De-Risking in Theory, Dependency in Practice: The Merz Beijing Delegation

You've been told Germany is de-risking from China. The delegation that flew to Beijing tells a different story — and the gap between the two is not hypocrisy. It is structural.

1. The Assumption

The official position, repeated across Brussels, Berlin, and a dozen policy documents since 2023, goes like this: Europe — and Germany in particular — is "de-risking" its relationship with China. Not decoupling. Not confrontation. A calibrated reduction of strategic dependency in critical sectors, while maintaining the commercial relationship where it is mutually beneficial.

De-risking, as defined by the EU, means reducing exposure in areas where supply disruption would be damaging — semiconductors, critical minerals, advanced manufacturing — without severing the broader trade relationship. It was explicitly designed not to be decoupling. That distinction matters, because it is also what makes it nearly impossible to measure.

2. The Inversion Test

Before examining what happened in Beijing, consider what de-risking would have to look like for us to know it was working.

It would require a measurable reduction in strategic dependency — defined in advance, tracked against a baseline, with thresholds that distinguish managed engagement from deepening exposure. No European government has published that definition. No European institution has agreed on what the data would need to show for the policy to be considered a success — or a failure.

Which means the more useful question is the inverse: if we cannot measure de-risking, what exactly is the policy for?

3. The Reality Check

The data that emerged just before Merz's visit told a story that does not fit the de-risking narrative. German investment in China reached a four-year high in 2025. Chinese exports to Germany increased while German exports to China dropped — widening a trade deficit that Germany already held.

But the standard trade statistics conceal a structural problem that runs deeper than the headline numbers suggest.

When a major German or European manufacturer produces "German engineered" products in a Chinese factory — for the Chinese domestic market, for export to third countries, and for re-import into the EU — the statistics do not distinguish between a German company generating profits in China and a German company transferring manufacturing competence to China that will not return. These are very different risk profiles. The first is a commercial decision. The second is a structural one, and it does not show up differently in the data.

The Cupra Tavascan — analysed in last week's autopsy — is the clearest current example: a European-branded EV, developed in Europe, produced in a VW-controlled Chinese plant, now re-imported into the EU under a negotiated tariff exemption. It will not be the last. As German car manufacturers extend combustion engine production in Europe to protect what remains of their domestic position, EV competence continues to be built and deepened in China (and the vertical integration across the EV value chain). The trade statistics record the transaction. They do not record what was transferred in the process.

This is not primarily a measurement problem. It is a strategic choice — to protect an obsolete position rather than build the next one. That choice has consequences that compound with each passing year, and no trade dataset currently captures them.

4. The Delegation as Data

Chancellor Merz arrived in Beijing leading a delegation that included the CEOs of Bayer, Volkswagen, Mercedes-Benz, BMW, Adidas, Siemens, and Commerzbank.

Before examining what was said, consider what was shown.

A delegation of this composition — Germany's industrial core, traveling together to Beijing — signals to China something specific: that the relationship is centered on preserving incumbent industrial exposure, not building new partnerships. Germany's industrial present was in the room. Its industrial future was not. The tech companies, the defense sector, the mid-sized exporters building in new areas — absent. The CEOs whose boardrooms have the largest vested interest in continued China access — present.

China reads this correctly. Regardless of what the Chancellor says in parliamentary speeches, the companies that actually generate German GDP have voted with their calendars.

The Merz visit came weeks into a renewed Trump tariff confrontation, shortly before a planned Washington visit. The sequence matters. Europe's largest economy, under a Chancellor who positioned himself as a transatlantic reliability candidate, travels to Beijing with its full industrial establishment. The message, intentional or not: Germany has options, and those options include Beijing. That reading is reinforced by a trade figure that has not received sufficient attention — China-Germany trade has now reached €251.8bn, overtaking US-Germany trade at €240.5bn. The US is no longer Germany's largest trading partner. For the first time since 2023, it is second. "Germany has options" is not a diplomatic posture. It is a data point.

Whether Washington reads this as leverage or as unreliability depends on who is in the room — and the current Washington is not known for nuanced readings of allied signaling.

5. The Contradiction That Cannot Be Resolved

Merz delivered formal statements on rule of law and political values during the visit. These statements are the diplomatic minimum — expected, recorded, and consequential in the sense that they establish a position. BMW's CEO Oliver Zipse, part of the same delegation, stated that cooperation with Beijing is fundamental and that closing one's mind to China's market and innovation potential means missing great opportunities.

