How Bavaria depends on China – Bavaria

Uwe Herold has nothing bad to report about the owners from the Far East. Chinese investors got involved with Waldrich Coburg as early as 2005, making the machine tool specialist one of the most experienced experts in Bavarian-Chinese relations. And since then, as Herold’s predecessor put it in an interview, it has been a Chinese state company in the broadest sense. “Nevertheless, we are still a typical German machine builder,” says Managing Director Herold on the phone. Nothing fundamentally changed as a result of the entry. “We work and make decisions independently, the investors never intended to get involved more deeply.”

Don’t get involved more deeply: that may well describe the complicated relationship between Bavaria and China. Prosperity here, interests there, so far, despite all the differences, they have gone together – so much so that little is now happening economically without China. But since the attack on Ukraine, there has been concern that dependencies other than Russian gas could take revenge. And China, which is as power-conscious as it is authoritarian, is the elephant in the room that has been known about for a long time but is still ignored.

The question as to what extent the profitable relationships can be continued in the new year and beyond is therefore essential for Bavaria’s economy. How and where this depends on China, however, cannot always be precisely determined. For example, according to the Ministry of Economic Affairs, there are no figures on how many companies are majority Chinese. A study commissioned by the Bavarian Business Association states that Chinese direct investments are primarily interested in technologically leading sectors and companies. These include the robot manufacturer Kuka from Augsburg and the drive manufacturer Linde Hydraulics from Aschaffenburg. Or Waldrich Coburg.

Of course, you are familiar with the discussions about China there. The fears that trigger their investors. As Beijing No. 1 came, Waldrich Coburg’s US mother had just gone bankrupt, a German shareholder had briefly tried unsuccessfully, and the company was in serious trouble. Many in the workforce feared that the Chinese were only interested in know-how, that they could soon withdraw the technology and the jobs. None of this happened, says Herold today. On the contrary: “A lot of money has flowed into the location.” The company has stabilized and gained access to the Chinese market. That Beijing No. 1, which also manufactures machine tools, is an advantage here, as it allows better coordination and serves different customer requirements. In terms of quality, Waldrich Coburg produces in the absolute high-end area, and there is “still a long way to go” for the colleagues.

This can be seen as a successful example of how Chinese commitment has put a traditional Franconian company back on track. But as a threat scenario? The state government is not the only one struggling with the answer. It has been operating representative offices in China for years, and according to its own description, one of its tasks is the support of potential investors. When they bid for Kuka in 2016, the outcry was still great. The then Economics Minister Ilse Aigner (CSU) even initiated a tightening of the foreign trade law to make further takeovers more difficult. Since then, the state government has held back on the issue. Words were not found again until autumn 2022 when China threatened to enter the port of Hamburg. “Don’t shoot yourself in the foot several times,” tweeted Economics Minister Hubert Aiwanger (FW): The matter with the gas storage facilities should “enough as a learning curve.”

Municipalities are also on “Mission Far East”

Bavaria’s economy also depends on China. This is most tangible in the trade accounts. According to the State Office for Statistics, China is in second place for exports with 17.7 billion euros – and for imports with 24.5 billion euros in first place. Important imports include electronic components. Conversely, Bavarian companies generate gigantic sales on the Chinese market; BMW, for example, sells about every third of its vehicles there. Municipalities have also gone on “Mission Far East” in recent years. In 2015, for example, Ingolstadt opened a China center in hopes of settlements and jobs. The city also has an Audi Confucius Institute for teaching Chinese language and culture, as well as an annual “Bavarian China Day” to explore opportunities for cooperation.

Christoph Angerbauer also says: “We earn a large part of our money in China.” The International Head of the Chamber of Industry and Commerce for Munich and Upper Bavaria lived in Shanghai for six years, so he knows what it’s like when cultures meet. Or: met. Due to strict corona regulations, hardly any people travel from here to China and vice versa. And when lockdowns paralyzed producers and supply chains there, this also caused problems for Bavarian companies.

Open detailed view

In the long term, says Angerbauer, Bavarian companies are primarily concerned with minimizing their own risks. This includes making logistics more crisis-proof and building up a foothold in other markets. More diversification in purchasing and sales, in order to be less dependent on global political events. Leaving out China entirely, “that’s almost impossible,” says Angerbauer. And the danger that China will ultimately force Bavarian companies out of the market by adopting more and more of their technology and quality? Not a nice scenario, but competition and, in a way, inherent in the system. “We ourselves have an interest in other countries gaining prosperity for our premium products.”

What goes too far for some falls short for others

Economics Minister Aiwanger made a similar statement: companies should diversify more. China is both, “guarantor of prosperity in both countries on the one hand and risk in cases of one-sided dependence in geopolitical tensions on the other”. It remains in Bavaria’s interest to “maintain good economic relations with China”.

Seen in this way, the Bavarian-Chinese dependencies resemble a double-edged sword that everyone hopes will not cut themselves on the blade. But that could become increasingly difficult. The human rights situation in China has recently deteriorated further, fears of an attack by Beijing on Taiwan have grown, and relations between East and West are considered tense. Despite this, globalization continues. The federal government is working on a strategy for more economic independence, which will go too far for some and too short for others. The state government, in turn, has drawn the red line for Chinese participation at trade fair locations, airports and inland ports. The Economics Ministry sees Berlin and Brussels in particular as having a duty to carefully examine potential investors.

At Waldrich Coburg, they attach great importance to the fact that their example does not have general validity: cooperation with investors works for them, but maybe not elsewhere. But that’s not so much due to the nationalities as to “whether you can find a common path,” says Herold. Before Corona, he regularly visited his colleagues in China, and he always found the exchange with the country, people and culture enriching. Nevertheless, he can understand that the public is often critical of China. “We are oriented to the west.”