Last year cemented the importance of Shenyang and the Chinese market for the Bavarian company. Several years ago, China overtook the U.S. as BMW's top market. In 2021, that gap widened, with China accounting for a record 846,237 BMW and Mini vehicles delivered. Those figures towered over the 336,644 units delivered in the U.S. and the 267,917 units in the company's home market of Germany.
When Chinese Premier Li Keqiang spoke with new German Chancellor Olaf Scholz by phone on Monday, he noted that the 2,000 Chinese companies in Germany and the 7,000 German firms in China will serve as "dynamic forces" that bind the two sides together.
But Germany's long held stance of Wandel durch Handel -- the hope that more trade would bring more change to China -- is facing a reality check.
How Scholz steers Germany's relations with China will determine how isolated Beijing feels on the international stage. His approach also holds a key to U.S. President Joe Biden's strategy of creating a united trans-Atlantic front against China.
Cracks already are appearing in the new German coalition over how to deal with the rising global power.
When Scholz's Social Democrats formed a coalition government with the Greens and the free market Free Democratic Party, the parties promised to pursue a values-based foreign policy highlighting democracy and human rights. It was seen as a departure from former Chancellor Angela Merkel's emphasis on commercial interests.
Foreign Minister Annalena Baerbock, a Greens co-leader who has a more advocacy-driven view on China, told reporters in Washington on Jan. 5 that while cooperation with Beijing is needed on climate change and the pandemic, values must be defended "in a steadfast fashion."
"As [the] new German government, we focus on the joint China policy and we focus on a close coordination between the EU and the USA, and we deem it to be pivotal and crucial," she said.
Yet Scholz made no reference to values, the human rights allegations in China's Xinjiang region or the deterioration of rights in Hong Kong during his Dec. 21 phone call with President Xi Jinping or his Monday call with Li. Instead, the chancellor said he "hopes that the EU-China investment treaty can come into effect at an early date," raising eyebrows among China watchers.
The investment deal was concluded at the end of 2020, but ratification has been put on hold by the European Parliament due to concerns over China's alleged human rights issues.
"All of the signals from Scholz so far are that he wants to deepen the relationship with China, including in the economic realm. This position is at odds with the views of his coalition partners," said Noah Barkin, an expert on Europe-China relations at researcher Rhodium Group.
"Based on the readouts of his calls with Xi and Li, Scholz has not fully bought into his own government's coalition agreement, which emphasizes human rights, the need for a more European approach to China and the balance between partner, competitor and rival," Barkin said. "In his public comments, Scholz has focused only on the bilateral relationship and the partnership aspect. In that sense, he is ignoring the core messages of the coalition agreement."
The Biden administration is eager to engage with the new German government. Secretary of State Antony Blinken visits Berlin later this week, where he will hold his third meeting with Baerbock in the six weeks she has been in office. The two foreign ministers then will be joined by counterparts from the U.K. and France for a meeting of the "Trans-Atlantic Quad," the State Department said.
Rachel Ellehuus, deputy director of the Europe, Russia and Eurasia Program at the Center for Strategic and International Studies, said it is unclear who is speaking on behalf of Germany.
"You hear one thing from the foreign minister and a different thing from the chancellor and another thing from the minister of defense," Ellehuus said. "There's a little bit of trying to pin the Germans down in going to Berlin and having such frequent meetings."
Under Merkel's leadership, "the most important aspects of foreign and security policy like China, Russia and [the] Nord Stream 2 [pipeline], as well as economic policy and integration with the European Union, were closely held by Merkel in the chancellery. Is that still the case with Scholz?" she asked.
At a joint news conference with Baerbock in Washington this month, Blinken said the immediate concern is Beijing's attempts to bully Lithuania.
"China is pushing European and American companies to stop building products with components made in Lithuania or risk losing access to the Chinese market, all because Lithuania chose to expand their cooperation with Taiwan," he said.
In December, it was reported that major German auto parts manufacturer Continental was pressured by China to stop using components produced at its state-of-the-art plant in Kaunas, Lithuania. The plant, which opened in 2019, produces electronic control units, including devices that control doors and seats.
"This isn't just about Lithuania, but about how every country in the world should be able to determine its own foreign policy free from this kind of coercion," Blinken said.
Despite the political baggage, many German companies in China seem to have no question where money is being made. In a business confidence survey released Tuesday, the German Chamber of Commerce in China and KPMG found that 71% of German companies in China intend to increase their investments there. Only 4% of the 596 companies that responded said they are considering leaving the country.
But Rhodium Group's Barkin said that German industry is divided on China.
"A handful of big German companies, notably the carmakers, are highly dependent on the Chinese market. But many German small and medium enterprises have struggled with rising compliance costs, IP theft and intensifying competition with favored Chinese firms," he said.
"What is sometimes lost in the dependence discussion is that China is reliant on Germany for foreign capital, technology and innovation. At a time of growing geopolitical tensions between China and the U.S., Berlin has leverage with Beijing. Its failure to take advantage of this leverage has been one of the main weaknesses in its China policy over the past years."
Ellehuus of CSIS said a change in Germany's China policy would be a big blow for Beijing.
"Germany still speaks for Europe, particularly on economic and fiscal policy," she said. "So if Germany moved away from an economic relationship with China or became much tougher in its stance towards China, that could potentially spill over into some EU policy. Germany is the bellwether for EU policy towards China."
But Germany never moves at lightning speed, Ellehuus said.
"You
can watch the statements of the [hawkish] foreign minister and her
interaction with the more pragmatic Finance Minister Christian Lindner
to get some indications about where Germany is likely to fall in this
balance between engagement and more competition with China," she said.