According to Reuters, ‘Better off thanks to China’: German companies double down on resurgent giant.
BERLIN (Reuters) – German industrial robot manufacturer Hahn Automation plans to invest millions of euros in new factories in China over the next three years to benefit from an economy that is recovering faster than others from the COVID-19 crisis.
“If we want to grow with the Chinese market, we have to produce on the ground,” said Chief Executive Frank Konrad of the investment drive designed to overcome China’s export barriers in what Beijing sees as a strategic sector.
“Our goal is to reach 25% of our sales in China by 2025,” he told Reuters, now about 10%.
But while the Chinese recovery may be good news for companies like Hahn, it hampers the efforts of Chancellor Angela Merkel’s government to diversify trade relations and become less dependent on Asia’s emerging superpower.
Despite concerns from Berlin, German industry is deepening ties with China, which fought the pandemic with tougher measures than other countries, emerged from an initial lockdown earlier and saw demand pick up faster.
Olaf Kiesewetter, CEO of car sensor supplier UST in Thuringia in eastern Germany, shares the same ambition to realize 25% of sales in China.
“We clearly notice that China has come out of the crisis by force,” he told Reuters, adding that a few years ago China had already become UST’s largest export market outside the European Union, accounting for 15% of its sales.
“Without China, our business would not have been so good in the third quarter. So there is no doubt that we are better off thanks to China. “
Such shifts to greater dependence on the Chinese market run counter to Berlin’s trade diversification, which can be traced back to the 2016 Chinese takeover of Bavarian robotics company Kuka – a move described by German officials as a wake-up. call to see China. as a serious competitor.
CHINA ‘RISE STRONGER’
But the same reality that Konrad and Kiesewetter are facing this year are more widespread, and the two countries have become more intertwined in some ways.
In terms of top destinations for German exports by value, China overtook France in the first nine months of 2020 and came close to the United States, Federal Statistics Office data compiled for Reuters showed.
A senior official told Reuters that given the latest trade and growth trends, China would likely overtake the United States by the end of the year and become number one.
According to the data, China’s share of total German exports rose from about 7% a year earlier to nearly 8% in the January-Sept period. China is also Germany’s largest supplier, with a share of less than 10% in German imports of more than 11%.
In the short term, China certainly looks stronger than many countries in the West.
Germany, the economic powerhouse of Europe, is reeling under a second wave of COVID-19 and the economy is expected to contract by a record 6% this year, the International Monetary Fund said. China is expected to be the only major economy to report growth this year, with an expected expansion of 1.9%.
Germany is expected to recover in 2021, but the projected growth of 4.2% falls short of the IMF’s global forecast of 5.2% and is about half of China’s projected 8.2%.
“We see China emerging stronger from the crisis, at least for now,” said Stefan Mair, one of the masterminds behind a strategy paper published last year by the FDI trade association that encouraged Berlin and Brussels to take their approach to Beijing.
“China has become even more important to Germany economically since the beginning of the year,” said Mair, who has headed the SWP’s political think tank since October.
MASKS AND MEDICAL DEVICE
The disruptions caused by the pandemic expose Europe’s dependence on certain areas.
A new survey from the Berlin-based Mercator Institute for China Studies (MERICS), shared exclusively with Reuters, found more than 100 product categories in which the EU has a critical strategic dependence on imports from China.
“Europe is highly dependent on Chinese imports for the pharmaceutical, chemical and electronics sectors, mostly on components produced in less technologically advanced areas of the value chain,” said MERICS researcher Max Zenglein.
In September, Economy Minister Peter Altmaier told Reuters Germany should become less dependent on Asian suppliers in areas such as medical precursors and that Europe as a whole should try to diversify its trade relations.
But that is easier said than done.
In one example of the complexity, the efforts of the German government to support the local production of medical face masks after the first pandemic met with mixed success.
Peter Haas of the Suedwesttextil business association said the pressure from Berlin did not lead to a domestic and sustainable market for medical masks because the plan was aimed at financing investments and did not include purchase guarantees.
“After the initial panic, the public sector in particular turned its back on the local producers and now buys protective masks at the lowest price – and that is often from China.”
A spokesperson for the Ministry of Economy said that the competition rules of the EU’s internal market do not allow purchase guarantees. But he added that Berlin was nonetheless confident that it would achieve its goal this year of supporting the local production of seven billion masks.
DEPENDENCE ‘CUTS BOTH WAYS’
But while Chinese demand has helped many companies weather the pandemic, some are still facing the kind of obstacles German officials complain give China an unfair advantage, with Beijing’s hybrid model of a state-controlled economy. to be combined with activities in the private sector.
Hahn Automation, for example, faces export hurdles for its “Made in Germany” machines, as Beijing has identified industrial robots as one of the areas of particular interest in its industrial strategy entitled “Made in China 2025”.
“China is putting itself off without mercy,” said CEO Konrad. “It wants to bring a large part of the added value in the field of automation and industrial robots into its own country.”
This means that Hahn Automation, which is based in the West German city of Rheinboellen and makes machines for the automotive and healthcare industries, has little choice but to move parts of its production to China, Konrad added.
“It’s impossible to ignore China because the market and the growth opportunities are simply too big,” said SWP’s Mair. “But most German companies are well aware that they are not doing themselves a favor by putting all their eggs in one basket.”
China’s Foreign and Trade Ministries did not respond to Reuters’ requests for comment.
Beijing said in June, in response to the EU’s call to open up its economy, that progress had been made and that patience was needed. But it has also rejected any interference in Chinese affairs, saying it does not violate global trade rules.
Nevertheless, German companies are looking at the production options in Asia alternatives like Indonesia or Vietnam, said Friedolin Strack, head of the FDI’s foreign trade department.
But he cautioned, “It will probably be three to five years before we can see how successful German companies have been in their efforts to become less dependent on China.”
MERICS ‘Zenglein argues that Europe must carefully assess its vulnerabilities and strengths in order to balance the different areas of cooperation and competition.
“Economic dependence also cuts both ways: China has much to lose from deteriorating relations with the EU, which is one of the country’s largest foreign investors and job creators, as well as an important market and source of know-how. . “
Reporting by Michael Nienaber; Additional reporting by Rene Wagner and Andreas Rinke in Berlin and Ryan Woo in Beijing; Editing by Pravin Char
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