That is not the language of de-risking. That is the language of deepening engagement. Both statements — the Chancellor's "principled realism" and the CEO's market optimism — were delivered in the same week, from the same trip.

The standard reading of this contradiction is that one side is performing, or that the gap between political rhetoric and commercial reality reflects bad faith. That reading is wrong, and it is also the easier one to dismiss.

The more accurate reading is structural: the dependency is already so deep that the cost of actual de-risking exceeds the political cost of rhetorical de-risking. German automotive employment, supplier networks, and municipal tax bases are genuinely exposed. The cost of actual reduction is not hypothetical — it is measurable in jobs and plant closures. The contradiction between "principled realism" and the CEO's market statement is not invisible to its participants. It is unsolvable at an acceptable political cost. Both sides know what they are doing. There is simply no viable path to walk the talk.

"Principled realism" is not the philosophy of the trip. It is the vocabulary available for describing a dependency that has already been decided.

6. The Second-Order Consequence Cascade

First-order effect: Germany maintains access to its largest trading market, buys time for its automotive sector, and signals geopolitical non-alignment in the US-China rivalry.

Second-order effect: each high-profile government-backed delegation reinforces Chinese confidence that European industrial capital will not follow European political rhetoric. The political cost of actually reducing dependency rises with every CEO that travels — because the commercial relationships deepen, the switching costs increase, and the number of German boardrooms with a vested interest in continued China access grows.

Third-order effect: the de-risking framework, already unmeasurable, becomes politically untouchable. Any government that tried to enforce it would face immediate opposition from the same companies that traveled to Beijing this week — with the implicit support of the previous government's endorsement of the same trip.

"The advice worked. That's why they failed."

Applied here: the diplomatic engagement works, the business relationships deepen — and the structural dependency that de-risking was meant to address becomes more entrenched with each successful visit.

7. What This Means Beyond Geopolitics

The Merz visit is not an anomaly. It is a template.

Any time a system — a government, an industry body, a large institution — announces a strategic reorientation while the structural incentives point in the opposite direction, the gap between the stated policy and the actual behavior is not a sign of failure. It is the policy. The rhetoric manages the political cost of a dependency that cannot be exited. The commercial relationships service the dependency itself. Both run in parallel, and both are necessary to the system's functioning.

For founders operating in regulated or politically embedded sectors, the practical implication is this: when the official framework and the revealed behavior diverge, do not assume the framework will eventually win. The framework exists, in part, to absorb the pressure that might otherwise force a real change. Read the incentive structure, not the policy document.

The same applies to investors underwriting exposure in sectors where geopolitical rhetoric is running ahead of commercial reality, to executives making decade-long supply chain commitments under the assumption that de-risking will remain aspirational, and to anyone building a strategy on the premise that stated institutional intent translates into institutional action.

The question is not whether the dependency is real. It clearly is. The question is whether the people inside the system — in Berlin, in Brussels, in the boardrooms of the delegation — have the structural freedom to act differently. The Merz visit suggests they do not. What it also suggests is that they know it, and have found the language to describe the constraint as a choice.

That gap — between what institutions say they are doing and what the incentive structure makes possible — is not unique to German China policy. It is one of the more reliable features of systems under pressure. Learning to read it is more useful than waiting for the rhetoric to catch up with the reality.

8. Open Questions

How would we know if de-risking is working — and has any European government defined what "working" looks like in measurable terms?

If German investment in China reached a four-year high in 2025 under a Chancellor who campaigned on de-risking, what would the data need to show for the policy to be considered a failure?

When the same trade statistics cannot distinguish a European brand's Chinese production from a Chinese competitor's product, what exactly is the tariff regime protecting — and against whom?

What does the delegation composition signal about which German companies have already decided their future is China-dependent — and which were not invited to the table?

If the US interprets Merz's Beijing visit as a signal that Germany prioritizes commercial relationships over transatlantic alignment, and responds accordingly in trade negotiations, who bears that cost — the CEOs who made the trip, or the broader German economy?

At what point does "principled realism" become the diplomatic vocabulary for a dependency that has already been decided — and what would it take to say that point has passed?

Is it possible that de-risking was never intended as a measurable commitment — and if so, does that make it a failed policy, or simply an honest acknowledgment, in indirect language, that the dependency cannot be exited at a tolerable cost?

Destruction Desk
We perform autopsies on innovation’s failed assumptions.

This newsletter was edited by Manfred Lueth.

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