After months of negotiations since the 26th September Federal Parliamentary Election, the parties SPD, Greens, and FDP unanimously agreed to form a coalition government (known as the Traffic Light Coalition) and elected Olaf Scholz as the new chancellor of Germany in December last year. The first- ever three party coalition government in German politics succeeded in negotiating various policies with regards to minimum wages, climate change, infrastructure, COVID-19 pandemic, etc. The agreed policies in the Coalition Agreement became the ruling coalition’s major goals for the next four legislative years. Despite the many promises of change in domestic policies, will there be the same change to German foreign policy particularly towards Asia? Will Olaf Scholz’s Traffic Light Coalition maintains Angela Merkel’s friendly foreign policy or alters it? If so, is it good or bad? Does this change also affect countries like Malaysia?

As the new chancellor, one of Olaf Scholz’s biggest challenges is to determine the direction of German foreign policy towards Asia. Germany faced difficulty in balancing its interest between remaining a loyal ally of the US (within the framework of NATO) and at the same time maintaining beneficial economic relations with China. Supporting Washington means cutting off economic relations with China, while siding with Beijing could undermine the transatlantic alliance with the US. The dilemma arises when Berlin cannot afford to lose both interests at all. China has become Germany’s largest trading partner even surpassing the US since 2016. Based on Destatis 2020 report, total trade between both countries reached more than €213 billion with motor vehicles representing Germany’s largest export. The intricate economic dependence between Germany and China had made the bilateral relations between both countries “complicated” as Angela Merkel described it.

Olaf Scholz’s predecessor, Angela Merkel’s biggest foreign policy achievement during the 16 years of her chancellorship was threading a careful balance between those two interests without antagonizing either side. Change through trade or Wandel durch Handel was the approach that Merkel administration adopted (led by Merkel’s predecessor, Gerhard Schröder) when dealing with China. The belief was a democratic change within the Middle Kingdom can take place with the burgeoning economy of the middle class as a result of robust international trade. For a long time, the German government was reluctant to critic Beijing’s actions openly concerning the human rights issues in Xinjiang and Hong Kong together with its aggressive behaviour on Taiwan and at the East & South China seas disregarding the international law.

However, Germany could not maintain such a policy in the long run. The US hostile approach towards China is pressuring Berlin to change its Asia policy. Washington’s realist zero-sum strategy of decoupling everything from China like banning Huawei 5G technologies from the US, limiting Chinese companies access to key technologies (e.g. semiconductors), imposing tariffs on Chinese goods, and forming strategic security partnerships across Asia like the QUAD and AUKUS to contain the Middle Kingdom does give Berlin a headache to deal with its oldest ally. The US also pressured its allies to adopt similar policies towards China. The cost of saying no to Washington is too high for Berlin to bear. Germany may face further exclusion in any important diplomatic or economic manoeuvres that Washington made in the future (Remember, Washington created AUKUS without any participation of European countries except the UK).

Other than the US, Berlin also took into account the changing attitudes of China. Economy is a major factor that shapes the Sino-German relations. The Middle Kingdom’s hegemonic aspirations to become a “manufacturing superpower” in the coming decades came into conflict with German economic interests. China aims to reduce its dependence on foreign technology and dominate the high- tech manufacturing industries through Chinese state-driven enterprises. Beijing began with tightening the grip over its national economy by implementing a variety of discriminatory measures on foreign companies such as restriction of market access, forced technology transfer, and forced trade data disclosure. This became a major concern for German companies especially the Mittelstand (the small and medium enterprises), began to question the viability and profitability of venturing business in China for the longer term. The Federation of German Industry (BDI) even labelled China as a “systemic competitor” in its 2019 policy paper.

Facing increasing difficulty of doing business in China, German companies adopted the “China+1” strategy to diversify and restructure their supply chain to other alternative markets around Asia with Southeast Asia on top of the list. The COVID-19 pandemic also reinforces the urgent need to do so. If counted as a single trading block, the ASEAN is the second-biggest trading partner of Germany in Asia after China with bilateral trade value standing at €50 billion in 2020. Besides having a large pool of young educated population, ASEAN states also possess a stable political climate and integrated economic framework (e.g. the ASEAN Economic Community), factors which attract the interest of German businesses to invest there. Pressure is mounting on Berlin to adopt some sort of policy to deal with the challenging realities of China’s rise and the readjustment of German economic interest in Asia.

