German government wants companies to ‘de-risk’ from China, but business is reluctant

The German government’s new strategy of “de-risking” from China is met with resistance from German businesses that are hesitant to sever ties with the world’s largest market.

German companies have long enjoyed fruitful business relationships with China, but a shift in the German government’s stance towards the Asian giant has prompted a new strategy called “de-risking.” While the government urges companies to reduce their dependence on China, many businesses remain reluctant, citing the country’s economic significance and the need for a deeper understanding of China’s approach to the world. This article explores the challenges and complexities surrounding the German government’s push for de-risking and the reasons behind businesses’ hesitance to sever ties with China.

Trust and the need for peace of mind drive businesses to seek European suppliers

German companies, like the Munk Group, have a long history of doing business with China. However, instances of unreliable suppliers and financial losses have prompted some companies to seek peace of mind by turning to European suppliers they trust. Munk Group’s CEO, Ferdinand Munk, recounts an incident where a Chinese supplier disappeared after receiving payment, leaving the company empty-handed. This experience has led Munk to prioritize European suppliers, even if they come at a higher cost. Trust, whether in terms of product quality or national security, plays a vital role in businesses’ decisions to de-risk from China.

Reluctance to sever ties with China due to its economic significance

While the German government emphasizes the need to de-risk from China, many businesses argue that it is impossible to avoid contact with the world’s largest market. Gerhard Pfeifer, CEO of Pfeifer Group, a company that has been doing business in China since 2004, believes that China’s size and economic importance make it crucial for companies to maintain ties with the country. Pfeifer argues that Western politicians often misunderstand China’s approach to the world and highlights the need for a clear understanding of mutual interests when engaging with Chinese counterparts. The reluctance to sever ties with China is further reinforced by the continued growth of Chinese imports to Germany and the significant presence of German automakers in the Chinese market.

The lack of internal consensus within the German government

One of the reasons German businesses are hesitant to de-risk from China is the lack of internal consensus within the German government regarding the country’s interests. Unlike China, Germany’s government is composed of three political parties with differing views on the matter. This lack of unity and clarity on Germany’s interests hampers the government’s ability to effectively communicate and implement its de-risking strategy. As a result, German businesses continue to prioritize their economic ties with China, as they perceive the potential risks of severing those ties to be far greater than the benefits.

The role of the Green Party and the need for China expertise

The Green Party’s hawkish stance on China, coupled with its influence in Germany’s parliament, has shaped the current political rhetoric towards China. However, critics argue that many members of parliament lack in-depth knowledge of China and rely on media portrayals that often oversimplify the complex relationship between Germany and China. Michael Schumann, chair of the German Federal Association for Economic Development and Foreign Trade, suggests that a deeper understanding of China among politicians, their advisers, and the media could lead to a more nuanced discussion on de-risking. He highlights the expertise of German companies doing business in China as valuable sources of knowledge that should be tapped into.

Conclusion:

The German government’s push for de-risking from China faces resistance from German businesses that are hesitant to sever ties with the world’s largest market. Trust, economic significance, and the lack of internal consensus within the German government are key factors driving this reluctance. While the sentiment behind de-risking is acknowledged, businesses argue that a deeper understanding of China is necessary to effectively mitigate risks. As Germany navigates its relationship with China, striking a balance between economic interests and risk management will be crucial for the country’s future.