The China question is driving the German managers

Dhe search for a way to reduce the German economy’s dependence on China is slowly gaining momentum. South Asia appears to be the winner. At the 17th Asia-Pacific Conference of German Business in Singapore, German medium-sized companies also criticized the enormous dependence of a few German companies on business in China.

However, there is no sign of a quick solution. “You cannot replace the largest market in the world with another. If we had alternatives, we would be there long ago,” said Stefan Hartung, spokesman for the board of management at Robert Bosch, summing up the view of those large companies that have put their faith in China. A word like “decoupling”, detachment from China, he would like to see spellbound, says one of his colleagues behind closed doors.

The People’s Republic is by far Germany’s most important trading partner. However, the economy in the rest of Asia is currently developing better: According to a survey by the Association of German Chambers of Industry and Commerce (DIHK), 44 percent of companies in Asia-Pacific expect their own business to develop positively over the next twelve months, and 17 percent expect it to deteriorate. In China, only 28 percent are optimistic, and 23 percent expect declines.

“Woe, it’s going to extremes”

At the APK, medium-sized companies who are afraid to read their names also warned against being too dependent. “We cannot afford to ignore China if our largest clients want us there. But alas, this is going to extremes,” one of them referred to a feared Chinese attack on Taiwan.

Since the war against Ukraine, it has been clear to everyone here that Germany would then have a much bigger problem than high gas prices. Sanctions against China would hit Germany far harder than those against Russia. However, the risks associated with the North Korean dictatorship were never mentioned on the first day of the APK. “The question of geopolitical risks, which we have to think through, has a completely different dimension today than it did ten years ago,” admitted Bosch boss Hartung. “With all the risks we face, we have to seize every opportunity we see,” he said, calling for a “constant scanning” of the markets.

That is why everyone who is responsible for business in Asia is examining alternative locations in these months. “We have to do one thing without being able to neglect the other,” said Jens Rübbert, President of the German-Singapore Chamber of Commerce.

India is very popular here: German investors are queuing there. However, those familiar with the country also pointed out that the growth was being driven by a small number of corporations and consumption by the middle class. The Indian market is also much more difficult to enter than China.

In Southeast Asia, with its almost 700 million people and a rapidly growing, young middle class, Vietnam is particularly attractive. “We are experiencing a turning point with the Russian attack on Ukraine,” affirmed Chancellor Olaf Scholz (SPD) on Sunday in the local capital Hanoi. “As a consequence, we have to expand our sales markets, our supply chains, sources of raw materials and production sites so that we do not become dependent on individual countries and suppliers,” emphasized the German head of government.

He is expected at the APK on Monday, and on Tuesday he will represent Germany at the G-20 summit in Bali, Indonesia. Cooperation with Vietnam plays a central role for Germany, said Scholz. The country on the Mekong continued to grow rapidly at 13.7 percent in the third quarter, analysts warn of overheating. Shortly before Scholz’s appearance in Hanoi, American President Joe Biden had declared at the summit of the ten Southeast Asian ASEAN countries in Phnom Penh, Cambodia, that the planned “comprehensive strategic partnership” between the United States and the confederation of states was “tackling the greatest challenge of our time”. Biden also spoke of the system question that Beijing was asking.

Meanwhile, Federal Minister of Economics Robert Habeck (Greens) used the APK in Singapore to promote more diversification among German managers. With a view to a trade agreement between the EU and ASEAN, which also includes the military dictatorship of Myanmar and Thailand, which is led by putschists, Habeck addressed the problems himself. “Of course there are also countries in the region that are not suitable partners for making a value-based trade policy because of their political structure,” he said. It is therefore not so easy to “get the two large economic areas on top of each other”.

The aim must be to promote as many bilateral trade agreements as possible. They exist with Singapore and Vietnam, which of course is reminiscent of China two decades ago in many areas. Indonesia, the region’s largest economy and Southeast Asia’s only member of the G-20, and India are writhing over concerns about jobs.

This is one of the reasons why it seems impossible for anyone in Singapore to turn their backs on China. The orders of magnitude are too clear: 11 percent of the total exports from German mechanical engineering companies go to China, but only 3 percent to Southeast Asia and 2 percent to India. “The real risk is not being in China,” said Hartung. Siemens boss Roland Busch, he is also a major investor in China and chairman of the Asia-Pacific Committee (APA), sees no rush to a major shift: “Diversification is not a matter of three, four or five years.” One talks more over ten to twenty years.