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Germany's new China strategy delayed by policy differences - sources

G7 Summit in Hiroshima

By Andreas Rinke

BERLIN (Reuters) - A new strategy for Germany in its dealings with China faces delays over policy differences within the government, and it will not be in place in time for bilateral talks on June 20, three sources told Reuters.

Chancellor Olaf Scholz's government last year ordered a rethink on how Germany interacts with China, its biggest trade partner but also viewed by Berlin as an increasingly assertive competitor and strategic rival.

At a meeting of the wealthy Group of Seven (G7) nations in Japan last weekend, Scholz said major investment would continue to flow to China even as governments sought to pare risky exposure to the world's second-largest economy.

But Germany will only publish its China strategy once Scholz's coalition has unveiled a wider national security review commissioned after the war in Ukraine and which the sources said is still being finalised.

Sticking points on the broader security strategy include questions on arms exports and on whether Germany should launch cyber counterattacks on entities after its institutions are hacked, the sources said.

It is expected to come before the cabinet on June 14. "We can't have a China strategy just six days later," one of the sources said.

Scholz's coalition is also thrashing out differences over the China review. The foreign affairs and economics ministries, led by junior partner the Greens, favour more restrictive economic relations.

Economy Minister Robert Habeck has spoken in favour of screening the investment of German companies doing business in China to protect the flow of sensitive technology and know-how.

Scholz meanwhile wants to push through an investment by the Chinese state shipping company Cosco into a container terminal in Hamburg, considered a strategic asset.

Asked about the delays, the leader of the main opposition CDU party, Friedrich Merz, said it damaged Germany's reputation and said Scholz's trip to Beijing last year - the first by a G7 leader since the pandemic - had been premature.

"If the German-Chinese government consultations take place without a coordinated concept, the government will make the same mistake," he said. "You stumble into a government consultation without a coordinated strategy within your own ranks."

(Writing by Matthias Williams; editing by John Stonestreet)