These pressures were resolved in September 2020 with the publication of “Policy guidelines for the Indo-Pacific”, a strategic plan that outlines how the German economy and foreign relations will be diversified in the Indo-Pacific region. This policy also goes hand in hand with the EU Indo-Pacific policy. Interestingly, this document emphasized the importance of ASEAN to counter China’s rising influence and assertiveness in Asia. Germany recognizes the effectiveness of ASEAN institutions and frameworks for promoting multilateral cooperation and a rules-based international order in the Indo-Pacific region. Targeted areas of cooperation with ASEAN include deepening of trade and investment relations, expanding security policy cooperation, promotion of human rights, climate change, etc. Although the document was suspected of targeting China, Berlin was subtle in its language emphasizing the “Freedom of choice” for not choosing sides in a geopolitical rivalry in the region. Instead opting to cooperate with Indo-Pacific states and regional organizations like ASEAN.

The Indo-Pacific policy can be seen as an enhancement of existing German political engagement in Asia particularly with ASEAN. Since 2016, Germany had served as ASEAN’s Development Partner, supporting numerous ASEAN programs. Currently, Germany supports ASEAN development projects worth more than €131 million, making it the largest donor within the EU. As of 2020, Germany acceded to ASEAN’s Treaty of Amity and Cooperation and during its Presidency of the Council of European Union, ASEAN has upgraded the EU to a strategic partnership. In August 2021, Germany even decided to deploy the frigate _Bayern_ to Asia as a means to bolster its presence in the region. The frigate’s mission includes holding joint naval exercises with its partners, monitoring UN sanctions against North Korea, and supporting freedom of navigation missions in the high seas (especially in the South China Sea). The frigate deployment signals Berlin’s serious political and to a certain extent military commitment to shaping the future of the of the Indo-Pacific region.

A new government in Berlin will not change the Indo-Pacific policy. Olaf Scholz had pledged a commitment to continuity of Merkel’s policy. This means German foreign policy will not see a drastic change under his leadership albeit with some modifications concerning China. According to the Coalition Agreement, China was labelled as “systemic rivalry” (adopting earlier calls by BDI) and promises were made for further scrutiny in the Sino-German relations concerning the issues of human rights, investment, and trade. The appointment of Annalena Baerbock from the Greens as foreign minister further complicates the matter. It is noteworthy that the Greens have consistently been the most vocal critics of China in the governing coalition. How about ASEAN? The Traffic Light Coalition agreed on the need to deepen the EU-ASEAN multilateral cooperation. In this matter, the new ruling coalition is in favour of continuing the existing Indo-Pacific policy with regards to ASEAN.

Hence, where does Malaysia stands regarding this German policy? One similar stand that both countries share is the “Freedom of choice” for not choosing any side. Like Germany, the Malaysian economy too is dependent on China. In this matter, both countries believed the importance of multilateral approach of regional organizations like ASEAN and the EU in facing the US-China geopolitical conflict in the Indo-Pacific region. Respect for the ASEAN Centrality and its institutions becomes the rallying point for Malaysia and Germany to maintain their “strategic autonomy” and economic interests from becoming the victims of great power struggle. Germany and the EU shift to the Indo-Pacific region can become Malaysia and ASEAN’s advantage (the EU already became a strategic partner of ASEAN in 2020). Both sides could cooperate to develop some sort of multilateral agreement or confidence-building measures to address the security issues in Southeast Asia like sponsoring ZOPFAN 2.0 as mentioned by Amitav Acharya, a Distinguished Professor of International Relations at American University, Washington D.C.

Besides political cooperation, Malaysia could also benefit economically from the German policy. German businesses began to see Malaysia as an attractive market for their diversification strategy in ASEAN as mentioned earlier. According to the Malaysian-German Chamber of Commerce & Industry (AHK Malaysia), Malaysia’s favourable investment environment that possesses stable legal conditions, rule of law, and transparent administration & bureaucracy became the pulling factor for German companies to invest in the country. Even the German ambassador to Malaysia, Dr. Peter Blomeyer admitted that he had received an influx of requests from German companies for reviews of Malaysia for investment. The latest decision by Porsche AG to build an assembly plant in Kulim, Kedah is a testament to Malaysia’s potential as an investment hub in ASEAN. Not to mention in the Indo- Pacific policy, Germany also supported the resumption of the EU-Malaysia free trade agreement to deepen the trade relations between the EU bloc and Malaysia in the future. Malaysia was the second- biggest trading partner of Germany in ASEAN totalling over €13 billion in 2020.

In conclusion, the new government in Berlin will maintain the foreign policies created by Merkel’s administration especially the Indo-Pacific policy. The ultimate aim of the policy is to maintain an autonomous course of action without taking sides in any geopolitical conflict to protect German economic interests in the Indo-Pacific region. Multilateralism is the key to the German Indo-Pacific strategy with regional organizations like ASEAN playing the central role. Malaysia and ASEAN should welcome this European shift and together cooperate to face the geopolitical challenges in the wider Indo-Pacific region.

The writer is a Graduate student at the University of Hamburg, Germany and contributing writer for Arthos Sdn. Bhd.