German companies will bear the brunt of tighter investment guarantees

Illustration: Tang Tengfei/Global Times

German media outlet Handelsblatt recently published an article titled “A New China Policy of the Ministry of Economic Affairs is Necessary and Overdue”. The author calls on the German government to strengthen guarantees for German business investment in China and argues that there is no alternative to this brutal intervention.

The call came after the Handelsblatt reported on Friday that Germany’s Federal Economics Ministry plans to change course in its China policy and tighten state guarantee rules for German companies investing in China. abroad due to the increasing dependence of German companies on the Chinese market. at a time of growing geopolitical tensions.

As geopolitical tensions weigh heavily on globalization, it is understandable that Germany seeks to adopt a cautious attitude towards its companies’ investment projects abroad. However, German economic policymakers need to think clearly: is a targeted tightening of investment guarantee rules for China necessary? What are the consequences of such a brutal intervention?

Of course, there is still fierce controversy over the issue within the German government. Some German officials have reportedly argued that German companies with a large presence in the Chinese market will suffer heavy losses once such a drastic tightening is formalized. And the business community has even fiercer objections.

Under current rules, German companies investing abroad received state guarantees in advance, and if the investment fails, part of it can be compensated by the state. A board member of the German Chamber of Commerce in China reportedly pointed out that if the German government takes such a drastic step, it will weaken the position of the German economy in global competition.

In May, Germany’s economic affairs ministry refused to grant a guarantee for a Volkswagen investment in China, citing so-called “human rights” issues in China’s Xinjiang region. On June 30, Volkswagen CEO Herbert Diess stressed that the German economy needed China to hedge against spiraling inflation. Diess said in December that it would be “very damaging if Germany or the EU wanted to decouple from China.”

If one examines the actual situation of the current investment and economic exchanges between China and Germany in an objective and rational manner, it is not difficult to see that these rising voices in Germany to decouple from China are more influenced by the intensification of the US Cold War. mentality and economic decoupling from China, rather than through an objective and rational analysis based on German economic interests and economic laws.

Over the years, China and Germany have achieved mutually beneficial economic and trade development while properly handling political differences. As the call for tighter guarantees for investment in China grows louder, German investment in China is reaching a new high. Companies are in search of profits and their behavior is the result of economic laws. The record investment by German companies in China reflects the growth of German companies in the Chinese market.

In the current global geopolitical environment, the United States is trying to dominate the global economic and trading system and the industrial chain. On the other hand, China continues to open its market and is committed to multilateralism and free trade. Faced with this situation, Germany must make independent and responsible judgments and decisions about its own economic policy towards China.

As China continues to open up its market, German companies, even with established advantages in the Chinese market, still face fierce competition. For German companies that have already acquired a very favorable position in China, the reduction or expansion of their presence now depends on the decision of the German government.

German economic policymakers are advised to think twice before taking the decision to strengthen investment guarantees in China, as this unnecessary and destructive action, once taken, will undoubtedly have serious consequences, and German companies will suffer. weight by losing hard-won market share. .

The author is a journalist at the Global Times. [email protected]

James R. Rhodes