Exclusive: German Economy Ministry reviews measures to curb business in China

Employees work on the assembly line during a construction completion event for the SAIC Volkswagen MEB electric vehicle plant in Shanghai, China November 8, 2019. REUTERS/Aly Song

BERLIN, Sept 8 (Reuters) – Germany’s economy ministry is considering a series of measures to make doing business with China less attractive as it seeks to reduce its dependence on the Asian economic superpower, two people familiar with the matter told Reuters.

Measures could include reducing or even removing investment and export guarantees for China and halting the promotion of trade fairs and executive training there, the people said. Loans from state lender KfW could be redirected to projects in other Asian countries, such as Indonesia, in line with attempts to diversify trade and increase business with democracies.

The ministry also plans to screen not only Chinese investment in Germany, but also German investment in China, one of the sources told Reuters.

In addition, the government is considering filing a complaint with the World Trade Organization over what it considers unfair Chinese trade practices, in conjunction with wealthy Group of Seven democracies, a separate source said.

“We have to show Beijing that we are ready to fight for the principles of fairness,” the source said.

A spokesperson for the economy ministry declined to comment on the specific measures, but said the ministry was verifying targeted measures “to support diversification (of trade and supply chains) and strengthening resilience”.

The ministry had already decided to no longer issue investment guarantees for projects in the Xinjiang region or to companies with business connections there due to concerns about human rights abuses and lack of reliable information.

In May, the economy ministry denied guarantees from Volkswagen for new investments in China over concerns about Xinjiang. Read more

China’s Foreign Ministry did not immediately respond to a Reuters request for comment.

The plans mark a break with Berlin policy under former Chancellor Angela Merkel, who took large business delegations with her on her frequent trips to China, and oversaw a boom in Sino-German economic relations.

China became Germany’s biggest trading partner in 2016, trading more than 245 billion euros last year, helping to fuel the growth of Europe’s biggest export-driven economy.

German automakers are particularly exposed to the Chinese market, with Volkswagen (VOWG_p.DE) making around half of its profits there. Germany and Europe also depend on China for certain raw materials, such as rare earths.

In recent years, German politicians and business leaders have already advocated greater trade diversification with Asia in response to Beijing’s tightening grip on society and the economy under President Xi Jinping. Read more

Shortly before leaving office last year, Merkel told Reuters she may have been naïve at first in some areas of cooperation with China. Read more

NEW STRATEGY FOR CHINA

The new government agreed to a tougher line on China in its coalition agreement, pledging to reduce strategic dependencies on its “systemic rival” and mentioning for the first time sensitive issues for Beijing, such as Taiwan and Hong Kong. Chancellor Olaf Scholz made his first Asian visit to Japan, unlike Merkel. Read more

Berlin is working on a national security strategy that is expected to mention China, and a China-specific strategy that it expects to release next year, the sources said.

The junior coalition party of the Greens – in charge of the economy and foreign affairs ministries – says it is particularly concerned about human rights abuses and the risks of being beholden to an increasingly authoritarian state. asserted, Russia being an example.

“We cannot…afford to just follow the ‘business first’ motto, disregarding the long-term risks and dependencies,” Foreign Minister Annalena Baerbock told the annual ambassadors’ conference this week.

“In reality, we never received cheap gas from Russia,” she said. “We paid two or three times more for every cubic meter of Russian gas in our national security.”

Scholz’s Social Democrats are more reluctant to rock the boat, sources said. Scholz warned of the negative consequences of any “decoupling” from China and said he believed companies were already diversifying.

Companies and business associations are increasingly publicizing their concerns about tougher China policy, arguing for aid in trade diversification rather than confrontational measures in such an important market. Read more

“We cannot isolate China,” Hildegard Mueller, president of the German automobile association VDA, told digital media Table Media. “That would be naive – and fatal, both politically and economically.”

Reporting by Andreas Rinke and Sarah Marsh in Berlin; Additional reporting by Christian Kraemer, Alexander Ratz and Victoria Waldersee in Berlin, Lun Tian Yew in Beijing; Editing by Tomasz Janowski

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