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Olaf Scholz leads a delegation of blue-chip companies to China

R.recently Over the years, the head of government’s regular inaugural trips have been watched with great interest both at home and abroad. When German Social Democratic Chancellor Olaf Scholz makes his one-day visit to Beijing on November 3, he will become the first Western leader to do so since the start of his covid-19 pandemic .French President Emmanuel Macron was eager to travel with Scholz, but hopefully not so soon after Chinese President Xi Jinping was appointed leader of the Communist Party for a third, norm-breaking term. Mr Scholz said NeinHe takes 12 instead CEOGerman blue chip companies including pharmaceutical company Merck, engineering giant Siemens and the boss of Europe’s largest automaker Volkswagen.

Over the past two decades, German corporate interests have shaped Germany’s China policy and ruled out other concerns. Scholz’s corporate retinue suggests this remains the case despite Russia’s invasion of Ukraine. It means you have to. Many Germans also accept this. “Because China’s political system has changed so much in recent years, China policy must also change,” Annalena Beerbock, the Green Party’s foreign minister, declared on Nov. 1 during her visit to Central Asia. did.Germany Silverbut reluctant to face the new reality.

Deep commercial ties between the two countries certainly complicate matters. Last year, China was Germany’s largest trading partner for the sixth year in a row, with total imports and exports exceeding her €245 billion ($255 billion). This is five times what she was in 2005. Germany depends on China for imports of solar panels, computer chips, rare earths and other vital minerals. Sino-German trade also directly supports more than one million German jobs. Over millions are indirectly connected.

Dependence on China is not just a German problem. America also has many deals with geopolitical rivals. One key difference is that the strong German industry is not typically exposed to the Chinese market. Nine of Germany’s 10 most valuable listed companies derive at least one-tenth of their revenue from China, according to the report. economistWe compared our estimates with two of America’s 10 largest companies. Two of his five cars sold globally by the Volkswagen Group in 2021 were purchased by Chinese drivers.

Many of these were produced on the German automaker’s Chinese production lines. This is his second special situation in Germany. Germany is investing heavily in Chinese factories. US FDI in China in 2021 was only 2% of his total US investment, compared to 14% for Germany. 4 companies—3 automakers, BMWMercedes-Benz and Volkswagen, and Basfchemical giants—accounting for one-third of all EU Investments in China over the past four years, according to research firm Rhodium Group. And German companies are doubling down. In the first half of this year, German companies invested more of his €10bn in China than ever before. Basf is in the process of investing another $10 billion in its China business.

Concerns over damaging these business ties have led to some controversial policy choices in the country. In late October, Mr. Scholz decided to ignore warnings from six cabinet ministers and heads of domestic and foreign intelligence services, giving China’s state-owned shipping company Cosco a stake in one of four container terminals. made me buy it. at the port of Hamburg. Like his predecessor Angela Merkel, he was also in a debate over whether Chinese telecoms giant Huawei should be allowed to bid on contracts to build Germany’s 5 refused to take sides.g It may have heeded China’s ambassador to Germany’s threat in 2019 that there would be “consequences” for the German automaker if Huawei was left out of the auction.

This child-glove approach to China has not kept pace with his Western counterparts. In America, China-bashing is rarely bipartisan. Democratic President Joe Biden is expanding the scope of restrictions on the export of advanced technology to China last month, introduced by his Republican predecessor and potential future rival, Donald Trump. . America has also banned Huawei.So are some of my German colleagues. EU member. As the geopolitical rift between China and the West widens, many Western companies are looking to reduce their exposure to Chinese supply chains and consumers. Apple, for example, has moved some of its production from China to India and Vietnam. By contrast, as Jürgen Matthes of the German Economic Research Institute, a think tank, puts it, Germany is “going full steam ahead in the wrong direction.”

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Some German business leaders are openly disgusted with such talk.Martin Brudermüller Chief Executive Officer Basf This week, one of Scholz’s travel companions recently lamented all the “China-bashing”. As hopes for “change through trade” linger, the peculiar German belief that closer commercial ties with liberal democracies will facilitate China’s political transformation has been reinforced by Vladimir Putin’s invasion of Ukraine and Xi Jinping’s Authoritarian turn dead in the invasion of Ukraine. In fact, many German companies tacitly acknowledge that maintaining two independent production systems poses greater risks to China.

That’s not enough. It would be naive to expect any end to geopolitical tensions between the West and China. So too do we expect dictators willing to localize Chinese industry, like President Xi, to honor all commercial commitments to foreigners. It is understandable and perfectly prudent not to sever all business ties with China. Deepening them looks reckless.

Read the article by Schumpeter, a columnist on global business.
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https://www.economist.com/business/2022/11/02/olaf-scholz-leads-a-blue-chip-business-delegation-to-china Olaf Scholz leads a delegation of blue-chip companies to China

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