At the beginning of September, Federal Foreign Minister Johann Wadephul (CDU) gave the German economy a thumbs up. It has been three years since the federal government called for people to reduce their dependence on China and to immediately build new factories in the south of the Asian continent. But the companies were disobedient.
Germany invested a third more in China in the first half of the year than in the same period last year. The Germans sell less there, while the Chinese win in Germany. The relationship with the Middle Kingdom is becoming “more and more unbalanced,” said Wadephul to the managers who traveled to Berlin at the Ambassadors Conference’s business day. No trace of “decisive de-risking”.
De-risking has been a core concern of the Union since the Ukraine war
The anger is understandable, as the push for economic security has been a core concern of the Union since the start of the Ukraine war. Jens Spahn (CDU) in particular had brought Southeast Asian countries such as Indonesia, which has 280 million inhabitants, into play as an alternative to China in the Bundestag group - based on the formula that with many people and high economic growth, profits are guaranteed.
But not necessarily the Germans. When Chancellor Friedrich Merz (CDU) makes a stopover in Southeast Asia at the end of October on the way to the Asia-Pacific Conference, he will end up in one of the most dynamic regions on earth. But the most important German industry hardly plays a role there. In none of the ten countries is Volkswagen among the ten best-selling brands. Only in rich Singapore and small Malaysia can Mercedes and BMW keep up with the Japanese and Chinese.
Southeast Asia is being overrun by China, the Germans are left with niches
Suppliers like Bosch and ZF are in a better position in the region, at least when it comes to technology for cars with conventional combustion engines. The production of batteries is firmly in Asian hands. There is still room for high-tech from Germany in a few niches. But they are getting smaller.
While the Germans used to leave the rest of Asia to others because things were going well in China, today it is the rapidly dwindling profits in the People's Republic that are preventing them from de-risking: missing the technological gap with the increasingly strong Chinese competitors is a greater risk for companies than the danger of China attacking Taiwan.
Mechanical engineers are increasingly building their new plants in Vietnam
Now that doesn't mean there is no diversification at all. German mechanical engineers often no longer build their second or third plant in Asia in China, but in Vietnam, where there is well-trained and, above all, cheap labor. The network of suppliers is also growing in the neighboring country. Even there, they are often in the hands of Chinese who have followed their customers across the border.
This does not reduce the Germans' dependence on China. In India it is even increasing. In the world's third-largest car market, which the Chancellor proclaimed to be the "dream partner" of the German economy in the spring, Germany's largest car manufacturer is on the way to becoming a junior partner. It was almost 20 years ago that Volkswagen announced that it wanted a tenth of the market on the subcontinent. Today its share is cemented at two percent.
VW could soon be a junior partner in India's third-largest car market
Because they need the money to save their business in China, the Wolfsburg-based company is seeking a joint venture with a steel manufacturer in India. VW doesn't want to simply close the plants, but the company doesn't believe it can get much in the country where Germans sell as much in a year as they do in China in three weeks.
Because of its size and pace of growth, India is the only market that can replace China. Nevertheless, German companies say they only want to invest in the billion-dollar nation in five years. German technology is already needed in India's rise today. Especially since technology from the hostile China has so far only been permitted by the Indians to a limited extent. The free trade agreement with the EU, however, is about to be voted on.
But the list of defects that the Germans are issuing to their trading partner number 22 is long: complaints about bureaucracy are accompanied by allegations of corruption. Criticism of poor infrastructure is followed by dissatisfaction about poor hygiene. Instead of being happy about the “common values” with Indian democracy, the Germans complain that the caste system and Hindu nationalism are holding back progress. Indian incomes rose too slowly. The country is not rich enough for German products.
