Germany’s Faustian Bargain With China

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Germany’s Faustian Bargain With China

In allowing Huawei to bid for Germany’s 5G development, Merkel has departed from broader European strategy.

Germany’s Faustian Bargain With China

In this Sept. 26, 2018, file photo, signs promoting 5G wireless technology from Chinese technology firm Huawei are displayed at the PT Expo in Beijing.

Credit: AP Photo/Mark Schiefelbein

Chancellor Angela Merkel’s decision to allow Huawei to take part in Germany’s 5G bidding procedure has exposed a deep divide between Europe’s leading nation and the European Commission. Has she struck a Faustian bargain with China, pursuing business and markets for Germany in the short term at the cost of regional integration and commitments to international security in the longer term? Or is she simply muddling through, with the immediate interests of German business as her main compass?

Some in Germany have decried a “Germany First” approach and questioned Merkel’s ability to lead. The so-called “Merkeling” approach of avoiding tough decisions on China while trying to keep German business leaders happy is also encountering resistance from the German intelligence services and the Bundestag, including members of Merkel’s own party. The Huawei debate in Germany has even made it to the pages of the popular tabloid Bild. Jochen Bittner in an New York Times op-ed declared that Merkel “shows little resolve to steer country through new era of staggering change.” And “now has no problem with the risk of letting a dictatorship take hold of Germany’s digital backbone.”  One of Germany’s top journalists, Mathieu von Rohr, marveled at Merkel’s geostrategic myopia and openly questioned whether she was fit to lead.

But not everyone in Germany is taking down Merkel. An influential business consultant told me in an interview last week in Berlin that she thought Merkel’s move on Huawei was “an act of bravery.” According to her, the future for Germany was with China and their ability to innovate. She opined that, “President Trump’s unpredictability gave Germany no choice” and fueled Merkel’s decision. German industry does not want to miss out on collaborating with China’s innovative tech sector.

The Trump administration’s lack of clarity on China policy as well as past reversals on positions, for example on ZTE, has encouraged some German decision-makers to hedge their bets on Washington as they make deals with Beijing. No one wants to be seen as against Huawei if the Trump administration later reverses its position on the company or decides to use it as a bargaining chip in the trade war. 

In September, Merkel clocked her 12th visit to Beijing since she became chancellor back in 2005. The Hong Kong protests, increased tensions in the South China Sea and growing evidence of massive human rights abuses in Xinjiang did not dissuade her from signing deals on her visit. Although she did make a comment about Hong Kong, she remained mute on Xinjiang. Analysts have pointed out that during this trip Chinese officials brought up Huawei. Perhaps a combination of anti-Americanism, growing concerns about the slowing world economy, and the economic leverage that Beijing has over Berlin combined to convince Merkel to embrace Huawei.

EU-China: A Strategic Outlook

It was a German Federation of Industry (BDI) report on the “long-term challenges that arise from the competition between economic systems,” published at the beginning of this year, which appeared to influence Brussels’ position toward Beijing. The term “systemic rival” appeared to be directly lifted from the report and added to the “EU-China: A strategic outlook” policy paper from the European Commission and the EU High Representative for Foreign Affairs and Security Policy. The commission’s paper urged a tougher stance on China.

The paper was published shortly before the EU-China annual summit, held this year in April, and yielded a great deal of ink on how Europe (like the United States) was also getting tougher on China

What was missed by just about everyone who wrote about the new era of EU “wokeness” on China was that the much ballyhooed list of tough actions, though welcomed by the Council of Foreign Ministers of EU Member States, never received the endorsement of the European Council of Heads of State and Government of the EU Member States — which meant that the Heads of State and Government of the EU Member States could not agree on a tougher position on China. The paper had explicitly requested this endorsement.

In fact, decisions regarding Huawei are made at the national level and fall under the competence of individual EU member states. In the dawn of the current digital landscape, EU member states looked to the EU Commission for guidance. Through the “EU-China: A strategic outlook” paper, EU officials felt proud that they were offering EU members a helpful framework and useful guidelines to analyze and mitigate risk.

There appeared to be a positive momentum with the 5G Security Conference, held in Prague last May, which culminated in a series of recommendations called, “The Prague Proposals.” In October, the long awaited publication of the EU coordinated risk assessment of 5G network security was released. 

It was only two days after publication that Angela Merkel announced that Huawei would be accepted in Germany’s bidding procedure

In an interview in Berlin, a senior government official who spoke to me on the condition of anonymity due to the sensitivity of the subject suggested that, “It might have been better if Angela Merkel had at least consulted other EU member states even if it was pro forma before she announced her decision on Huawei.” 

