Robert Habeck doesn’t pronounce the five-letter word, but it’s not difficult to guess either. “Trade policy is highly political in times like these,” said the Green Economics Minister on Wednesday. “Increased trade relations are necessary in order to gradually overcome the one-sided dependence on some markets”. On top of that, many partners are offered the opportunity to “be part of a prosperous community of values”. It is obvious who is not part of this community of values: China.
The federal government’s gait towards the People’s Republic is becoming increasingly tough, as can be read on Thursday from an internal paper from Habeck’s ministry, from which the news portal The Pioneer reported first. China aligns its economic policy solely with “preserving the regime,” it says, while foreign companies are often discriminated against. It is pushing once technologically leading companies out of the market and creating dependencies for important raw materials. The ministry does not want to comment on the paper, saying it is part of “internal processes”.
A first draft of a new China strategy that the Federal Foreign Office is working on became known two weeks ago. It reads very similar in many sections. “We want to counteract a trend towards more one-sided dependencies,” it says. In addition, they want to change the incentive structure for German companies “so that reducing export dependencies becomes more attractive”.
Guarantees for investments are becoming more expensive
It is now clear how this should work: more expensive guarantees should spoil German companies’ enthusiasm for investing in China and direct investments to other countries. Among other things, the plans provide for a higher guarantee fee, i.e. what companies have to pay to the state so that it issues guarantees. Namely for countries with a share of more than 20 percent of the total cover volume of the investment guarantees. The price for the guarantee is to rise from 0.5 to 0.55 percent. This would particularly affect investments in China. The People’s Republic accounted for almost 38 percent of the investment guarantees with a volume of almost 29 billion euros as of 2021. In addition, a cap of a maximum of three billion euros per company and target country is planned, investments beyond that would no longer be secured.
Increasingly, the papers also show new notification obligations for companies “in order to be able to identify China-specific risks at an early stage and take remedial measures”. Companies that are exposed to China would then have to disclose relevant China-related developments and figures. On the basis of these, it should then be checked whether these companies should carry out stress tests on a regular basis.
That could affect corporations like BASF or Volkswagen. In 2021, BASF in Greater China, which also includes Taiwan, had a turnover of around twelve billion euros with a good 11,000 employees. BASF evaluates investment projects based on various criteria. “The granting of a federal guarantee typically does not decide whether an investment decision is made or not,” the group replies when asked. However, China is the largest chemical market in the world. The share of BASF sales in Greater China was 15 percent in 2021. “As BASF, we are rather underinvested there today, measured in terms of the importance of the Chinese market and the expected future growth in chemical production in China,” says BASF.
BASF has big plans in China. The German chemical group is currently building a new, large site in Zhanjiang.
(Photo: Wu Tao/Imago/Xinhua)
Siemens is not surprised by the plans. The topic had already played a central role at the German-Asian economic conference in mid-November, to which Habeck and CEO Roland Busch had traveled. New regulations for investment guarantees are “understandable,” according to Siemens circles. Basically, one is in line with the paper. “Our strategy goes in the direction of diversification anyway,” says Munich. The mechanical and plant engineers are also relaxed about the innovations. “The federal government’s investment guarantees are virtually irrelevant for mechanical and plant engineering,” says Ulrich Ackermann, head of VDMA foreign trade. They are an instrument that is used almost exclusively by large-scale industry.
Some managers already feel patronized
Obviously different in the car industry. Volkswagen China employs around 100,000 people in China – mainly in joint ventures – and sells over three million vehicles a year. It is the largest single market, as it is for all German car manufacturers. What do German car managers think of the new paper, the content of which largely corresponds to that from the Foreign Office? Nobody wants to speak openly yet, but words like “paternalism”, “undifferentiated consideration of a diverse industry” and also “inconsistency” are already being used. Doesn’t the federal government say that they don’t want decoupling, just less dependency, asks someone from the auto industry.
The paper from the Ministry of Economics was less deliberative, but formulated much more sharply than Robert Habeck’s previous line. It reads more like a party program, says one from industry. Why so clear? Because the house may want to make the change of direction very clear – inwards, towards the economy, but also towards the minister’s party base, the Greens. Of course, the guarantees, which have been granted quite easily so far, promoted investments, according to one company concerned. But the other way around, the lack of state safeguards does not mean that there is no investment at all. In short: the work would be more difficult, but not impossible.