Decoupling the German economy from China: Financial experts warn of risks and call for closeness

Decoupling the German economy from China: Financial experts warn of risks and call for closeness

According to a report by www.sueddeutsche.de, German business leaders and the Chinese trade minister have agreed that decoupling the German economy from the Chinese economy is not in the interests of German companies. This development is reflected in the new China strategy that was recently published.

The meetings between the President of the German Mechanical Engineering Association (VDMA), Karl Haeusgen, and the Chinese Trade Minister Wang Wentao have shown that the Chinese government is launching a “charm offensive” towards foreign companies and investors. This is because the Chinese economy is under pressure. The catch-up effects after the end of China's Covid policy are less than expected and the construction industry is holding back on investments. Inflation in Europe and the USA is also weighing on demand for Chinese products.

The confidence of many foreign entrepreneurs and investors in the Chinese market has suffered, particularly due to the rigorous Corona policy and the lack of reforms and greater opening. An anti-espionage law that penalizes the transfer of data abroad has also sparked concerns.

German companies experienced a “lemming-like China boom” in the years before the Corona crisis, but now there is a “cluster risk”. This is also reflected in a VDMA survey, in which 45 percent of companies stated that they were rethinking their China strategy. The geopolitical risks, the market weakening and the disadvantage compared to Chinese companies are the main reasons for this decision.

The Chinese government is concerned about these developments. It needs international investors and foreign technology to become more independent of trade with foreign countries. Beijing's greatest fear is an alliance of liberal states led by the USA. For this reason, China has countered with export controls for rare earths, which manufacturers need for chips.

The German debate about dependence on important sectors of the Chinese economy is criticized by the Chinese government. However, state and party leader Xi Jinping is trying to make the country more independent of trade with foreign countries with the “two circuits” strategy.

The situation is made even more complex by the Ukraine war, in which Beijing leaves an ambivalent impression. While it presents itself as a peace broker, it has never condemned Russian aggression.

These developments have the potential to impact the market and the financial industry. Lower confidence in the Chinese market may lead to a decline in foreign investment and a decline in demand for Chinese products. In addition, geopolitical risks and disadvantages in public projects may cause German companies to rethink their China strategy and find alternative markets.

Source: According to a report from www.sueddeutsche.de