Merkel’s move appeared completely tone deaf to the concerns of the European Commission. Coming from one of the leading economies of Europe, the move was widely interpreted as undermining the European Commission’s efforts to come up with guidelines for the whole EU. 

Since the “EU-China: A strategic outlook” paper identifying China as a systemic rival was based on a German BDI report, it is fair to assume that after the publication of the report and the paper China lobbied the German government, possibly offering better conditions for German business in China, to prevent the endorsement of the paper by the EU Heads of State and Government. Although other individual EU governments are also responsive to lobbying by China, the BDI report and the EU paper gave Germany leverage to obtain better conditions for its own businesses at the expense of a united front toward China at the EU level.

Perhaps the most worrying remark I heard from a senior German official was that there was a “new strategic factor” and an “actively less constructive approach” by Germany toward pooling sovereignty and integration, for the first time since the creation of the European Union. As the EU weakens and fails to create cohesion on pan-European digital policy, will NATO be able to fill the void?

Facts On the Ground

Huawei strategically partnered with Deutsche Telekom and other carriers in Germany for many years, which helped Huawei establish a hefty and persuasive presence in the German market. A German official noted that it was a race for the German government to keep up with “facts on the ground” as Huawei and their collaborators created testing areas and built up their network. By doing this they hoped to create a fait accompli by already installing Huawei equipment. 

Nonetheless, there are those that note that replacing Chinese telecom equipment would cost European telecom operators about $3.5 billion, as reported by industry research firm Strand Consult. This figure was far lower than the $62 billion estimate that the GSMA lobby group supported by Huawei cited.

NATO Needs Secure Communication Infrastructure

On October 25, NATO Defense Ministers “agreed an update to NATO’s baseline requirement for civilian telecommunications, including 5G. These requirements include the need for thorough risk and vulnerability assessments, including to identify and mitigate cyber threats, as well as the consequences of foreign ownership, control or direct investment.“ 

According to Secretary General Stoltenberg, NATO members need to make a thorough assessment of the risks to communications systems. Since 5G will affect all aspects of society from power grids, banking to even military operations — security needs to be a priority.  

At an AECA reception in Brussels on October 25, U.S. Ambassador to NATO Kay Bailey Hutchison, after delivering her prepared remarks, took my question on transatlantic relations and Germany’s decision to allow Huawei to participate in the government’s bidding procedure. She replied that, “We are worried about security because Chinese companies, everything has to be turned over to the government. We would like to see competitors enter the market.”

Along with Ambassador Hutchison, German officials have noted concern regarding the Chinese National Intelligence Law enacted on June 27, 2017. It calls for Chinese organizations and citizens to “in accordance with the law, support, cooperate with, and collaborate in national intelligence work”. The German press now refers to Huawei as a state run company, which may signal fears that the Chinese Communist Party could use Huawei for malign influence and data harvesting. Huawei could be asked to punish countries that disagree with Beijing by simply using a kill-switch to paralyze electrical grids, launch cyber-attacks, or conduct espionage. The “no spy agreement” discussed earlier this year between Germany and China would not be a realistic guarantee against this.

A senior NATO official told me that, “Germany, as well as other members, must think carefully about the future of a secure communications system. Will they be prepared to build and pay for another system for secure NATO communications? This added cost must be addressed in their current decision-making.”  

To borrow the title of Liao Yiwu’s recent book, Bullets and Opium, the bullets here refer to NATO and security and the opium is perceived China profits. For Berlin, there has been more emphasis on the dangerous addictive economic “opium” aspects of relations with Beijing and less on security and providing the “bullets” for NATO. Impending security decisions regarding Huawei will have a cost. Huawei is just the beginning of a much needed strategic discussion on German and EU policy toward China.

“Wunderbar Together”:  Thinking Outside the Box

Competition for 5G providers will make for less dependence on companies with ties to authoritarian governments. Efforts to support EU companies may offer longer term economic and security benefits. Quick action is needed as Beijing rolls out their new 5G commercial network in China and companies there are now reportedly working on 6G.

Fortunately, there is now some innovative thinking in Berlin. Since the United States does not offer a commercial competitor to 5G but can slow it down by controlling access to chips, the position of the Trump administration has been to champion European companies like Ericsson and Nokia. One German official I spoke with noted that “U.S. tech platforms were awash in cash, wouldn’t it be great if they invested or even partnered with them [European companies] in a new transatlantic 5G project?”  Now that truly would be “Wunderbar Together” (“Wonderful Together”).

Theresa Fallon is the founder and director of the Centre for Russia Europe Asia Studies (CREAS) in Brussels and a nonresident senior fellow of the Chicago Council on Global Affairs.