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Janka Oertel is one of Europe’s leading commentators on relations with China, these days in her role as senior policy fellow and director of the Asia programme at the European Council on Foreign Relations. Her recent book, whose title in English is The End of the China Illusion, calls for a rethink on both Germany and Europe’s approach to relations with the world’s second-largest economy. We discussed the book’s themes in a recent conversation: a lightly edited transcript follows.

Q: Your recent book’s title begs a couple of questions: firstly, what illusion relating to China are you talking about? 

A: There are a number of illusions, but the main one is that China just doesn’t want to become the way we wanted it to become. In Germany, we pinned a lot of hope on China remaining a good trading and business partner, but not becoming a challenge to our economy, to our security and stability, and to our internal democracy. We’re now at a crossroads where it’s becoming more and more apparent how that has become the case. That requires us to adjust, particularly in Germany, the way we have been dealing with China. But it has really big ramifications. It’s not just a bilateral relationship that has to be recalibrated, it questions our economic model, and the way we interact with other states. It questions the way we have thought about the world. 

It’s not just been a case of naivete: Greed has played a large role. We have benefited more than any other European state, from doing business with China. Yes, others have benefited from our business with China: the car supply chain doesn’t start and end in Germany, for example. But it’s important to say we have gained the most, and we have the most to lose, and that therefore there’s a great reluctance in Germany to not just say that things have changed, but to actually act upon it. 

That’s where the book comes in, because I wanted to inform the public debate: this isn’t a conversation for elite circles any longer. This is a conversation that needs to take place between citizens and their government about what the distribution of risk looks like if we take the China challenge seriously. Because if Germany’s economic ties with China weaken, there’s a cost potentially to jobs, to corporate profits, and so on. 

So there needs to be a public debate about the costs and benefits of the relationship with China? 

Your question insinuates that we have a choice, and that we can cut our relationship with China; and if we do, only then there will be real challenges and costs. I would challenge that assumption, because of the way that the Chinese leadership is operating right now, with its weakening economy, its low consumption levels and the high pressure to push further on exports — with the electric vehicle sector being a strategic industry that the Chinese government particularly is pushing into, exactly the sort of area where Germany has been strong in the past. 

There are serious conversations and plans being made within Beijing about alternative visions for modernity that we have to take on as they are.

That means we now face a triple whammy. We’re not only being cut out of the market in China in many industries; there’s also huge pressure on our own market from Chinese competitors and from Chinese competitors in third markets. That is going to have a transformational effect on the way we can run our economies here [in Europe]. 

And so it’s not that the German government can decide to act this way or the other; it’s a question of how we respond to the larger challenges that are actually there. Do we respond now, with some costs attached? Or do we drag this out, with some potentially even larger costs in the long run. 

With the Russia-Ukraine moment, we’ve seen how we could respond. We’ve seen that, for example, while building an LNG [liquefied natural gas] terminal would normally take eight years, well, guess what, it takes eight months if you really want it — but the cost is really high.

A lesson of [the Ukraine invasion] was that we cannot continue to rely, in critical parts of our economy, on authoritarian systems that want something very different from us. And it was also a lesson that actually, we can do something about this. The final part of the story is saying, maybe we don’t need to hit the wall first; maybe we can get to a point where we de-risk, where we adjust before we hit that wall, because frankly, the costs of doing that are likely going to be lower.

Is it really the end of the idea that China can change more in a positive way, or at least in the way that the West would like to see? 

I think the possibility of positive change was still alive until Xi Jinping took power.

David Rennie of the Economist once wrote a fantastic piece about the ‘disappointed doves’. I always love that framing for myself, because I’m certainly not what you would consider a classic China hawk. I wrote my PhD about China and the United Nations, and the huge potential that China has within the multilateral system. That one’s for the history books now. I came from a place of thinking of the enormous contribution that China’s intellectual wealth, its financial potency, its development power could make — all the good things there were that China could bring to the world. 

Well, it hasn’t developed that way. And under Xi Jinping, the trend is not for more opening: certainly not in the economic space, we see the reverse trend. We see large market barriers that have been erected, be they formal or informal. We see less space for civil society conversations, we see less freedom of expression. 

On the German side, there was a particular wish for positive transformation – “Wandel durch Handel”-style [change through trade]. With China’s entry into the WTO, it was clear that there were going to be difficulties. But it just seemed so good as a story: we can make money and at the same time, make China more like us. But China isn’t more like us now. There are serious conversations and plans being made within Beijing about alternative visions for modernity that we have to take on as they are. If we continue to maintain the illusion that this is just a transformation phase that will be over soon, I don’t think we’re going to arrive at the right policy conclusions.

