“It’s as if the German economy is paralyzed,” said Timo Wollmerhäuser, an economist with the Munich-based Ifo Institute, one of Germany’s leading economic think tanks. “The mood is poor and insecurity is high.”
Against that backdrop, Scholz’s China trip carries more than a hint of desperation. Even if China were to open its doors to more foreign competition and halt its price dumping practices in Europe, the Chinese economy is not the growth powerhouse of yore. A property crisis and overcapacity in key sectors have left China’s economy on the ropes.
More worrying for Germany is that China no longer needs the machinery and other highly engineered capital goods that drove German export growth to the country in recent decades. That’s not just due to weaker demand; Chinese companies have largely caught up with their German competitors, making the country less dependent on imports.
Those trends have some politicians, especially among the China-critical Greens, arguing that Germany should move to extract itself from China. A major break with China would shrink the German economy by about 5 percent, according to a recent study by the Kiel Institute, on par with the downturn Germany experienced in the wake of the 2008 financial crisis or the COVID pandemic. In other words, it would be brutal, not fatal.
“Our country has enough resilience to manage even such an extreme scenario,” Kiel’s Schularick said.
Braving that storm is easier said than done, however. What’s more, Scholz can ill afford afford a further erosion of Germany’s business links with China at a time when his country’s economy is already struggling.