From: lessgovt@gmail.com   
      
   As Concerns About China Grow, Germany Loosens Its Embrace   
   By Bertrand Benoit and Sha Hua, July 13, 2023, WSJ   
   BERLIN—For decades, selling to China has been a key ingredient in   
   Germany’s recipe for economic success. Now, Berlin wonders if its partner   
   has gotten too close for comfort.   
      
   On Thursday, Germany released its first-ever “China strategy,” an attempt   
   to balance the relationship’s huge economic benefits with the need to manage   
   risks posed by Beijing’s increasing authoritarianism at home and   
   assertiveness abroad.   
      
   The 64-page document says China should no longer be considered just an   
   economic partner but also a competitor and systemic rival. Its main   
   prescriptions aim to reduce the risks posed by German businesses’ vast   
   exposure to the Chinese market.   
      
   “In recent years, the systemic rivalry aspect has moved more to the   
   foreground… China has changed, and therefore our China policy must change   
   too,” Foreign Minister Annalena Baerbock said as she presented the paper.   
   “We do not want to decouple    
   from China but to reduce risks as much as we can.”   
      
   Working with European Union partners, Germany will beef up its scrutiny of   
   Chinese investments and consider mechanisms to review German investments in   
   China, according to the document. It will seek to increase incentives for   
   companies to diversify away    
   from China.   
      
   Baerbock said Germany and its EU partner would respond together if China   
   targets individual EU members with hostile measures, saying the region would   
   use its vast internal market “as its most powerful instrument.”   
      
   This is a new approach for a country that has been the most China-friendly   
   large economy in Europe. But it isn’t a U-turn. The strategy doesn’t   
   recommend stopping China from accessing specific technologies—as the U.S.   
   has done with semiconductors—   
   and it insists on the need to maintain good economic relations with the   
   country and to work together on fighting climate change.    
      
   Analysts said the strategy was toned down compared with a draft leaked in   
   November that included obligations on companies to disclose their exposure to   
   China and undergo stress tests to gauge their resilience in case of a   
   geopolitical crisis.   
      
   “It’s clear that the government didn’t want to burden companies with   
   additional requirements,” said Noah Barkin, Europe-China expert at Rhodium   
   Group. “We will see if companies that are heavily dependent on China will   
   react.”   
      
   Gyde Jensen, a lawmaker for the ruling Free Democratic Party, said the   
   government had taken too long to publish the paper and would have to work hard   
   to translate it into practical legislation next year before it becomes   
   distracted by the next general    
   election in 2025.   
      
   “We need to show our partners in the world, the alliance of democracies,   
   that we mean what we say,” she said. “Next year is key.”   
      
   Officials and analysts said the finely calibrated paper reflected a compromise   
   between conflicting views in the ruling coalition, with some members backing a   
   tougher stance while Chancellor Olaf Scholz and others insisted on a more   
   business-friendly tone.   
      
   Berlin has been reappraising its foreign-policy goals and tools since   
   Scholz’s election in late 2021. Last month, the government published its   
   first security strategy since the end of World War II in response to mounting   
   global threats.   
      
   Those efforts started before Russia’s attack on Ukraine. But the China   
   strategy also draws lessons from the war, which sent Germany scrambling to   
   escape its reliance on Russian energy. With the strategy, Berlin is trying to   
   mitigate the potential    
   fallout should a similar crisis erupt involving China.   
      
   “Russia has just a fraction of the significance for the German economy   
   compared with China,” said Titus von dem Bongart, Partner at Ernst & Young   
   China. “China is the largest car market, the largest market for chemicals,   
   there is just no comparison.   
   ”   
      
   German companies were among the first in the West to treat China not just as a   
   cheap manufacturing base but as a market, starting in the 1980s. They went on   
   to make the machines that equipped Chinese factories and built China’s   
   infrastructure, and they    
   offered the cars that China’s new middle class wanted and could increasingly   
   afford.   
      
   In recent years, Chinese companies have begun encroaching on their German   
   rivals’ turfs. The country now exports more cars than Germany, according to   
   the China Association of Automobile Manufacturers. Still, China was   
   Germany’s largest trade partner    
   in 2022 for the seventh consecutive year, with 298.9 billion euros in goods   
   exchanged, equivalent to $332.66 billion, according to Germany’s federal   
   statistics agency.   
      
   While some German companies have been revamping their supply chains to protect   
   their global operations in case of disruptions in China, many are doubling   
   down on their investments there.    
      
   “Risk management is already being put in practice at Volkswagen,” Ralf   
   Brandstätter, Volkswagen’s China chief executive, said after Berlin   
   unveiled its strategy. “Worldwide, we are striving to achieve a balanced   
   sales position. To this end, we    
   are investing billions in the U.S.A. and South America, for example.”   
      
   But VW would continue to invest in China, he added, with the goal of   
   developing a more self-sufficient supply chain there.   
      
   So far this year, China accounted for about 37% of VW’s worldwide   
   new-vehicle sales, according to the company. Speaking to investors in June,   
   CEO Oliver Blume said VW had sold 3.2 million new cars in China last year,   
   almost as many as in Europe.    
      
   German chemicals giant BASF plans to invest €10 billion by 2030 in an   
   integrated chemicals facility in Zhanjiang, in southern China. When completed,   
   the site would be BASF’s third-largest worldwide. Speaking to shareholders   
   in April, CEO Martin    
   Brudermüller said China now accounts for about 15% of BASF’s annual sales.    
      
   German business lobbies and their allies in politics have warned Berlin not to   
   follow the U.S. in its growing confrontation with China, saying companies   
   should be trusted to manage their Chinese exposure themselves.   
      
   Beijing has echoed those appeals and sought to persuade Europe not to join   
   Washington’s more confrontational approach, calling on governments to   
   exercise “strategic autonomy.”   
      
      
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