Last year, the German government admitted that Germany was too dependent on China to supply key materials and components.
In July 2023, the German government published its first strategic document on China. Chancellor Olaf Scholz then spoke about the need to avoid critical dependencies on China in the future, which would give us a more aggressive stance, China is a partner, competitor and systemic rival, and will continue to be a partner.
However, some German companies seem to have ignored this call and, if they continue to invest as much in the rest of the year as they did in the first six months of 2024, the amount from last year. year.
According to the Bundesbank, the Chinese economy benefited from German direct investment of 7.28 billion euros in the first half of 2024, which is almost 13 percent more than the total for 2023.
German car manufacturers, a case in point
“Data on investment in China is very driven by specific sectors, such as the automotive and chemical industries,” Doris Fischer, professor of Chinese economics and business at the University of Würzburg, told DW.
The turnover of the German car sector is closely intertwined with the Chinese market, where around a third of Germany’s new cars are sold each year. In 2023, German vehicles worth 15.1 billion euros arrived in China. In addition, according to figures from the Association of the German Automobile Industry, German automotive suppliers exported parts worth 11.2 billion euros.
According to Fischer, many small and medium-sized German companies are already implementing the so-called “China plus one” strategy, whereby companies diversify their supply chains, moving some of their Chinese production to other promising markets. in it, such as Vietnam and Thailand.
More German companies are planning to leave China
The results of a recent survey, conducted by the German Chamber of Commerce in China in July, show that two percent of German companies are divesting from their operations in China, and seven percent are considering doing so. According to these figures, the number of companies leaving or planning to leave China has doubled since 2020.
However, more than half of the companies surveyed said they want to increase their investments in China to remain competitive. In addition, there is the problem of the costs associated with diversification, which seems to discourage many companies. “The challenge of diversification is the huge investment it requires,” Maximilian Butek, one of the Delegation of German Companies in Shanghai, told DW.
In its new strategy for China, the German government emphasized key sectors to reduce excessive dependence. These include medical supplies, advanced technology and the so-called rare earths, which are essential for ecological transformation. China practically has a monopoly on rare earths.
The cases of Russia and China
Critical voices claim that Germany makes the same mistake with Beijing as it did with Moscow, when it relied too much on cheap Russian fossil fuels.
After the Russian attack on Ukraine in February 2022, Moscow suddenly cut off its oil and gas supplies. Germany, like other European countries, had to look for other suppliers.
If relations with Beijing were to break down, Europe’s largest economy could be left at risk. According to Maximilian Butek, head of the Delegation of German Companies in Shanghai, German companies depend much more on the Chinese market than on the Russian market.
Collaboration and diversification at the same time
German companies cannot ignore one of the largest and fastest growing foreign markets because of the growing geopolitical problems with China. Major German manufacturers, such as Volkswagen, BASF and Siemens, still see the Asian giant as vital to their growth.
China’s interest in green technology, electric vehicles and digital innovation provides fertile ground for further cooperation and development. Business leaders believe this is likely to attract more foreign direct investment from German companies.
“A rapid withdrawal from the Chinese market would have devastating effects on these industries, which would not be good for Germany either,” says Doris Fischer.
On the other hand, US direct investment in China also continues to increase, although both the Trump and Biden administrations have tried to slow China’s economic rise through trade tariffs and other punitive measures.
While investment from the US and Germany increases, global foreign direct investment in China fell sharply for the second year in a row in 2023, according to data from the State Administration of Foreign Exchange of China, cited by Bloomberg news agency.
(ms/ers)