Germany's Foreign Minister Annalena Baerbock said on Tuesday China posed a challenge to the "fundamentals of how we live together in this world" and Germany would work with mid-sized nations like Australia to de-escalate tension in the Indo-Pacific. German Foreign Minister Annalena Baerbock looks on during a press conference.(AFP)

In a video address to an Australian foreign policy think tank, Baerbock said Australia's experience of trade bans imposed by China had influenced Germany's shift in policy towards Beijing.

"China has changed, and that's why our policy towards China also needs to change," she told the Lowy Institute.

While China was a partner on climate change, trade and investment, it was "a rival when it comes to the very fundamentals of how we live together in this world," she said.

"What we see is the emergence of a world of increasing systemic rivalry, in which some autocratic regimes seek to bend the international order to increase their spheres of influence, using not only military might but also economic clout."

Numerous countries were pivoting to China because they lacked alternatives, and Germany wanted to change this, she said.

Germany would not promote new confrontation between blocs, but would diversify its trading partners and de-risk, she said.

"We learned painfully how vulnerable our one-sided dependencies on Russian energy imports made us. We don’t want to repeat that mistake," she said.

Germany wanted to establish direct supply of rare earths and lithium mined in Australia, but the "risky detour" most Australian lithium took to be processed in China needed to be reduced, she said. "Mining and processing is geopolitical," she said.

Australia, which produces half of the world's lithium, is seeking foreign investment to establish local processing; it also blocked two Chinese investments in rare earths companies this year.

Highlighting the economic importance of the Indo Pacific to Europe, Baerbock said half of all container ships pass through the Taiwan Strait.

"Any unilateral change in the status quo across the Taiwan Strait would be unacceptable, even more so if this were to include coercive or military means," she added.

Germany participated in the 13-nation Talisman Sabre military exercises in Australia last month, and opened its first Pacific Islands embassy in Fiji on Saturday.

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