, according to insiders, these plans may now be scrapped. The government may opt not to draft a new law altogether and instead modify existing regulations.
Officials explain that the Scholz government is concerned that stringent investment review regulations could deter foreign investment and hinder Germany’s efforts to revitalize its economy.
Potential Impact on EU-China Relations
Germany’s softening stance on China could exacerbate divisions within the European Union, where the European Commission is seeking to adopt a “tougher stance” on China and has launched anti-subsidy investigations into Chinese electric vehicles. China has been Germany’s most important trading partner for many years.
Scholz’s Visit to China
Earlier this month, Scholz visited China and held talks with Chinese President Xi Jinping. During the meeting, Scholz emphasized that Germany does not want to “decouple” from China but urged China to make progress on structural economic issues and improve the quality of cooperation.
In a speech at a Shanghai university, Scholz warned against Chinese dumping and overcapacity while also calling on the EU to avoid protectionist measures.
Germany’s decision to reconsider its plans to toughen scrutiny of Chinese investments highlights the delicate balance between economic interests and security concerns. As Germany and the EU navigate their relationship with China, they will need to carefully weigh these competing priorities to ensure both economic prosperity and national security.