what will happen to trade? – DW – 09/22/2022

The port of Hamburg is considered the gateway to Germany. First of all, it is the gateway to China. The economic giant China is the largest client of the port of Hamburg. In the first half of 2022 alone, more than 1.3 million containers from China arrived in the Hanseatic city. Many of them – in the container terminal Tollerort.

Deal with COSCO in doubt

Now the Chinese shipping company COSCO wants to acquire a 35 percent stake in the terminal. Hamburger Hafen und Logistik AG (HHLA) would also like this: it would make the container terminal at Tollerort the preferred transshipment point in Europe for the world’s top ten shipping company. But in mid-August it became known that the economics ministry in Berlin had doubts about COSCO’s plans in Hamburg. According to the Reuters news agency, there is no consensus in the federal government on whether to approve the deal.

Containers with Chinese cargo in the port of Hamburg
Containers with Chinese cargo in the port of Hamburg Photo: picture-alliance/dpa/D.Reinhardt

The dispute over cooperation with COSCO is an example of how economic relations with China call into question the basis of the German business model. After Russia’s attack on Ukraine pointed to Germany’s weakness in dependence on Russian gas, Berlin thinking about relations with China: how to deal with an autocracy that has been Germany’s biggest trading partner for many years and employs some 5,000 German companies? How to deal with a country that in the documents of the European Union is called both a partner, a competitor and a strategic rival – and the balance is increasingly shifting towards rivalry?

“The end of naivete towards China”

Robert Habeck, Vice Chancellor and Economics Minister of Germany, has already announced a “tougher trade policy” towards China. At the end of the conference of trade ministers of the G7 countries in mid-September, the German politician said that “naivete towards China is over.”

At the end of May, Habek already denied guarantees to VW Group for investment in China. This caused a shock, because for decades the business of German companies in China had preferences in the form of investment and export guarantees. “Soon this may become a common practice. In the near future, if German companies want to invest, if they trade with China, they will most likely do so at their own risk and will no longer be able to rely on government guarantees,” he explained. change course in an interview with DW, China expert Tim Rühlig of the German Society for Foreign Policy (DGAP). According to him, the German state “no longer wants to give German companies incentives to expand their business in China.”

Volkswagen plant in Urumqi
Volkswagen plant in UrumqiPhoto: Stephan Scheuer/picture alliance/dpa

But they do it anyway. According to a study by Jürgen Matthes of the Institute for German Economics (IW), in the first half of the year, German businesses invested about ten billion euros in China, which is certainly a record amount. However, it is concentrated in only a few sectors. German automakers and chemical companies in particular continue to seek access to the Chinese market, according to a study published in mid-September by the Rhodium Group. Only four German industrial giants VW, BMW, Mercedes and BASF account for a third of European direct investment in China, the study indicates.

Germany’s overdependence on China?

Jörg Wuttke, President of the European Chamber of Commerce in China, confirms Rhodium’s conclusion that 80 percent of European investment in China comes from just ten large companies. “This shows that the rest of European business companies are not leaving China, but are interested in other countries for new investments, and are also thinking about diversification,” the DW expert explained.

Jurgen Matthes
Jurgen MatthesPhoto: IW Koln/Uta Wagner

Wuttke, who is also BASF’s chief representative in China, recognizes a strong dependence ten large European companies from the Chinese economy. He sees dependence on the import of rare earth metals, precursors for the pharmaceutical industry, or elements for photovoltaics. However, in relation to the economy as a whole, he believes that the comparison with Russia is lame. “We have supplies of oil and gas from Russia. And from China we have supplies of toys, furniture, sports equipment, clothes, shoes. Most of these products – I would say 90 percent – can easily be produced in other countries,” I am sure Wuttke.

What about exports to China? According to expert IW Matthes, about three percent of jobs in Germany depend on him. “That’s over a million jobs in absolute terms. This is a significant figure, but when compared with the total of more than 45 million employed in the country, everything is relative,” Matthes told DW. An IW expert is sure: “On a macroeconomic level, dependence on China as an export market is relevant, but not as great as is often claimed in the media.”

Refocus on other markets

Yet in government, it is the Soyuz 90/Greens who are putting pressure on business with China. At the beginning of September, the Foreign Minister Annalena Burbock (Annalena Baerbock) warned in her speech to business representatives: “We cannot afford to repeat the principle “these authoritarian regimes will not be so bad” for the second time. national security: “It is important to the German government and to me that what we have learned from our dependence on Russia can be embedded in a strategy for China.”

According to Reuters, the German economy ministry is looking for ways to get German companies to turn to other Asian states instead of China. It’s not just government investment and export guarantees that are at stake. The federally owned KfW bank will explore cutting back on its China program and instead offer more business loans in countries like Indonesia. Smaller programs such as trade show promotion are also under scrutiny.

Annalena Burbock
Annalena BurbockPhoto: Political-Moments/IMAGO

The German business community has long noticed this. In 2021, the Federal Association of German Industry (BDI) is thinking about cooperation with autocracies in the field of foreign trade policy. The result was a “Discussion paper on the formation of economic relations in the conditions of international systemic competition”. In it, the authors of the BDI advocate “the concept of responsible coexistence in foreign economic policy and cooperation with clear boundaries.”

At the Industry Day in June, Janka Ortel, a China expert at the European Council on Foreign Relations (ECFR) think tank, had the opportunity to alert the managers in attendance to domestic developments in China: for a long time, the economy has been at the forefront of Chinese politics. However, it is now quite clear that political goals prevail over economic ones.

However, for many managers, the change in the course of the Ministry of Economy seems too abrupt. “State support and protection of the Chinese business of German companies should be maintained in principle,” Friedolin Strack, executive director of the Asia-Pacific German Business Committee (APA), told Reuters. According to APA, Chinese investments in Germany and Europe should be welcomed. However, Strack did not want to comment on the specific case of COSCO entering the port of Hamburg.

See also:

Will China be able to replace the West in the Russian market?

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