So you see what’s happened under Xi as something that we have to assume is not going to reverse itself anytime soon?

Not any time soon, no. That’s probably as long as we can look into the future. 

Some of the repercussions are things that we will have to deal with in the next 12 months, such as the glut in EV production set to come into the European market. These sorts of things could [potentially] eradicate European industries in the next year to five years. So it doesn’t really matter whether China in 15 years will be different. We may not have the industries anymore then to compete. 

Germany came out with its long awaited China strategy earlier this year. What questions remain over how the German government is adapting its approach to China?

The strategy is really good in the analysis section. The German government, which is composed of really different parties, has proved capable of describing the reality of the kind of China that we’re seeing: one that we have to take seriously, not only as an economic but also as a security challenge. That is something which is new in this strategy, that has emerged clearly following the Russian invasion of Ukraine and China’s support for that. [The document] is pretty sober and pragmatic in terms of its analysis of the challenge that we’re facing. 

As regards the consequences it draws, that is still more mixed. This is where the real questions start: what do you do about it? The biggest critique that I have of the strategy is that it is too weak on the European front. It doesn’t talk about Germany taking the lead on steering Europe through this period. It’s more saying that Germany will support and not get in the way of European initiatives. 

But what it takes now is not national approaches, but very integrated thinking about what the European approach to de-risking, and to China should be. If we continue to think that we can solve this at the national level, we are going to fail. That’s the bit where it’s difficult for a government like Germany’s; it’s hard enough to find an agreement between [the government’s coalition members] the Social Democrats, the Liberals and the Greens. If you add the European dimension to this, then it becomes a nightmare. But it’s something that is really important now, as the next step in the implementation process: to think through how this strategy integrates with a collective European approach that doesn’t leave everyone mad at Germany. 

Where does that reticence stem from?

It stems from Germany still not really understanding how big it is. We would still like to be this massive Switzerland in the middle of Europe. And that’s just not where we are anymore. There is an expectation of leadership among the other countries. If we take five years to come to a conclusion on whether or not to exclude Huawei from the 5G infrastructure, when everyone else around us has made that decision quicker…if Spain outpaces you on this and Poland, then you probably have a problem on the German side. [Germany has yet to decide on whether to allow Huawei to be involved in building its 5G network.]

What is distinctive now about the EU’s approach to China, and how different is it from that of the U.S.?

What’s important is to distinguish between the things that we’re doing because the U.S. is forcing us to; and the things that we are doing that are exactly the same, and that we may even be doing jointly, because it’s in our interest. We have to stop behaving in a slightly adolescent way, not doing things that the U.S. would do, just because that would make us seem to be in line with the U.S. — despite the fact that this stuff may be actually in our interest. 

It’s more about the Europeans defining what they want and what their interest is: and where this overlaps with the U.S. interest, whether this can be reinforced through collaboration, or whether this can be done independently. Obviously, there’s a huge amount of thinking going on in Europe at the moment about what the future holds after the next U.S. election, and whether we will have to do everything ourselves anyway. But there is no great readiness to take on the responsibility needed for a real sovereign European agenda. There’s often a kind of ‘looking over the shoulder’ to see what the Americans are doing on various issues. 

In the past, there have been very different perceptions of [the China] threat. This is an area where Europe has moved quite a bit since the Russian invasion of Ukraine. This was the biggest gap between the U.S. and European analysis. The Europeans were in effect saying, it’s a security challenge to you guys, but not to us. It’s an interesting moment now because now we’re moving in [the U.S.’s] direction. 

And then obviously, there are areas where the U.S. has leverage over Europe to get certain things done. Whether or not it is in the long term interest of German and Dutch companies to have their products in the Chinese market, continuing to facilitate Chinese military advances, I think is a really good question. We often still have a very commercial view on this from the European perspective: a slightly more strategic understanding of where our concrete security interests lie would not hurt.

Where do you think German business is on China? 

One has to be very specific about what one is talking about here. The German mittelstand, its small and medium sized enterprises, woke up to the China challenge a long time ago. I continue to remind people that the first stab at calling China a systemic competitor came from the German Federation of Industries in 2019. 

