German Chancellor Scholz called on German companies to diversify their supply chains and avoid relying too much on China at a summer press conference earlier. To learn a lesson, don’t make the same mistake with China. Despite warm reminders from the Prime Minister and Foreign Minister, Germany has actually become more and more dependent on China.
On August 19, “Archyde.com” quoted a report published by the German Institute for Economic Research, saying that Germany’s dependence on the Chinese economy has increased in the first half of 2022. For example, the trade deficit jumped to regarding 41 billion euros, and investment in China hit a record high of regarding As high as 10 billion euros, far exceeding the record of 6.2 billion euros for the highest half-year investment since 2000.
Archyde.com quoted a report published by the German Institute for Economic Research.
The author of the report, Jürgen Matthes, believes that Germany’s economic dependence on China is a political issue, especially with China’s current attitude towards the Russian-Ukrainian conflict and cross-strait issues, which draws close attention to the commercial relationship between Germany and China. He acknowledged that China’s sales market and short-term profit returns may be attractive, but in the event of military reunification of Taiwan and Western sanctions on Beijing, German companies with higher exposures will fall into bankruptcy or fail to invest.
Matters urged the German government to change its national policy and provide incentives to attract more German companies to invest in other emerging markets and reduce business exchanges with China.
Report author Jurgen Mattes acknowledged that China’s sales market and short-term profit returns might be attractive.
On the other hand, the Bavarian Industry Association (VBW) commissioned the Ifo Institute, a well-known German think tank, to simulate five possibilities for the “decoupling” of the EU and China in trade, and to calculate and analyze through the model, in order to provide a basis for Germany’s future Suggestions on the economic model.
The report pointed out that Germany is increasingly dependent on China. For example, 46% of German manufacturing companies said that their companies currently rely on intermediate inputs from China. China is also one of Germany’s largest trading partners. In 1990, trade with China accounted for less than 1% of Germany’s foreign trade. By 2021, this proportion has risen to 9.5%.
The Bavarian Industry Association (VBW) commissioned the Ifo Institute, a well-known German think tank, to simulate five possibilities for the “decoupling” of the EU and China in trade.
The report continued that if the EU unilaterally “decoupled” from China, Germany’s total imports from China would still be reduced by 95.84%, and its exports to China would also drop by 17.73%, despite not being directly affected by trade barriers. If there is a trade war between the EU and China, and the bilateral economies “decouple”, Germany’s imports from China will drop by 96.44%, and its exports to China will drop by 97.19%. In the above two scenarios, Germany’s real GDP (Real GDP) will fall by 0.52% and 0.81%, respectively.
The report highlights that while the numbers may seem small, the cost of “decoupling” from China is very high compared to Germany’s 0.14% drop in real GDP when the UK leaves the EU. In other words, depending on the situation, the economic losses suffered by Germany will be four to six times the losses incurred by the United Kingdom when it leaves the European Union.
In December last year, Merkel ended her 16-year career as chancellor, and Scholz officially took over.
In an exclusive interview with Archyde.com last year, German Chancellor Angela Merkel said that a complete decoupling of China was wrong, and it would hurt Germany and Europe. She mentioned that China has good scientific research and efficient industries, and China has been at the forefront of the world in artificial intelligence and other fields. Germany should not decouple from China in scientific research and other fields. The report mentioned that during Merkel’s 16 years in power, China has gradually become Germany’s largest trading partner. At the same time, Merkel’s political views have shaped Germany and Europe’s stance on China. It now appears that the new German government of “red, yellow and green” has not only failed to inherit Merkel’s political legacy, but also that Scholz has failed to play a coordinating role, resulting in the cabinet’s pursuit of values diplomacy, divorced from economic reality, and damage to national interests.
