Is Germany’s economy too dependent on China?

The Port of Hamburg, Germany’s largest seaport, is considered the country’s gateway to the world. Above all, however, it is a gateway to China, the port’s biggest customer. In the first half of 2022 alone, more than 1.3 million containers from China arrived here.

The Chinese shipping giant COSCO now wants to take a 35 percent stake in the port, and its operators would like that too. This would make the container terminal a first-class transhipment point in Europe for the world’s largest shipping company. But the Economics Ministry in Berlin has reservations and may not approve COSCO’s investment in the Port of Hamburg. The dispute over COSCO’s participation makes it clear how the rethinking of relations with China is affecting the German economy.

Germany’s dependence on Russian gas has proved a weak point following Russia’s invasion of Ukraine. This realization has prompted the government to reconsider the country’s relations with China. Around 5,000 German companies are currently active in China.

How do you deal with an autocracy that has been Germany’s largest trading partner for years? How to deal with the country referred to in EU documents as a “partner”, “competitor” and “strategic rival” – with the emphasis shifting to the latter?

“End of Naivety”
Federal Economics Minister and Vice Chancellor Robert Habeck of the Greens has already announced a “more robust trade policy” towards China. “The time of naivety towards China is over,” declared Habeck in mid-September after a meeting of the G7 economics ministers.

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Habeck had already refused the VW Group guarantees for investments in China in May. That came as a shock: for decades, German companies’ business in China was secured with investment and export guarantees.

“If German companies want to invest in the near future when they trade with China, they will probably do so at their own risk and will no longer be able to rely on government guarantees and safeguards,” says China expert Tim Rühlig from the German Society for Foreigners Politics (DGAP). He sees a change of course: The federal government no longer wants to “offer incentives for German companies to expand their business in China,” says Rühling in an interview with DW.

But that doesn’t stop her. According to a study by Jürgen Matthes, economist at the German Economic Institute (IW), German industry invested around 10 billion euros in China in the first half of this year alone – a record figure.

Car manufacturers and chemical companies in particular are still trying to gain a foothold in the Chinese market. According to a study by the Rhodium Group published in mid-September, the four German industrial giants alone – the car manufacturers VW, BMW, Mercedes and the chemical company BASF – account for a third of European direct investments in China.

Or is the dependency overestimated?
According to Jörg Wuttke, President of the European Chamber of Commerce in China, 80% of European investments are made by just 10 large European companies. “The others are not leaving China, but are currently interested in new investments in other countries and are also considering diversification,” observes Wuttke.

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However, Europe’s top ten companies are heavily dependent on China, he warns, pointing to the country’s dependence on imports of rare earths, primary products for the pharmaceutical industry and photovoltaic systems. But dependence on China is fundamentally different from dependence on Russian energy, he says: “We have a pipeline of oil and gas from Russia. But from China we have a “pipeline” with toys, furniture, sports equipment, clothes, shoes. Most of these products – I would say 90% of them – can easily be reproduced elsewhere.”

Around 3% of German jobs depend on exports to China, stresses economist Matthes. “That’s over 1 million jobs. That’s a remarkable number, but more than 45 million people are employed in Germany today,” he says, and concludes: “Dependence on China as an export market is relevant at the macroeconomic level, but not as great as the media often report. Do it that way.”

Pressure from the Greens
Nevertheless, in Germany’s new centre-left government of Social Democrats (SPD), neoliberal Free Democrats (FDP) and the environmentally conscious Greens, the latter in particular are putting pressure on companies to reconsider their relations with China.

Foreign Minister Annalena Baerbock told business leaders in early September: “We cannot afford to just hope that things won’t get so bad with these autocratic regimes after all.” The Green politician, who stands for “a values-based and feminist foreign policy”, announced the development of a new China Strategy as part of a new National Security Strategy. “It is important to the federal government and to me personally that we transfer our experience of dependence on Russia to our new China strategy,” she says.
The Commerce Ministry is considering ways to encourage companies to look to other Asian countries instead of China. State investments and export guarantees are being reassessed. The state-owned KfW bank is to examine whether it could scale back its China program and instead offer more loans for companies in Indonesia, among other places.

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Last year, the Federation of German Industries (BDI) discussed rules for foreign trade cooperation with autocracies. She suggested a “concept of responsible cooperation in foreign trade policy and clear boundaries for any cooperation”.

For many managers, however, the change of course in the Ministry of Economics goes too far.

“The state support and the protection of the business of German companies in China must remain in place,” Friedolin Strack, chief executive of the Asia-Pacific Committee of German Business (APA), told the Reuters news agency.

Chinese investments should be welcome in Germany and Europe, he stressed. However, Strack did not want to say whether this should also apply to the specific case of COSCO entering the port of Hamburg.
Source: Deutsche Welle

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