Seoul. Many Japanese companies are already drawing harsh consequences from geopolitical tensions with China: within two years, the number of Japanese companies active in China has fallen by 22 percent, according to the business information agency Teikoku Databank. The German economy is taking a different path. It wants to continue to use China and at the same time seek new alliances in Asia. That was the tenor of the Asia-Pacific Conference of German Business (APK) in Seoul.
The companies have to navigate an area of tension between the classic China plus one strategy, i.e. another mainstay in Asia alongside China, and “Asia minus China” – in extreme cases, supply chains without China at all. The challenges are great, but the answers are in flux.
Volatility is the new characteristic of the business, says Peter Leibinger, chairman of the supervisory board of the mechanical engineering company Trumpf and president of the Federation of German Industries (BDI), to the Handelsblatt. The decisive force field is the conflict between the USA and China. “If we think we can act bilaterally with China regardless, then we are naive.”
Unlike Japan, Germany relies on balance. This was already made clear by the guest of honor at the conference: Federal Chancellor Friedrich Merz. On the one hand diplomatically: While he traveled to South Korea via Singapore and Japan, Federal President Frank-Walter Steinmeier visited China.
On the other hand, rhetorically: In his speech at the APK on Friday, Merz explicitly spoke of the “Indo-Pacific,” which for him extends from India to Southeast Asia, Japan and South Korea to Australia and New Zealand, and of China.
“The Indo-Pacific is now the economic powerhouse of the 21st century,” he said. Of course, China also plays a central role, admitted Merz. But he wants to better protect Germany against waves of exports from China, reduce dependencies and expand connections with the other countries in the region.
In Singapore he campaigned for a free trade agreement between the EU and the Asean confederation. In Japan, he proposed a “global political alliance” of the willing to defend rules-based trade.
This is well received in the German economy. “Many companies that are in China don’t want to leave,” says Antonin Finkelnburg, managing director of the Federal Association of Wholesale, Foreign Trade and Services (BGA) to the Handelsblatt. But they wanted alternatives in case they had to leave. The Indo-Pacific offers this. "We have a historical window at the moment. This must be used to expand contacts and, above all, to form solid alliances."
This is particularly important for the resilience of supply chains. “The cheapest supply chain becomes really expensive when it collapses,” explained Sabine Nitzsche, CFO of TÜV Süd. Many aspects were discussed at the conference, except decoupling China. The country is an indispensable part of the supply chain in many industries.
BDI boss Leibinger distinguishes between four roles when “dealing with China in its complexity as an economic power”: China as a market, as a supplier and production base and as an innovation partner and competitor.
Despite all the problems, he still sees advantages for companies that are already anchored in China. “In some cases they are now losing market share there,” he admits. But they could grow as Chinese customers expand globally. In addition, “if they have done it well, they are part of this Chinese innovation system.”
Leibinger accompanied Steinmeier to China this week. “What I saw there in terms of quality of innovation and the ability to quickly bring innovation to industrial scale – at the highest level – was deeply impressive,” he says.
This makes Chinese companies doubly interesting for him: as a buyer and as an industrial benchmark, for example when it comes to customer orientation. “Additionally, there is the enormous speed of the development cycles,” says Leibinger. “Whoever is there as a supplier is more competitive in the global market than others.” Speed has become a quality of its own in innovation.
This even opens up opportunities in Japan. Japan's automakers want to learn from Chinese rivals, but many of their suppliers lack China experience, people in the industry say. German companies that are deeply anchored in China's system can benefit from this as suppliers of this know-how.
According to Leibinger, companies without such roots could connect to China's innovation system via Southeast Asia. “The Asean states are a very interesting potential growth market for many companies,” he says.
Japan and South Korea, on the other hand, are interesting as established partners: because of their technologies that make supply chains more resilient and because of their political role. “If there is a political affinity, it always helps the economy.”
However, Finkelnburg sees a political hurdle. “We have to signal to Asian countries – and generally to the countries with which we want to trade – that we really want this.” But the signals are mixed.
The Chancellor's proposals are counteracted by the EU Commission's Industrial Accelerator Act with its "Made in Europe" requirements - and by the recent Franco-German car pact, which limits subsidies to electric cars built in Europe. “Ultimately they are protectionism disguised as industrial support,” criticizes Finkelnburg. And one that not only affects China, but also partners and parts of the domestic industry.
The Chancellor was also greeted with this message in Japan and South Korea. The intensity of the criticism “a little surprised” Merz said on Friday at the end of his trip to Asia in Seoul. He wants to bring the objections into the discussion in Brussels.
As chairman of the Asia-Pacific Committee of the German Economy, Siemens boss Roland Busch summarized the core message of the APK: “The previous model of action and the old partnerships no longer worked.” You therefore have to invest in new partnerships. “It is extremely important how we work with governments in the future,” he said. “The Asian ones are extremely important.”
