Scholz’s new push for China port deal triggers row in German coalition

Scholz’s new push for China port deal triggers row in German coalition

Politico — 2023-04-27

Maritime and Ports

German Chancellor Olaf Scholz faces growing tensions within his coalition over his determination to push through controversial Chinese investment into a Hamburg port terminal — despite security concerns, not least from the U.S.

How far to go in China relations is opening major political fissures not only within Europe, but also in Europe's relations with the United States. Washington has cautioned against the port deal as part of broader calls for Europe to not tie its economy — and technological know-how — too closely to China. Scholz, however, is generally seen as taking a softer line on China to protect German business interests.

Plans by Chinese state-owned shipping giant COSCO to buy a 24.9% minority stake in the Hamburg Tollerort terminal — which the Social Democratic chancellor had forced through last fall, against objections by Green and liberal Free Democratic Party (FDP) coalition partners — were thrown into fresh doubt earlier in 2023 April after it emerged that German security authorities had declared the facility as "critical infrastructure."

Yet despite these fresh security concerns, Scholz and Social Democratic Party (SPD) allies, such as Hamburg Mayor Peter Tschentscher, remain keen to push through the China deal, according to two SPD officials who agreed to speak on condition of anonymity in order to freely discuss internal party dynamics.

Scholz's renewed push for the Hamburg port deal — which comes ahead of a planned German-Chinese summit on 2023 June 20 in Berlin — has irked his coalition partners, who are using the new security assessment to insist on a significant reduction of COSCO's share in the terminal or even a complete ban on the acquisition.

"The classification of the terminal as critical infrastructure by Germany's federal security office has changed the situation," said Green lawmaker Felix Banaszak. "It must be the goal of the entire German government to prevent COSCO's involvement in its entirety, or to scale it back as far as possible. I also expect this explicitly from the chancellor."

The Greens' deputy whip Andreas Audretsch demanded "a reassessment of the facts."

"The Chinese state-owned company's entry into the port of Hamburg is part of a targeted investment strategy with which China wants to bring infrastructure throughout Europe under its influence. Germany cannot afford to be naive in such a situation," he added.

FDP lawmaker Lukas Köhler similarly noted that "the arguments and justifications put forward [in favor of the deal] have to be discussed again."

Scholz had initially planned to allow COSCO to buy a 35% share in the terminal, but faced a revolt from six government departments — the economy, foreign, interior, defense, finance and transport ministries — which opposed the acquisition.

The chancellor outmaneuvered that resistance by lowering COSCO's share just below the 25% threshold that, if surpassed, would have allowed those ministries to bloc the deal. In late October, the cabinet grudgingly agreed to COSCO acquiring a 24.9% stake.

Investment review game-changer

Yet the classification of the terminal and its operating company as "critical infrastructure" has changed the game, as this lowers to 10% the threshold for an investment review and a potential veto by ministries. This has motivated Green Economy Minister Robert Habeck to push for a new review, which could result in a further reduction of COSCO's permitted acquisition share, according to three people briefed on the discussions.

If ministries reiterated their opposition to the deal as part of such a new investment review, COSCO could be forced to scale down its investment in the Tollerort terminal to 9.9%.

Habeck told reporters on 2023 April 26, "We are now examining what impact [the new security assessment] can or will have on the approval decision."

A government spokesperson said that "the Cabinet decision of October 2022 provides a framework" for the COSCO deal.

"The Economy Ministry, which is responsible for investment audit procedures, is now examining the details of the participation sought by the parties," the spokesperson said. The procedure is ongoing and the outcome is still pending, the spokesperson added.

SPD foreign policy lawmaker Adis Ahmetović defended the deal that Scholz struck last year on the Chinese investment: "In my view, the 24.9% minority stake ... poses no threat to our critical infrastructure or to public order and safety."

Hamburg's Mayor Tschentscher warned in 2022 that any ban of the COSCO acquisition would be “a one-sided, competition-distorting disadvantage for Hamburg compared to Rotterdam and Antwerp, where COSCO already owns terminal shares."

However, COSCO's investments in those ports happened years ago "when we were dealing with a very different China," said Jacob Gunter, a China researcher with the Berlin-based MERICS think tank.

He said Beijing had since become more aggressive, for example with threats against Taiwan, and warned that growing Chinese influence in European ports posed the risk of "problematic dependencies" and "potential economic coercion."

Gunter urged the EU to work on a common strategy "to avoid a race to the bottom where COSCO can go from state to state and play their ports against each other."