China Observers in Central and Eastern Europe (CHOICE)’s Post

Germany's Economic Resilience: Facing the Impact of China's Strategic Shift In 2016, China surged as a global investment powerhouse, with its outward foreign direct investment (OFDI) exceeding $200 billion, significantly targeting Germany’s industrial core. However, this aggressive expansion slowed dramatically post-2017, a shift driven by China's evolving domestic priorities and tighter capital outflow controls. The implications for Germany have been profound. Once a complementary partner in industrial advancement, the economic relationship with China has shifted towards direct competition. Key German sectors, including automotive, chemicals, and heavy machinery, face mounting pressure from China's accelerated technological advancement and strategic innovation in areas like electric vehicles (EVs) and renewable energy. Compounding this challenge, Germany is navigating structural economic hurdles-stagnant productivity, rising energy costs, and limited digital transformation-while global shifts in trade policies, such as potential U.S. tariffs, introduce further uncertainty. Yet, history offers perspective. Germany has repeatedly demonstrated resilience, from post-war recovery to its leadership during the Eurozone crisis. To maintain its global leadership, Germany must now focus on strategic reinvestment in digital infrastructure, diversified energy policies, and innovation-driven public-private partnerships. The path forward is not without challenges. But if history has shown us anything, it’s that Germany possesses the capacity not just to recover, but to lead.

Chancellor Olaf Scholz was in Beijing until yesterday with an economic delegation to discuss economic issues with Xi Jinping and Li Qiang, among others. As is known, the German government called for a so-called, controversial "de-risking strategy" regarding China in 2023 – and finds the government in a slightly recovered situation – GDP growth in the first quarter of 2024 increased to 5.3%. "De-risking" is not to be understood as "de-coupling" from the EAC's point of view, but as the requirement for a strategically broader and more balanced positioning of supply chains and sales markets for European companies. Unilateral dependence on China is to be reduced in every area of value creation. The German economy in China has rightly criticized unfair framework conditions compared to Chinese companies for years. One approach for a continued successful positioning in the fiercely competitive Chinese market is the development and expansion of individual entrepreneurial competitiveness in the local market. The CEO of Mercedes Benz, Ola Källenius, formulated this to ARD as follows: "The best protection is to be competitive. And if you start to build trade barriers, first one and then the other, that leads in the wrong direction". According to a study by the Chamber of Commerce and Industry (AHK) in China, almost 80 percent of German companies justify new investments in China by the need to remain competitive in the billion-dollar market – and must. Because Chinese companies are becoming increasingly dominant in innovation and development, as EAC studies for the European Commission currently show. To remain technologically competitive, Germany must therefore not slacken in terms of innovation and must face the challenges in the Chinese market with the maximum possible and regionally intelligently positioned localization. EAC International Consulting has been assisting the German economy in strategic positioning in Asia for 30 years with > 6 offices – including one of the largest EAC companies in Shanghai; led by German and Chinese international managers and teams. For a more in-depth discussion, please feel free to connect with EAC International Consulting Partner Uwe Haizmann #EAC #China #Shanghai #De-risking #strategicpositioning #supplychain #riskdiversification

🚗 German Investment in China Surges. Is Supply Chain Diversification working? 🚗 Despite strong calls from the German government to diversify away from China, why are German companies doubling down on their investments in the world's second-largest economy? In the first half of 2024 alone, German direct investment in China soared to an impressive €7.3 billion—already surpassing the entire total of €6.5 billion for 2023. 📈 This surge is largely driven by major players in the automotive industry like Volkswagen and BMW, who are increasingly adopting an "In China, for China" strategy. They're shifting more production to China, focusing on local manufacturing to cater to one of their biggest and most lucrative markets. 🇨🇳 However, this move comes at a time when geopolitical tensions are escalating, particularly around the Taiwan Strait. 🌏 Many in Europe worry that German businesses haven't fully learned the lessons from the Ukraine war, where over-reliance on Russian gas proved costly. There are concerns that deepening ties with China could expose Germany to similar risks, especially if tensions in Asia boil over. The reluctance to diversify is not just risky; it’s potentially harmful to Germany’s long-term economic security. 🛠️ By shifting production to China, these companies are not only increasing their vulnerability to external shocks but also undermining the German economy. Jobs and production are moving overseas, weakening Germany’s industrial base and leaving the country more exposed to the whims of a single, increasingly unpredictable market. Despite these risks, German investment in China shows no signs of slowing down. Recent big-ticket announcements, such as Volkswagen’s €2.5 billion investment in Hefei and BMW’s €2.5 billion expansion in Shenyang, underline the continued strong momentum. 🚀 The German government has been urging companies to diversify their supply chains and reduce their vulnerability to external shocks. But so far, these warnings seem to be falling on deaf ears, especially among the big carmakers. As German investments in China continue to grow, the debate over how to balance economic opportunity with geopolitical risk is only set to intensify. 🧐 What do you think? Share your thoughts! 💬 #Germany #China #investment

It's crucial to recognize that America's core interests lie in strengthening ties with Europe and bolstering our economic prosperity through our alliance system. The Biden administration's policies, seemingly influenced by corporate interests, have unfortunately sacrificed small and medium-sized businesses, leading to the erosion of the middle class. Instead of exploiting Asia, we should allow those nations to develop at their own pace. A more sustainable approach would be to focus on strengthening our economic and military ties with both European and Asian allies. This would not only enhance our collective security but also foster a more equitable and prosperous global economic landscape.

