When the German Chancellor, Olaf Scholz, flew to China on Saturday April 13, nothing was apparently very different from the numerous trips made to this country, by his predecessor Angela Merkel, during the 2010 decade, where the Germany made so much money there. The government plane carried representatives of large German groups, first and foremost Oliver Blume, boss of Volkswagen, the largest German company, which sells four out of ten cars in China.
However, the relationship has fundamentally changed between Berlin and Beijing. In July 2023, Germany adopted a “Chinese strategy”, which recommends that companies diversify their sources of supply and customers in the face of rising geopolitical risks. In Brussels, in Washington, but also within the German coalition, pressure is strong on the chancellor to adopt a firmer position vis-à-vis China. While Germany suffers from a slowing economy, and its industry can hardly do without Chinese orders, Olaf Scholz must find a new balance.
The task will be all the more delicate as cracks have widened within German industry itself. Unlike the 2010s, the strong consensus that reigned on the China question between industry, unions and politics has faded. A gap has opened up between large groups, which produce more and more in China, and medium-sized companies, for whom the ratio between profits and risks posed by the Chinese market is no longer as favorable.
“Many SMEs fear losing the technology in which they are at the world’s forefront, if they produce in China, and prefer to export there. But access to the market has become increasingly difficult for them. This is why they welcomed the government’s recommendation to deriskingto diversify sources and outlets in a more offensive way than large companies”, explains Rolf J. Langhammer, trade expert at the Institute for the World Economy in Kiel. A survey by the Ifo institute, published Thursday April 11, notes in fact that only 37% of German companies say they are still dependent on Chinese products for their crucial supplies, compared to 46% in February 2022.
Several large-scale social plans
This divergence of interests between SMEs and large industrialists, long limited to a discussion within business circles, has taken on a much more political dimension in recent months. While the automobile groups and their major subcontractors (Bosch, ZF, Continental) are taking the hit from the slowdown in sales of electric vehicles, they have announced several large-scale social plans across the Rhine…, at the same time as an acceleration investments in China, the world’s largest automobile market.
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