According to the fund manager, the German economy and the automotive sector are exposed to risks due to exposure to China
[1/2]A view shows the flags of China and Germany at a German automobile manufacturer’s stand at the Auto Shanghai Show in Shanghai, China, April 19, 2023. REUTERS/Aly Song/File Photo Acquire License Rights
FRANKFURT, Nov 15 (Reuters) – Germany’s strong economic involvement in China poses significant risks for Europe’s largest economy, the country’s second-largest fund manager said, citing the electric vehicle market as a concrete example of how it is likely to develop.
Union Investment, which manages 432 billion euros ($462 billion) in assets, examined nearly 2,000 listed companies worldwide in a study seen by Reuters and concluded that German companies were particularly vulnerable.
“In no other country, not even in China’s direct neighbors such as Japan and South Korea, are there so many large companies with a high level of involvement in China,” the study says. This applies to almost a quarter of all German companies in the focus group.
China has been Germany’s largest trading partner since 2016 and, with a bilateral trade volume of almost 300 billion euros, even exceeds that of the USA. This poses a dilemma for the federal government, which is actively trying to encourage companies to reduce their risks from China, the world’s second-largest economy.
According to the fund manager, it is striking that German companies are increasingly shifting research and development activities to China, while others are doing the opposite for security reasons.
“This strategy is risky in several respects: Germany as a business location is suffering because areas with significant added value are being relocated abroad and the supplier industry is losing orders at the same time.”
Union Investment has stakes in almost all German blue-chip companies, including the German automobile manufacturers Volkswagen (VOWG_p.DE), BMW (BMWG.DE) and Mercedes-Benz (MBGn.DE) as well as BASF (BASFn.DE). They have close connections and contacts with the Chinese economy.
The commitment means that German car manufacturers face risks such as being pushed out of the Chinese market and facing increasing Asian competition in Europe, the fund manager said.
German automakers could face retaliation in China if Berlin protects them from Asian competitors at home, Union Investment said, adding that technology offered by German automakers can now be replaced, unlike a decade ago.
“This will make retaliation less painful for China – an important decision-making criterion for Beijing, as we all know.”
($1 = 0.9361 euros)
Reporting by Christoph Steitz; Edited by Paul Simao
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