Genocide of the Uyghurs, impending war with Taiwan, trade blockades with the USA: doing business in China is currently associated with a high risk for German companies. Nevertheless, they want to continue growing in the billion-euro market.
No other market in the world offers German corporations such enormous growth opportunities as China. VW sold 42 percent of all its new cars last year and made more than a third of its group sales there. BMW sold 34 percent of its vehicles in China. Dax giants like BASF, Merck
It is no coincidence that Chancellor Olaf Scholz (SPD) took a business delegation with him on his trip to Beijing last week. Twelve managers, mostly from Dax companies, were there. Biontech founder Ugur Sahin was also on board. His Covid vaccine has still not been approved in China. So far, the Chinese have only relied on self-produced funds. The trip helped: The vaccines from Biontech and Pfizer are now approved, at least for foreigners living in China. There are only around 400,000 of them. It’s a start.
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But no matter how much money German companies could earn in China, the risk is just as high. Four developments are making DAX managers sweat on their foreheads.
For decades, China’s leaders have made it clear that they regard the island of Taiwan as part of their country. The government acts very aggressively against any other expression of opinion by foreign politicians. When US leader Nancy Pelosi visited Taiwan in August, China imposed sanctions on her and her family.
The rhetorical-diplomatic bickering over the island could soon turn into a military conflict. China wants Taiwan back in its empire and will not shy away from any means. China’s head of state, Xi Jinping, only recently declared at his party conference speech that he would never promise not to use force.
Should there be a Chinese invasion, the international community is likely to react in a similar way to the Russian invasion of Ukraine and impose tough sanctions on China. The lucrative China business of the Dax companies would then be wiped out in one fell swoop. What was still tolerable for most in the case of Russia would be life-threatening for some in the case of China. VW and BMW would lose more than a third of their sales in one fell swoop.
Government spokesman Steffen Hebestreit announced before the trip that “the question of human rights would also be a topic” during Scholz’s visit to China. Little is known afterwards about the extent to which Chancellor Xi appealed to his conscience for dealing with the Uyghurs. The issue is no small thing: the United Nations now assumes that one million people from the Muslim minority in China are being held in camps. The UN Human Rights Commissioner Michelle Bachelet (Chile) speaks of “credible allegations of torture” and “serious violations of human rights”.
Such reports do not leave Dax managers unimpressed either. It is not known whether they are actually interested in the fate of the Uyghurs or whether they only fear damage to their company’s image, but critical voices are piling up. At Volkswagen, the construction of a plant in the Xinjiang region, which is mainly inhabited by Uyghurs, is controversial. However, VW has few alternatives. China determines where plants can be built. BASF also operates a plant in Xinjiang. There is hardly any criticism of China.
Others have drawn consequences. Adidas, for example, no longer purchases cotton from the region because it was not compatible with human rights views. China retaliated with a partial boycott. Adidas sales in China collapsed by 35 percent, and the entire group also suffered a decline. Dealing with the Uyghurs is a difficult situation for German corporations to deal with. Morally, they should withdraw from China, but the corresponding losses in sales and profits would in turn be interpreted negatively in Germany and, in the worst case, cost jobs here.
Since 2018, the US and China have imposed punitive tariffs on each other. Even if the sharp rhetoric of ex-President Donald Trump no longer dominates the dispute, the measures will remain in place under his successor Joe Biden. Companies like BMW are suffering. The Munich carmaker produces cars for China in American plants and vice versa. Any increase in tariffs or even trade boycotts would have a severe impact on business here. BMW made sales of 25.3 billion euros in China last year. The group is already reacting: the US plants are currently being converted for a billion dollars in order to also build electric cars there, most of which have so far been imported from China.
The Ukraine war has ruthlessly exposed our dependence on Russian oil and natural gas. It is an open secret that there are also corresponding dependencies on China. With dumping prices, the country has developed a quasi-monopoly position for rare earths, silicon and batteries, for example. When two Chinese regions severely curtailed magnesium production at the end of last year, a slight panic broke out in Germany’s industry.
The problem is well known and Germany and the EU would rather fix it today than tomorrow. European productions of batteries and semiconductors are to be set up with state aid. Free trade agreements with India and Indonesia are being negotiated in order to open up new markets worth billions for European companies. Agreements with Chile, Mexico, New Zealand, Australia and India are intended to open up new sources of supply for strategically important raw materials.
However, it will take years for new sectors and delivery routes to be established. For that long, Germany is still dependent on China and thus also on the whims of the Chinese government.
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