January 29, 2023

The German government is divided over a deal agreed last month that would see Chinese conglomerate Cosco investing in the port of Hamburg. The deal had been in the works since September 2021 and was championed by Chancellor (and Hamburg’s former mayor) Olaf Scholz.

Scholz’s coalition partners loudly criticize the deal. First and foremost Robert Habeck, Greens MP and Scholz Minister for Economic Affairs, who expressed his fear that Germany would become dependent on Chinese businesses. The Greens colleague and Foreign Minister von Scholz, Annalena Baerbock, has publicly spoken out against Scholz and called for a completely new China policy.

Even worse for Scholz, his government’s concerns are shared by German business. One of the industry’s biggest lobbies has expressed anger at Germany’s economic ties with China. In order to ward off this anger, Scholz must publicly insist that Germany does not make itself dependent on China deals.

The prospect of dependence on an authoritarian power is a sensitive issue for all of Europe, not just for the Scholz government. Ever since Russia invaded Ukraine, Europe has faced the consequences of years of dependence on Russian primary imports, especially gas. Russia has halted gas supplies from pipelines to Europe, fueling its energy crisis.

By taking a leading role in Europe’s energy policy, Germany risks appearing as a key factor in this dependency. Scholz’s predecessor, Angela Merkel, only signed a contract to build Nord Stream 2, a gas pipeline connecting Russia with Europe, in 2018. Therefore, in his criticism of the Port of Hamburg deal, Habeck called for the government to be “more careful” than before.

China’s threat

Behind this criticism is the suspicion of China’s growing economic influence and possible threat. In fact, Germany’s allies are already trying to protect themselves against any perceived threat. These include US President Joe Biden’s recent decision to limit exports of semiconductor chips to China.

Meanwhile, China has expanded its influence in Europe through its ambitious Maritime Silk Road Initiative (MSRI). By strengthening China’s trade ties with Europe, the MSRI seeks to consolidate China’s dominance in the shipping industry. Building on the work of companies like Cosco, China can help cement its position as the world’s manufacturing hub.

With such influence, the question arises as to whether China has potential influence over Europe for its diplomatic or military interests. The EU even went so far as to describe China as its “systemic rival” earlier this year. None of this helps the image of the Scholz deal, which could be seen as facilitating the MSRI’s expansion.

A reality check

And yet the research shows there is little evidence to support the suspicion that greater Chinese investment in Europe poses a greater security threat. This becomes clearer if you take a closer look at the deal between Germany and China in the port of Hamburg.

It is unclear whether Cosco’s motives for the investment match those of the Chinese state. Although the Chinese government has the power to influence companies, the Chinese government often grants them a free hand to compete with their global rivals. As a multinational company, Cosco’s main task in Germany is the pursuit of profit, not undermining its security.

Refusing Chinese deals is a luxury neither Germany nor Europe can afford, even if some politicians argue. Thanks to years of smart investment, Chinese investors now own 10% of Europe’s port capacity. Doing business with such a group is a reality, not a choice.

And the potential benefits of the Hamburg deal cannot be ignored. The port operators have not only strengthened their relationship with Cosco, but also fended off competition from neighboring ports in Antwerp and Rotterdam, both of which serve a large part of Cosco’s European business.

The details of the deal also show that Chinese influence can be mitigated. The agreed investment does not grant Cosco any managerial authority in the port itself. In fact, Cosco has only acquired a minority stake – 10% less than originally agreed – in just one of the port’s three container terminals.

This not only reflects the cleverness of the German economy, but also of the government. Scholz’s junior coalition partners exerted enough political pressure to negotiate Cosco’s original proposal for a 25 percent stake in the port.

Whether this can defuse the split in the government is another matter. That Scholz had to be forced into a more modest deal shows just how great the pressure he is under. An uneasy truce appears to have emerged between the coalition partners, but given the strong feelings on all sides, it seems unlikely this will be the last time Scholz will be forced to hold his positions on China accountable.

This article was republished by The Conversation under a Creative Commons license. Read the original article.

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Benjamin Barton does not work for, consult with, hold an interest in, or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations other than her academic appointment.

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