Almost a year ago, the federal government set itself the goal of freeing Germany from its dependence on imports from China. Little of it can be seen so far.
At the latest, the painful supply chain failures in the Corona pandemic revealed Germany’s strong dependence on imports from China. Since it became increasingly likely that the People’s Republic would attack Taiwan, the federal government wanted to free itself from it. Sanctions and even an economic war would be even more consequential against China than against Russia. Suddenly everyone was talking about de-risking: Please no decoupling from the most important trading partner, but rather a reduction in dangerous dependencies. But almost a year later there is still hardly any sign of it.
On his trip to China, Chancellor Olaf Scholz explained that the aim was to further develop cooperation “in all dimensions”. A week later, four people who are said to have spied for the People’s Republic were arrested in quick succession in Germany. And trade flows do not show any structural and therefore lasting changes, although imports from China have fallen significantly overall.
“Overall, German import dependencies on China remained at a similar level in 2023 as in the previous year despite certain changes,” summarizes IW economist Jürgen Matthes in a current analysis available to ntv.de. The head of the international economic policy department at the employer-oriented Institute of German Economics used industry-related product groups to examine whether de-risking can be identified in imports. His sobering result: at most rudimentary. A clear structural de-risking is not apparent.
Only special effects improve the balance sheet
Imports of products for which China accounted for at least half of the import value, i.e. with a high level of dependency, fell last year. But this is mainly due to one-off special effects. The very strong increase in imports of a single chemical product from 2022 largely normalized again last year. The second special effect: In 2022, due to delivery bottlenecks, warehouses for computer-related products were built up, which were emptied again last year.
According to the analysis, the number of product groups with potentially critical dependencies, which may therefore be indispensable and not replaceable in the short term, only fell slightly: from 213 to 200. 73 product groups fell off the list because the respective import share from China fell below half sank. At the same time, almost as many product groups were added to the list, for example medicines, rare earth metals and laptops. In addition, the number of product groups with high dependency appears to have increased significantly since 2013. “This also shows that the problem of potentially critical import dependencies on China has tended to worsen in recent years,” writes the study author.
Import dependency is greatest for chemical products. Electrical and electronic products such as laptops and accessories as well as solar cells and batteries follow far behind. Third place is tied for mechanical engineering products as well as raw materials and minerals, including six rare earth metals.
New suppliers source from China themselves
As Matthes emphasizes, only possible danger spots can be identified based on the available data. However, in order to reduce dependencies, it would be necessary to know the actual critical points: which products are indispensable and cannot be replaced in the short term – plus the possible amount of damage to the economy as a whole. The economist advocates that companies make this information accessible to the state – in strict confidence.
Even if this knowledge were passed on, a fundamental problem remains. Breaking free from dependency is only possible to a limited extent and takes time, a lot of time. For products that are now sourced from other Asian countries, they in turn purchase intermediate products in China. “This is the big problem in solving China: The new suppliers themselves source from China,” Klaus-Jürgen Gern, who heads the international economic forecast at the Institute for the World Economy (IFW) in Kiel, explained in an interview with ntv.de.
The huge amount of products from China, which specializes in industry and manufacturing, cannot simply be replaced. According to Gern, building up additional production capacity will take decades rather than a few years. In addition, there are new problems at alternative locations, such as regulations or corruption. “There are reasons why a relocation has not taken place,” says Gern. Political considerations make the selection even more difficult. For example, some African countries offer potential for additional production, but are unstable or authoritarian.
The critical points would have to be revealed first
China also dominates production because of its raw materials and their processing. There are also other environmental standards. Countries like Germany can no longer imagine essential production steps because of their environmental impact, such as the further processing of rare earths. And so the countries in which politicians accept the environmental impact take over production.
If more production were to be relocated from China to other countries, additional costs would arise – which would have to be enforced on end customers and investors. However, it might still be worth it. Not preparing may be even more expensive, as Russia’s dependence on energy up until its war of aggression against Ukraine has shown. “We should accept moderate price increases in order to be prepared,” says Gern.
In order to be prepared for a possible trade war with China, Gern also calls for the critical points to be analyzed. However, this is only possible with the help of the German companies affected. In Matthes’ eyes, the state has a legitimate interest in the information that would be necessary for a de-risking risk analysis because of the potentially “significant potential for damage to the economy as a whole.” “This is about protecting national economic security, which has to take second place to companies’ right to secrecy,” writes the economist. The downside would be that companies would only disclose their actual dependencies on China to a government task force: the more people in the know, the more potential points of attack for espionage.