Olaf Scholz backs China, ignores government warnings in Hamburg port deal

Scholz's chancellery is pushing to approve efforts by Chinese state-owned shipping giant Cosco to buy a foothold in a container port in Hamburg, ignoring warnings from six federal ministries, including the Greens' Vice Chancellor Robert Habeck, amid fears of risky economic over-dependence on Beijing. The German regional public broadcasters released this information this week.

According to Politico, in the struggle for energy independence from Russia Germany shifts more attention to the depths of its interlocked trade relationship with China that gives Beijing massive leverage over Berlin. Under the terms of the Cosco deal, first agreed in September 2021 and subject to regulatory approval, the company would secure a minority 35 percent stake in the container terminal at Tollerort, one of three such sites inside the sprawling Hamburg complex.

The acquisition is part of a broader strategic gambit by Beijing to gain control over infrastructure critical to its globe-spanning Belt and Road trade initiative, a network of transport connections intended to link China's factories with rich Western markets.

Cosco already owns stakes in Europe's two largest ports at Rotterdam and Antwerp, while it also controls the port of Piraeus in Athens and is behind a scheme to expand an inland rail terminal at Duisburg where the Ruhr and the Rhine rivers meet and which is a focal point for overland freight arriving from China's industrial hubs.

A stake in Hamburg, Europe's third largest port, is just another piece in that puzzle for Beijing, and many don't like it. The logic of encouraging Chinese investment is that those ports would then be favored by Chinese shippers that take their business there. That sparks a race among Northern European ports to come to arrangements with the Chinese.

Habeck, whose economy ministry is overseeing a review of the deal under an investment screening process, has repeatedly said Germany is rethinking its overall trade policy with China. "I'm leaning towards the fact that we don't allow that," Habeck said about the Cosco deal.

According to the report out Thursday, Habeck's ministry has been trying to get the issue on the agenda of a federal Cabinet meeting in order to formally oppose Cosco's port acquisition.

However, Scholz' chancellery has instead demanded that the ministries draft a compromise that can be approved as the clock ticks down to an end-of-October legal deadline for the government to make a call.

"If the government does not pass a resolution to prohibit the transaction before the end of the deadline, the transaction is legally deemed cleared," said Kai Neuhaus, a Brussels-based lawyer and expert in investment audits of the law firm CMS.

That would give Scholz a piece of good news to present during his planned trip to Beijing scheduled for November 3 and 4.

A government spokeswoman said the chancellery does not comment on ongoing investment review proceedings, citing business and trade secrets.

Port call

Scholz ran Hamburg, one of Germany's richest states, as mayor for seven years until 2018, during which local trade with China boomed. About 30 percent of the container goods handled in Hamburg come from or are sent to China, according to port operator Hamburger Hafen und Logistik (HHLA). Locally, Scholz' Social Democrats are in favor of getting the Cosco deal done, arguing it will lead to extra investment in the terminal and create jobs.

"This is in the tradition of provincial politics, doing a favor for the city-state of Hamburg above the national interest," said Reinhard Bütikofer, a prominent Green MEP who has long been hawkish on China. He said the issue was about national security, and called efforts to stymie discussion of the deal within the Cabinet "extraordinary."

But Hans-Jörg Heims, a HHLA spokesman, said that the issue had been unduly politicized, emphasizing that China wasn't buying a stake in the port itself but rather investing in a part of a company that ran the terminal.

Cosco would have no access, for example, to internal IT systems and won't own land, Heims said, and would only have one of three managing directors. "They're pursuing token politics," he said of opponents to the deal. "I am just concerned about the hundreds of jobs that depend on this."

No veto

Still, there remain serious concerns over the degree to which China's state-backed companies are involved in critical German infrastructure with the port just one part of a discussion that also includes critical telecoms infrastructure. Earlier this week, Bruno Kahl, the head of the BND, Germany’s foreign security service, warned against the country becoming "painfully dependent" on China during a Bundestag committee debate on foreign investment. "We are very, very critical about the participation of China in critical infrastructure," said Kahl during the session.

Despite these concerns, Heims from the HHLA said the federal defense and transport ministries had not decided to veto the investment. The transport ministry said it would not comment on the issue, while the defense ministry did not immediately respond to a request for comment.

The European Commission, which is also skeptical of the deal, said it would not "comment on individual transactions for confidentiality reasons."

One pressing argument in favor of the deal is that without Chinese investment, Hamburg will be at a disadvantage against its larger, already partly Chinese-owned North Sea neighbors when it comes to attracting business in future. "Our competitors Rotterdam and Antwerp will be very pleased if this deal falls through," Heims said.