The German Ministry of Economy is now contemplating a package of steps to lessen the appeal of the Chinese market and, as a result, diminish the country’s economic dependency on China.
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| [German chancellor Olaf Scholz] |
Berlin wants to distance itself from Beijing after years of enjoying a fruitful economic partnership with the Chinese capital. In an effort to lessen Germany’s reliance on China’s economy, the German Ministry of Economy is researching a set of policies that would make the Chinese market less appealing to foreign investors. The announcement, which was reported by the Reuters news agency and cited unnamed sources, shines a light on Germany’s determination to begin the laborious and time-consuming process of economically distancing itself from the enormous Asian nation. Precisely because of the confrontation between Russia and Ukraine, Berlin felt compelled to reevaluate its ties with Beijing. Over the course of the last decade, members of the German Parliament from a wide range of political parties have repeatedly and unsuccessfully advocated for a revision of Germany’s approach toward China.
Angela Merkel, who served as Chancellor of Germany for 16 years before stepping down as leader of the Berlin government last year, has paved the way for closer economic ties with Beijing while maintaining stringent standards with regard to China’s violations of human rights and its geostrategic aspirations. The connection with Beijing, which Merkel had built with a view to economic prospects, is now deteriorating in the name of diverse political ideals. Merkel had strengthened the relationship with Beijing in order to look out for business chances.
Attention to the protection of human rights
Something is altering now that Olaf Scholz is leading the government, which, as part of the arrangement it made to form its coalition, vowed a fresh policy towards China. According to an indiscretion made by Reuters, the German economy department, which is led by the ecologist Robert Habeck, wants to introduce a package of measures to reduce or eliminate investments and exports from China, directing state loans to projects in other Asian countries. This is according to the German economy department. This is not an unprecedented course of action: Berlin has shown interest in analyzing and, clearly, reducing German investments in China.
But the executive branch of the German government goes far further. The Ministry of Economy is mulling over the notion of registering a protest with the G7 nations over what it deems to be unfair business practices carried out by the Chinese government in order to lessen the impact that the Chinese government has on international economic matters.
The persistent evidence of abuses of human rights has reached a point where they are difficult to ignore. The Green coalition party, which is responsible for both the economy and the foreign ministry, has stated that it is particularly concerned about the violations of human rights in Taiwan, as well as in Hong Kong and Xinjiang. The United Nations has also confirmed that there are ongoing “serious violations of human rights” being committed by the Beijing government in the region. These violations include the detention of political dissidents and the execution of political prisoners. Even before the anticipated United Nations report was made public, Berlin had already taken measures to limit economic investments with enterprises that were working in the Xinjiang province.
The economic blow to the automobile sector
However, this decision by Germany’s Ministry of Economy represents a significant setback for the German automotive industry, which imports certain raw materials, such as rare earths, solar panels, and microchips, from China. This decision translates into a severe blow for the German automotive sector.
According to projections provided by The Economist, the Chinese market accounts for the majority of revenue generated by Volkswagen, BMW, and Daimler, which are the three biggest automakers based in Germany, as well as Infineon, a producer of semiconductors. Instead, Bosch is the employer of 60,000 workers in the massive Asian market. China is the source of income for 10 of the 15 biggest publicly traded firms in Germany, all of which are located in Germany.
The German automotive sector is dependent not just on the expansive market and production facilities found in China, but also on Taiwan’s semiconductors and advanced technologies. And the tensions between Beijing and Taipei are causing experts in Germany a great deal of alarm.
An analyst at MERICSof Berlin named Max Zenglein believes that the escalating geopolitical threats are now plainly demonstrating how vulnerable international industrial systems are. “The German economy has already been made painfully aware of how reliant it is on China as a result of the Russian invasion of Ukraine, Europe’s dependency on Russian energy, and supply challenges created by blockades in China owing to its zero-Covid policy. The economy of Germany and the whole globe may take a significant damage if the Western world were to turn against China as a result of a conflict over Taiwan, in addition to turning against Russia.” Jens Hildebrandt, who is a member of the board of directors of the German Chamber of Commerce in China (AHK), also emphasizes the significance of the Chinese market for the German economy.
The costly process of relocation
China has been Germany’s most important trading partner for the last six years, and their total trade volume in 2017 was more than € 245 billion. This has helped to fuel development in Europe’s biggest export-driven economy, which is Germany. On the other hand, Germany is not only the most significant import market but also the most important export market for Chinese enterprises operating inside the European Union.
The ministers of the Scholz administration, who are encouraging enterprises to diversify their markets and supply chains away from the Asian powerhouse, are unfazed by the favorable trade data that has been reported between the two nations.
According to Wolfgang Niedermark, a board member of the German Industry Association (BDI), the process of relocating to other nations has already begun. This information was provided to The Economist. However, there are restrictions. The BDI published a study called “Responsible Coexistence with Autocracies in Foreign Economic Policy Making” (Responsible Coexistence with Autocracies in Foreign Economic Policy Making) in the past year that highlights how difficult it is for businesses that are at the forefront of protecting human rights and fighting climate change to cut commercial ties with autocracies. According to the findings of the investigation, “We cannot protect democratic principles if we decline economically.”
The German government is moving forward with its plan to lessen its reliance on China in areas of the economy that, in the event of a severe geopolitical crisis, would not put Berlin’s economic stability in jeopardy, as was the case with Russia. This plan is being carried out in a direct manner. The new plan that the German foreign ministry and the Chinese government have been working on will finally be presented towards the end of the year, which represents a delay of six months. Beijing will not be pleased with the shift in tone in Berlin because it is hoping “that Germany would adopt a sensible and realistic approach, instead of shooting itself in the foot.”