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It will take “decades” for German manufacturers to reduce their dependence on China, says the CFO of the software technology group Siemens, emphasizing the dilemma facing Western companies and their dependence on the country both as a market and as a supplier.
“Global value chains have developed over the last 50 years. How naive do you have to be to believe that this can change within six or twelve months?” said Ralf Thomas. “This is about decades.”
His comments follow a report from the German Economic Institute that found the country's companies had made little progress since 2022 in “de-risking” their China engagement and reducing their critical import dependencies.
According to the German statistics office, China is Germany's largest trading partner. In 2023, goods worth 254 billion euros were traded between the two countries. The relationships, which extend from Germany's largest corporations such as Volkswagen and BASF to small and medium-sized German SMEs, have long been considered a pillar of the country's economic strength and a role model for globalization.
This relationship is now seen as a liability by many investors and politicians. The Bundesbank warned last year that Germany's “business model was at risk from excessive dependence on China.” Last July, Foreign Minister Annalena Baerbock called on German companies to reduce their dependence on China.
The latest intervention by Siemens, which had previously defended its activities in China and declared its intention to expand its market share there, comes as Chancellor Olaf Scholz met on Sunday with a high-level business delegation, including the CEO of Siemens and the new boss of BASF.
“It would be a gross misunderstanding to believe that this was the intention of this government [to want to reduce trade with China]. “We want to further expand trade with China, taking into account the need for risk reduction and diversification,” a German government official said.
“When it comes to critical dependencies, we need to address those. We don’t want to isolate ourselves, we want to have balanced partnerships.”
A separate report released this week by the Kiel Institute estimates that Beijing's subsidies to its domestic industries, including companies like BYD, are between three and nine times that of other OECD countries.
Siemens' Thomas said the company had come to the conclusion that it “couldn't afford not to do it.” [in China]“. He added that the rise of aggressive local competitors was a “challenge” and stressed: “Those who can withstand the heat of Chinese cuisine will succeed elsewhere.”
An editorial in the state-run Global Times last week on the German delegation's visit acknowledged that relations between the two countries “face some challenges, such as market access and fair competition.”
“However, these challenges should not be an excuse to derail bilateral cooperation from its positive course,” it said.
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