Mature policy approach

Germany's 'principled realism', which rejects any notion of decoupling from China, is recognition that cutting connections would enhance neither security nor prosperity

German Chancellor Friedrich Merz arrived in Beijing on Feb 25 for his inaugural official visit to China since taking office, accompanied by a 30-member senior business delegation — the largest to travel with a German chancellor since the Angela Merkel era.

The two-day trip breathed new life into two pivotal bilateral mechanisms: the Sino-German Industry Forum, convening for the first time since 2018, and the Sino-German Dialogue Forum, resuming after a hiatus since 2019.

The bilateral trade volume has consistently surpassed $200 billion annually, with the stock of two-way investment exceeding $65 billion. These robust figures underscore the strong and resilient foundation of the Sino-German economic relationship.

Merz's visit came against the backdrop of pressing structural challenges confronting Germany's manufacturing-driven economy. German exports to China have contracted by 23 percent since their 2022 peak, with automobile exports experiencing a steep 66 percent decline. Compounded by severe layoffs in the German auto sector — far more severe than those recorded during the global financial crisis or the COVID-19 pandemic — these trends have sparked growing domestic concerns about the risk of deindustrialization if decisive and practical countermeasures are not taken.

While Merz refrained from dwelling on China during his recent address at the Munich Security Conference, he articulated his diplomatic vision in an article, emphasizing a commitment to managing relations in a "more mature fashion" through the lens of "principled realism". Writing that "Germany is also updating its relationship with China", the chancellor explicitly rejected economic separation: "It would be a fallacy to believe that decoupling is the right path. Decoupling would enhance neither our security nor our prosperity." Instead, he outlined a strategy centered on targeted de-risking and fair competition, noting that Berlin will "engage in dialogue with Beijing with 'principled realism', mindful of the fact that China is here to stay as one of the great powers shaping the new era".

"Principled realism" from Merz conveys subtle yet granular meanings. The "realism" component signals that Germany must acknowledge and respect China as a global economic powerhouse. The sheer scale of Sino-German trade and investment volumes stands as an unspoken testimony to the deep interconnectedness of the two economies. The "principled" element, by contrast, underscores the emphasis on a level playing field, transparency and fairness — core values that qualify and temper this realism. Unlike political figures such as French President Emmanuel Macron and European Commission President Ursula von der Leyen, who have warned of reducing China's access to the European market unless concerns regarding trade imbalances and industrial capacity are addressed, Merz is far more inclined to "promote" the "partner" pillar of the EU's economic security strategy than the protectionist "protect" approach favored by Macron. While he has backed targeted EU measures to shield the steel industry, Merz has so far resisted embedding protectionist local-production mandates in new electric vehicle subsidy schemes — diverging from the policies pursued by both France and the United Kingdom.

Ultimately, Berlin appears to recognize that the most pragmatic response to shifting global market dynamics lies in enhancing its own domestic competitiveness rather than retreating behind the false security of trade barriers.

On the "principled" dimension, a German official close to Merz revealed that given the structural similarities in their manufacturing-based economies, the Sino-German industrial dynamic presents more complex challenges and deeper production overlaps than China's economic ties with the UK or Canada. A new study by Roland Berger, commissioned by CLEPA, the European association of automotive suppliers, highlights that European automotive suppliers could face a cost disadvantage of up to 35 percent compared to Chinese competitors and warned that 350,000 jobs in Europe could be at risk over the next five years. At the same time, Germany's global market share has shrunk while China's has expanded across a wide range of sectors — from chemicals and power-generation equipment to machinery, electrical equipment, road vehicles and other manufactured goods.

The "principled realism" approach does not mean alienating the United States, nor does it represent a full-on turn to China. Against the broader geopolitical backdrop, the US is actively pressuring its allies to join a critical raw materials alliance squarely aimed at countering China.

On Feb 4, the US administration hosted the inaugural Critical Minerals Ministerial in Washington, DC, seeking to lay the groundwork for a new international trade bloc designed to challenge China's established position in global supply chains. The US' ambitious goal is to finalize a framework agreement by April.

Although the ministerial drew delegations from more than 50 nations and regions — including the EU,Japan, the Republic of Korea, India and Australia — the initiative has met with palpable resistance. Several European officials have voiced profound reservations regarding both the aggressive timeline and the practical feasibility of the US proposal. Furthermore, transatlantic frictions are exacerbated by unresolved, peripheral disputes, such as assertive US posturing toward Greenland. Notably, Denmark, which oversees the mineral-rich autonomous territory of Greenland, did not attend the gathering.

To close on a more optimistic note, following Chancellor Merz's visit to Beijing, he and 30 senior executives from Germany's leading companies — including Volkswagen, Siemens, Bayer and Airbus — arrived in Hangzhou, one of China's most vibrant and innovative cities, on Feb 26. The delegation was warmly received at Unitree Robotics and left deeply impressed by the steady, precise movements of humanoid robots performing boxing and martial arts routines. DHL executive Tobias Meyer remarked: "It was a good exchange on what more we can do together in the current global economic environment." Dozens of signed agreements ranging from cars, machinery, energy and logistics to finance are testament to that.

In an era of uncertainties, Merz's visit has undoubtedly demonstrated Germany's wish to do more with China and reaffirmed that stable, mutually beneficial Sino-German relations serve the interests of both countries and contribute to global economic stability. China has consistently advocated win-win cooperation based on mutual respect and equality. It welcomes Germany's emphasis on pragmatic dialogue and its clear preference for partnership over confrontation. Merz's visit, built on the solid foundation of longstanding Merkel-era mechanisms, provided valuable opportunities for both sides to learn business practices from each other and address concerns — including trade imbalances and industrial competition — through candid communication and practical collaboration, rather than protectionist barriers or bloc politics.

The author is an assistant professor at the Institute of International and Regional Studies at Zhejiang University of Technology and a researcher at Zhejiang Center of Public Opinion Research. The author contributed this article to China Watch, a think tank powered by China Daily.

The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.