So it’s painting with a very broad stroke to say that German business doesn’t like this [rethink on China], that’s just not true. German business is also rethinking because its market opportunities in China have come under pressure. There are a handful of companies, particularly in the car industry, that have a specific set of interests and an amount of lobbying pressure that it can exert on the German government. But to equate German industry with the German car industry is no longer correct. 

…if any country understands that one needs to take national security and a certain degree of strategic autonomy seriously, then that’s certainly China.

I understand why certain companies are saying, we did derisk inside China, we localized our supply chain, because that will help us in case there is a confrontation between the United States and China that spirals out of control: we can basically split our companies in half, we will have a U.S. supply chain and a Chinese supply chain, and we will be fine. Whether that is in the broader German or European societal or economic interest is a different story. 

On the other hand, there’s a lot of companies that have made questionable strategic decisions. If you’re the CEO of that company, what are you going to do? Are you going to say to your shareholders, I’m so sorry, I tanked 10 billion euros, or are you going to say no, this is all going to go well? We have to see where they’re coming from, having to defend business decisions that they’ve taken that I’m not so sure they will defend in 20 years time when they all come to write their memoirs. 

Staying with electric vehicles, [EU Commission President] Ursula von der Leyen has talked about a probe into China’s alleged unfair practices in this area. Isn’t this response a bit late, given that China has already built an enormous EV industry?

Is it too late, is a favorite question journalists like to ask. And I always say, what’s the alternative? So we’re just going to just kill the German car industry? Sure, we can do that, but I don’t think that that is necessarily in the German interest. 

It’s a really good moment to start using the tools we have: We already have legal tools that are not new and fancy, but that are good, old anti-subsidy and anti-dumping tools that we’ve had for a long time. This is what the EU is good at. Whether that’s going to be fast enough is really the big story right now, and is going to be incredibly substantial for the European industries.

For a company like Volkswagen, they are used to producing in Latin America, and North America for the American market, in Europe for Europe, and in China and Asia, for the Chinese and Asian market. We didn’t experience a China shock in Germany, because we just kept on growing the cake. We were selling more cars than we ever imagined we could sell because of the business in China. But that didn’t come at the cost of the car industry in Europe. That’s a different story from the American story and many others.

What we’re seeing now, with EV production moving to China, some of these cars are not being produced in Europe anymore, they’re produced in China only and then exported from China to Europe. This is where you lose jobs in Europe. This is a story that needs to be taken very seriously, about how the market is changing. 

But in a world where the U.S., with the Inflation Reduction Act, is offering massive support for green industries, is the EU simply whistling in the wind by saying to China, ‘you’ve got to conform to our free market practices’? Or is the right approach to say, ‘if you can’t beat them, join them, let’s launch our own subsidies and increase our investment in these areas?

That’s happening simultaneously. We are trying to enforce the rules, at least in our market, which is where we can do that best. But look at the investments that are being made on the German side, not just in the EV sector, but also think of the renewable energy sector. If you want your energy in the future to be produced predominantly by solar and wind, as we do in Germany, then it would be good if not all of that comes from China. That’s what we have learned. This is where investments from the state are being used to build up and shore up those industries and to defend them from unfair competition. 

This is something that the Chinese leadership also understands. There’s a lot of huffing and puffing about these questions. But in the end, there’s also compliance. Because if any country understands that one needs to take national security and a certain degree of strategic autonomy seriously, then that’s certainly China.

It’s important to say that not every Chinese investment in Europe is a problem. It is good if Chinese investors are creating jobs in Europe, it is clever if we have some of the solar panel production from Chinese companies in Europe. It needs to be a mixed bag, you can’t say there’s one silver bullet, this is the way we de-risk, this will always have different components. 

But the general understanding that dependencies that you cannot quickly diversify away from are a bad idea, is starting to take hold. It doesn’t mean that China can’t be part of the mix. But right now it doesn’t look like China wants a system where everything is nicely balanced, and the Chinese are just one part of it. At the moment, the Chinese economic strategy looks like the winner takes all, you take over and dominate certain sectors. This is the deliberate, designed strategy of Xi Jinping, and we need to take that seriously. 

What explains Beijing’s approach to Russia? Do you see any room to try to get China to assist in bringing the Ukraine conflict to some kind of conclusion?

Let me start with the last question, because the answer is easy: No, I don’t think we will see anything that is against Russian interests coming out of Beijing to end the conflict.

