Scholz faces a balancing act in Beijing – the economy

Olaf Scholz will spend three, four, maybe even five hours with Xi Jinping next Tuesday; China’s head of state and party leader is spending an unusually long time with the guest Germany. And yet: Even if it were three, four or five days, that would not be enough to discuss all the pressing issues in detail. Because the economic policy agenda that Scholz brings with him is so comprehensive that it goes beyond any framework.

The spectrum ranges from possible car tariffs to fair competition conditions for German companies in the People’s Republic, Beijing’s data collection frenzy and Chinese dumping exports to the question that has been the most important for the Federal Government in the mutual relationship for some time: How can we manage to break away from the to make major system rivals more independent and therefore less susceptible to blackmail, without antagonizing Xi and getting in the way of German companies doing their brilliant business in the world’s most important production and sales market? It’s a balancing act that couldn’t be more difficult.

In order to still achieve the feat, A “de-risking” strategy was developed in Berlin, which, to put it simply, is based on three pillars. First: German companies should reduce their dependence on sales and imports in and out China reduce them so much that they do not go bankrupt in the event of a geopolitical conflict including sanctions from the West and the People’s Republic. Second: The state uses incentives and subsidies to ensure that strategically essential goods such as certain medicines or computer chips are at least partially produced in Europe again – even if it costs more. And thirdly: In security-relevant areas, such as the development of modern communications networks or the operation of ports, the government is examining much more critically than in the past whether Chinese investors are allowed to participate or not.

For many German companies there is hardly any alternative to China

It doesn’t look easy on paper, but in practice the plan means nothing less than setting an ocean liner on a new course at full speed. “De-risking has started, but things are still happening very slowly,” says Jürgen Matthes from the German Economic Institute in Cologne. No wonder, as Denis Depoux from the management consultancy Roland Berger thinks: For the vast majority of the CEOs who will accompany Scholz to Beijing, China is the all-important market. “There is no alternative,” said Depoux. Roland Busch, Ola Källenius, Oliver Zipse and Bill Anderson, the bosses of Siemens, Mercedes, BMW and Bayer, will be on board the Chancellor’s plane.

“The Chinese market is so big and so important that you simply have to be there in many areas if you don’t want to miss developments that determine the world market,” says Wolfgang Niedermark from the Federation of German Industries (BDI). “For some companies, it would actually be riskier not to be there in the People’s Republic than to be there. Some may therefore even have to expand their involvement in China.” In fact, surveys show that – roughly speaking – a third of German companies operating in China want to reduce their commitment, maintain it unchanged or increase it.

Against this background, the question arises for the federal government as to what the concept of risk minimization can look like. Should companies receive financial support if they submit plans to diversify their supply chains? Or does the state have to set guidelines – upper limits, for example, for the import of critical raw materials from China or minimum stock levels for strategically important components?

The government is conducting “awareness-raising talks” with business

Such ideas have been discussed within the government – and rejected for the time being. The state intervention would be too serious and the controls too complicated. Instead, so-called awareness-raising talks are now being held with those companies that are particularly heavily involved in China. The first goal: to hear how companies are preparing for a worsening of the Taiwan conflict and what consequences an economic war between China and the Western world would have for them. The second goal: to make it clear that, if in doubt, the federal government will not use tax money to save a company that takes too much risk – knowing full well that the state would probably not let companies like Volkswagen or BASF go bankrupt in the end.

The concern that an overly cautious and China-critical federal government could ruin their business is not the only concern that concerns companies. According to Maximilian Butek, head of the German Chamber of Foreign Trade (AHK) in East China, Scholz’s accompanying CEOs also hope for concrete help in creating fair competitive conditions in the People’s Republic. In an AHK survey, two thirds of local German companies stated that they were affected by unfair competition. They feel particularly disadvantaged when it comes to contacts with the government – which are even more important in China than anywhere else in the world. It is difficult to gain access to public tenders or to receive tax breaks.

Another major problem for many German companies is that their Chinese competitors, who are often faster and more efficient, are increasingly taking market share from them. “Due to the global presence of cheap Chinese products and the weakening global economy, German companies are under massive pressure in some sectors,” reports Butek. In particular, the excessive exports that Chinese industry is throwing onto global markets due to the sluggish economy at home are a problem from a Western perspective, as they could drive manufacturers in Europe and the USA to ruin with dumping prices. The EU Commission recently launched an investigation into the extent to which wind turbines from China are unfairly subsidized. It is also threatening punitive tariffs when importing Chinese electric cars.

Not even Mercedes wants import tariffs on Chinese electric cars

However, in Depoux’s opinion, such trade barriers would be ineffective: “Chinese companies will always find a way to avoid tariffs,” he says. Instead, Scholz needs to convince more Chinese market leaders in strategic industries such as solar or wind to invest in Germany.

In fact, even some of the supposed beneficiaries don’t want Brussels to impose punitive taxes on Chinese cars. Mercedes boss Källenius, for example, is calling for tariff reductions. He sees his company as prepared for competition with China and also has some top coalition members on his side – Transport Minister Volker Wissing (FDP), for example. “We need market access in China, and of course we also accept competition here,” seeo Wissing recently in an SZ interview. “Anything else would not be in the interest of consumers, who want the best quality at the cheapest price.”

The Free Democrat is also more relaxed than many cabinet colleagues on two other controversial issues – namely the question of whether the network supplier Huawei from Shenzhen can participate in the development of the German 5G mobile network and whether the federal government needs to take a closer look. to what extent Beijing accesses data that German owners of Chinese cars and smartphones deliver to them free of charge. Wissing sees the duty here as a responsible consumer: “In some countries the government has access to the data of private companies,” said the minister. “If you use a product from such a country, you have to understand that the government can get this data at any time.”