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German companies not buying the 'de-risking' sermon

Xinhua | Updated: 2024-02-26 16:08
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Visitors walk past the China pavilion at the Heimtextil 2024 in Frankfurt, Germany, Jan 9, 2024. [Xinhua/Zhang Fan]

BEIJING -- Any increased protectionist measures against China by the European Union will have a damaging impact on economies such as Europe, said Ola Kallenius, chairman of the board of management of Mercedes-Benz Group, when releasing the company's quarterly results.

Kallenius's comments echo those of a wide range of German and European businesses. Judging from a series of reports and data released recently by the German government, think tanks and chamber of commerce, China-Germany investment cooperation has not been affected by the "de-risking" sermon.

While some politicians in the United States and some other Western countries are clamoring for "de-risking" in China, German companies are continuing to increase investment in China and tap into the Chinese market.

The German Economic Institute recently pointed out in a report based on data from the German central bank that in 2023, direct investment from Germany to China reached a record high of 11.9 billion euros ($12.9 billion), increasing by 4.3 percent compared to the previous year.

According to the report, German companies' investment in China over the past three years roughly equaled the amount from 2015 to 2020. Additionally, in 2023, Germany's investment in China accounted for 10.3 percent of its total overseas investment, the highest level since 2014.

Data released by the Federal Statistical Office of Germany in mid-February also showed that in 2023, the trade volume between Germany and China stood at 253.1 billion euros ($274.2 billion), with China being Germany's largest trading partner for the eighth consecutive year.

The author of the report from the German Economic Institute, Jurgen Matthes, believes that the data indicates that large German companies still see China as a growing market and plan to expand their business in China to hedge against the escalating global trade tensions.

The German Chamber of Commerce in China released its annual business confidence survey for 2023/24 in January, with responses from 566 member companies. According to the report, over 90 percent of the surveyed companies plan to continue establishing themselves in the Chinese market, and more than half of them plan to increase their investments in China over the next two years.

The report suggests that China's significance to the German economy remains unparalleled. With its massive consumer market, advanced supply chain infrastructure, and increasing innovation capabilities, China continues to be one of the most important markets for German companies, the report said.

Wu Huiping, a professor at Tongji University, believes that the Chinese market has an attraction that German companies cannot find in other markets.

She pointed out that after the escalation of the Ukraine crisis, German enterprises' operating costs have risen sharply as the companies also face energy price fluctuations, a shortage of skilled workers in the labor market and many other problems, which have diminished the appeal of investing in Germany. In contrast, China has complete production factors and supply chains, and abundant labor with industrial experience, which are favored by many German companies.

Several experts from the Deutsche Bundesbank recently said in reports that in the long term, leaving China would significantly increase German businesses' costs as they miss out on China as a "major sales market" and many supply chains would have to be restructured at the expense of efficiency.

Michael Schumann, chairman of the Federation of the Federal Association for Economic Development and Foreign Trade (BWA), suggested that many Western media outlets are currently inclined to sensationalize ideological and geopolitical confrontations, to warn of investment risks.

He said the enterprises should visit China to get a firsthand experience and engage in dialogues with locals, which would lead to different perceptions and conclusions.

The so-called "de-risking" essentially politicizes and ideologizes economic and trade issues, not only undermining the authority and effectiveness of the multilateral trading system, but also contravening economic laws. This will ultimately hinder the global economic recovery process. Trying to reduce political risks through creating trade barriers is a risk in itself.

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