Chancellor Olaf Scholz’s government is pushing to reduce Germany’s dependence on China, but bosses from some the country’s biggest companies are pushing back.
(Bloomberg) — Chancellor Olaf Scholz’s government is pushing to reduce Germany’s dependence on China, but bosses from some the country’s biggest companies are pushing back.
Leaders from BASF SE and Mercedes-Benz AG to Siemens AG and Volkswagen AG are seeking to separate business interests from political concerns heightened by Moscow’s invasion of Ukraine, which exposed Germany’s dangerous reliance on Russian energy. Links to China go even deeper.
The Asian superpower is Germany’s biggest trading partner, with total trade last year of nearly €300 billion ($323 billion), or nearly 8% of the output of Europe’s largest economy. In addition to massive investments in local factories, China is a critical supplier of parts and materials as well as an important buyer of goods for German companies. Executives are plowing ahead, despite political concerns about Beijing’s global ambitions and its tensions with the US.
BASF is investing around $10 billion in a chemical plant in Zhanjiang on China’s southern coast. Volkswagen has reaffirmed its commitment to an automotive plant in Xinjiang, despite persistent concerns over the treatment of Muslim Uyghurs and other ethnic minorities in the northwest region.
“We won’t give up on China,” Arno Antlitz, VW’s chief financial officer, said on an earnings call this month after BYD Co. overtook the German manufacturer as China’s top-selling carmaker in the first quarter.
The comments from top business leaders run counter to Scholz’s plea to diversify away from China. His administration has emphasized “de-risking” rather than an initial US call for “decoupling” — a tacit acknowledgment that Germany can ill-afford a hard cut with the world’s second-largest economy.
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Trade relations will need to shift so that “the risks of dependencies from a single country or a few single states won’t become big,” Scholz said last week at the G-7 summit in Hiroshima, Japan.
But there’s little sign that companies are paying heed. Abandoning China is “unthinkable” for German industry, Mercedes Chief Executive Officer Ola Källenius said in an interview with the Bild tabloid in April. “The major players in the global economy — Europe, the US and China — are so closely intertwined that decoupling from China makes no sense.”
The Chinese market accounts for around 40% of Mercedes’ deliveries, with the luxury automaker selling more than twice the number of vehicles there than in the US.
Siemens CEO Roland Busch vowed to “defend” and “expand” the company’s market share in China, saying in an interview with the Financial Times on Wednesday that Chinese customers are the ones pushing the German engineering giant to innovate.
Scholz’s top spokesman responded with an unusually blunt warning.
“This is an appeal by the government not to put all eggs in one basket,” German government spokesman Steffen Hebestreit told reporters in Berlin. “The Siemens boss will always have to calculate how he positions his company and must justify for himself how big the risk for his company will be,” he said, adding that “I have no doubt that this is being examined very closely.”
But corporate leaders are deciding based on their own accounts and opting to stick with China’s massive market.
“The world doesn’t become any less risky when you divide it, rather the contrary,” Stefan Hartung, head of German car parts giant Robert Bosch GmbH, said at the company’s annual press conference earlier this month.
Similarly, BASF CEO Martin Brudermüller has warned that it’s riskier not to expand in Asia’s powerhouse economy rather than pull back due to geopolitical concerns.
“It is urgently necessary that we get away from China bashing and look at ourselves a little self-critically,” he said in October.
–With assistance from Monica Raymunt, Elisabeth Behrmann, Julia Manns and Wilfried Eckl-Dorna.
(Updates with comments from German government spokesman beginning in 11th paragraph.)
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