Again, there’s not a mono-causal explanation for what we’re seeing happening between China and Russia. It’s a relationship that has shifted massively since 2014: the Russian annexation of Crimea that year, and the Western response to it, seems to have shaped Chinese thinking quite a bit in terms of what are the kinds of sanctions that they have to think about, what kind of unity the transatlantic alliance can muster — what does one need to get ready for. And also since 2014, the Russians have had to turn to the Chinese and change their approach to their trading relationship, shedding some of their hesitation and the grudges that they may still hold about asymmetries that are becoming more apparent. So this relationship has been changing for quite a long time. 

For me, the statement on 4 February 2022, just before the invasion, was a wake up call to Europeans, but it didn’t find an audience. On the Chinese side, it was a signing off on a Russian plan for the future of the European security order — not some amorphous plan, but a a very concrete understanding of Ukraine coming under the Russian sphere of influence, and of the former Warsaw Pact states becoming a buffer zone where no NATO soldiers should stand any longer, and a push back against alleged NATO expansionism. This is where China made itself part of the European security conversation: And I think we should take that pretty seriously.

We should also take very seriously the fact that the current dynamic is enhancing China’s security, and has improved China’s strategic position. I understand that from the Chinese perspective: it makes a lot of sense to have a very dependent, weak Russia, that is absolutely no challenge to your vast border region, that has become a source of cheap resources, that has become a formidable market for your products: and that you can use for building leverage in a world where you need partners to fulfill the vision you have of pushing back against a Western dominated world order. From a Chinese perspective, it is perfectly logical. 

What is not logical is the Western response to this, to think that we could convince the Chinese that that is absolutely not in their interest. If we look at current trade figures, with China’s trade with the West basically going down, and with the rest of the world going up, it’s very indicative of where the trajectory is going. We have to take that on and stop living under the illusion that if only we make a better offer, this will all change. 

What are the implications for the situation around Taiwan? 

I don’t think it makes a Chinese invasion of Taiwan any more or less likely: It’s a bit of a silly understanding of how the Chinese system works to think that they are linking their biggest strategic question to a Putin-led Russia and its approach to Ukraine. 

But there’s obviously interesting lessons there. The Chinese system is very good at learning from Russian mistakes, be it the collapse of the Soviet Union or other matters. There is a clear understanding that if you want to do something like that, you better be ready militarily; you better be strategically aligned, you have to be resilient against sanctions, because they will come. You have to be resilient against potential export halts. You have to be resilient on food security, on energy security: we see all these measures being taken on the Chinese side. 

At the same time, it is important that you’re always able to blur the lines, make it not a clear cut case. That was the most difficult thing about the Ukraine invasion: it was so clear who was the aggressor, and who was the victim. You should make sure that you don’t have a charismatic leader that can communicate with the world and gather forces quickly. You make this quick and dirty, get the job finished in one fell swoop; or you make sure that communication of that sort cannot happen. That has political consequences, it has implications for satellite communication and for military buildup. 

…it is important to go and talk, because if we leave the conversation to a very small subset of people, we may get very distorted images on both sides of where we are in the conversation. 

But I don’t think it has changed anything about the timeframe. I do still strongly believe that the Chinese government is much more in favor of non-military means of taking control over Taiwan. That is still much more the desired outcome. But obviously, there are important lessons learned. We can see the joint maneuvers with the Russians in the Indo Pacific region that they dangle in front of our eyes — the message that seems to be that there’s no free lunch, the support that the Chinese are giving for the Ukraine invasion, is going to be demanded back when and if there is ever a contingency that they could be involved in.

You were recently in Beijing as part of what seems to be an opening up at least to the think tank community. What were your takeaways from the trip?

My main takeaway was that it is important to go and talk, because if we leave the conversation to a very small subset of people, we may get very distorted images on both sides of where we are in the conversation. It is very important that relevant communities on both sides engage with each other. But it is important that when we go to talk to our Chinese interlocutors to be very clear, for example, about the price that the close relationship with Russia has for the relationship with Europe. I don’t think that that’s necessarily a message that can be conveyed through other channels, this needs to be a conversation that also takes place between researchers on both sides: We can tell you this is what the costs are, you may still make all of the decisions that you want to: but we need to be clear that this is what the situation is, and that that may be different from the one that the head of a big German company may tell you. That’s the biggest value in this, honesty in the conversations. 

Did it feel like there was a change in mood from previous visits that you’ve made to China?

It was an interesting feeling of short-term pessimism, yet long-term optimism. There were no illusions about the current economic situation, yet there was still a lot of optimism about the long term trajectory of China. What was very striking is that the number of Western faces has never been so low. I do think we need to get those numbers back up.

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