Federal Minister of Economics and Vice Chancellor Robert Habeck of the Greens has announced a tougher trade policy towards China. After a meeting of the G7 economics ministers in mid-September, Habeck declared that the time for naivety towards China was over.
In May, Habeck refused the VW Group guarantees for investments in China. The news came as a shock to China.
For decades, the business of German companies was secured by investment and export guarantees.
If German companies want to trade or invest in China anytime soon, they are likely to do so at their own risk and are no longer supported by the German government and are likely to do so at their own risk. That said the China expert Tim Ruhlig from the German Society for Foreign Policy (DGAP).
He sees a change in the German government. The government no longer wants to offer German companies any incentives to expand their business in China. Ruhling revealed this to DW in an interview.
But that doesn’t stop companies from expanding their business in China. A study by Jürgen Matthews, economist at the German Economic Institute, showed that German industry invested around 10 billion euros in China in the first half of the year. The data was extracted based on a current figure.
Car manufacturers and drugstore companies in particular are still trying to gain a foothold in the Chinese market. Rhodium Group conducted a study in mid-September that revealed that Germany’s big four industries, including top automakers like VW, BMW, Mercedes and chemical giant BASF, collectively make investments that account for a third of direct investment in China.
Is the dominance of German industry in China overestimated?
The ten largest European companies contribute 80 percent to European investments. The data was released by Jörg Wuttke, President of the European Chamber of Commerce in China.
The other companies are not leaving China but are looking for alternative investments to increase their diversification.
However, the ten European companies are heavily dependent on China. He warns that companies are heavily dependent on imports of rare earths, precursors for the pharmaceutical industry and even photovoltaic systems.
He added that dependence on China for input materials differs from dependence on Russian oil supplies.
He said they have a pipeline with Russia for the supply of oil and gas, but with China they have a pipeline for toys, equipment and other essential goods. Ninety percent of these products are easily replicable elsewhere.
Around 3 percent of jobs depend on exports to China, which accounts for 1 million jobs. That is an impressive number, but over 45 million people are employed in Germany today.
The dependency on China as an export market is relevant, but not as great as is often portrayed in media reports at the macroeconomic level.
Still, many parties are pressuring the government to reconsider its relations with China. These include Germany’s new center-left government of Social Democrats, neoliberal Free Democrats and Greens.
Foreign Minister Annalena Baerbock told business leaders the country cannot afford to hope that the situation will not deteriorate after all these autocratic regimes.
The Green politician, whose main goal is a values-based and feminist foreign policy, announced the development of a new Chinese strategy as part of a new national security strategy.
He explained that the country needs to adopt what it has learned from Russia on the energy crisis.
The economy minister is looking at alternative options to meet the demand for input products instead of China.
State investments and export guarantees are being reassessed.
The federally-owned bank KfW is looking into cutting its China program and providing loans to companies in other Asian countries, including Indonesia.
The Federation of German Industries (BDI) has already discussed rules for dealing with the foreign trade policies of autocracies. The organization developed a concept of responsible cooperation in foreign trade policy and clear boundaries for any cooperation.
Government support and business protection for German companies in China must remain in place, and Chinese investments should be welcomed in Germany and Europe. The chief executive of the Asia-Pacific Committee of German Business has pushed this.
