what will happen to the trade? – DW – 22-09-2022

Published by
Peter Kavinsky

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 customer of the port of Hamburg. More than 1.3 million containers from China arrived in the Hanseatic city in the first half of 2022 alone. Many of them – in the container terminal Tollerort.

When in doubt, deal with COSCO

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 that: the container terminal in Tollerort would become the preferred transhipment point in Europe for the world’s top ten shipping companies. But in mid-August it became known that the Ministry of Economy in Berlin had doubts about COSCO’s plans in Hamburg. According to Reuters news agency, there is no consensus within the federal government on whether or not to approve the deal.

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

The dispute over the cooperation with COSCO is an example of how economic relations with China are questioning the basis of the German business model. After the Russian attack on Ukraine pointed to Germany’s weakness in reliance on Russian gas, Berlin think about relations with China: how to deal with an autocracy that has been Germany’s largest trading partner for years and employs some 5,000 German companies? How to deal with a country that is referred to in European Union documents as a partner, a competitor and a strategic rival – and whose balance is increasingly shifting towards rivalry?

“The end of naivety towards China”

Robert Habeck, vice-chancellor and economy minister of Germany, has already announced a “tighter 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 “the naivety towards China is over”.

At the end of May, Habek already refused guarantees to VW Group for investments in China. That 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 could become a common practice. If German companies want to invest in the near future, if they want to trade with China, they will most likely do so at their own risk and can no longer rely on government guarantees.” he explained in an interview with DW, China expert Tim Rühlig of the German Association for Foreign Policy (DGAP). According to him, the German state “no longer wants to give German companies incentives to expand their activities in China”.

Volkswagen plant in UrumqiPhoto: Stephan Scheuer/photo alliance/dpa

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

Germany’s over-reliance 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 the European business companies are not leaving China, but are interested in other countries for new investments and also thinking about diversification,” explains the DW expert.

Jurgen MatthesPhoto: IW Köln/Uta Wagner

Wuttke, who is also BASF’s chief representative in China, recognizes a strong dependence ten major European companies from the Chinese economy. He sees dependence on the import of rare earth metals, precursors for the pharmaceutical industry or elements for photovoltaic energy. But when it comes to the economy as a whole, he thinks the comparison with Russia is flawed. “We have stocks of oil and gas from Russia. And from China we have stocks of toys, furniture, sports equipment, clothes, shoes. Most of these products – 90 percent I would say – can easily be produced in other countries,” I said. I’m sure Wuttke.

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

Refocus on other markets

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

According to Reuters, the German Ministry of Economy is looking for ways to get German companies to turn to other Asian states instead of China. It is not just government investment and export guarantees that are at stake. The federal government-owned KfW bank will cut back on its China program and instead offer more business loans in countries like Indonesia. Smaller programs such as stock market promotion are also examined.

Annalena BurbockPhoto: Political-Moments/IMAGO

The German business community has been aware of this for a long time. In 2021, the Federal Association of German Industry (BDI) is considering 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 argue for ‘the concept of responsible coexistence in foreign economic policy and cooperation with clear borders’.

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

For many managers, however, the Ministry of Economic Affairs’ change of course seems too abrupt. “State aid and protection of the Chinese activities 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 are to be welcomed. However, Strack declined to comment on the specific case of COSCO entering the Port of Hamburg.

Also see:

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

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Peter Kavinsky

Peter Kavinsky is the Executive Editor at cablefreetv.org

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