To me Germany is actually anticipating what others will do later on, short of open conflict. Same direction taken by Italy, with its attempt to reboot relations with China after the much debated withdrawal from the BRI. Most likely, both countries will keep an extra eye towards containment, while trying to maximize trade opportunities. Which makes sound sense. __________________________________ When Germany’s chancellor, Olaf Scholz, took office in 2021, he pledged that his government would shift his country’s relationship with China away from one of economic dependence. Three years later, talk of scaling back reliance on China has been replaced with calls for equal access to China’s market for foreign firms. That strategy puts the Germans at odds with many of their closest allies, including the United States and other European countries, which would like to see China scale back its recent surge of exports in the green energy sector, including electric vehicles. The U.S. Treasury secretary, Janet L. Yellen, has talked about imposing trade restrictions on China. https://lnkd.in/gEri7FFv

" 'Whether you are an adversary, whether you are a rival, whether you are an ally, whether you are a friend, you just have to accept this is how the US system works, and do your best to make sensible assessments and take sensible measures,' he added. 'If you are able to look beyond four years as a horizon, you should try and do that. So that is what I think countries are all trying to do, and we will see how it turns out.' ... 'The business people (in America) - they see pluses and minuses. They are not pessimistic about the US economy, because they think the Republican administration generally will be a plus for the US economy,' explained the senior minister. 'But they are anxious about US-China relations, like the prospects for their investments in China and the outlook for further investments in China, and it's affecting their decisions.' ... 'The Chinese are trying to figure out how they can maintain their relations on some stable basis, and to have discussions and make commitments which you can follow through on and which will work,' said Mr Lee. 'First of all, across the term of change of government, and secondly, hopefully beyond any single term of an administration.' The Singaporean leader also remarked that despite their differences, the US and China - the world’s largest economies - must engage with one another. 'You may have contradictions, you may have problems, but you have to deal with one another, because America will always be there … similarly, China will always be here and is not going to disappear, and you have to do business with China,' said Mr Lee." Lee Gim Siong, ‘Look beyond four years’: Countries should take longer-term view of relations with the US, says SM Lee, 𝘊𝘩𝘢𝘯𝘯𝘦𝘭 𝘕𝘦𝘸𝘴 𝘈𝘴𝘪𝘢, 29 November 2024, https://lnkd.in/gy-ifAhK

#Germany #GTAI #Investment #Trade 🇩🇪 is Europe‘s largest economy, #3 globally and the world’s 3rd biggest exporter (1.8 tn USD). Located at the heart of 🇪🇺, in the #Eurozone and #Schengen Area - allowing free flow of goods, capital and people among its members. In other words: a prime location for #FDI. As such 🇩🇪 ranks as the 2nd largest recipient of FDI in Europe (after the 🇬🇧) in terms of total FDI stock. Globally, Germany is in the top 10 countries for FDI inflows, with major investments coming from the 🇺🇸 and other European countries. Much of this success is enabled and greatly supported by Germany Trade & Invest (GTAI), the official economic development agency of 🇩🇪, supervised and sponsored by the German Federal Ministry for Economic Affairs and Climate Action, Bundesministerium für Wirtschaft und Klimaschutz. It’s purposes: to promote 🇩🇪 as a business and investment location internationally, to support 🇩🇪 companies in expanding into international markets and to provide insights into market trends, foreign markets, and trade regulations. Grateful for having included German Consulate General San Francisco in GTAI‘s first North American workshop on the agency’s new structures and strategies - led by Achim Hartig, Managing Director. Kudos to the great team of San Francisco Heiko Stumpf, Dennis Wilkens and Kerstin Coates. A pleasure to meet reps Heiko Steinacher (Toronto - again), Emilio Brahmst (Chicago) and Claus Habermeier (New York). Auswärtiges Amt (Federal Foreign Office) Germany Embassy of Germany in Washington, D.C. Bundesministerium für Digitales und Verkehr Marta Kujawa AHK USA - San Francisco GABA Northern California - German American Business Association German Center for Research and Innovation (DWIH) San Francisco California Governor's Office of Business and Economic Development (GO-Biz)

Odd way of expressing his idea. It is as if US had to be grateful to Japan for Pearl Harbour for showing how ill prepared they were. Or that USSR was to be grateful Hitler for Operation Barbarossa. Just extreme examples - but yeah, Hezbollah should be thanking Tel Aviv for their lesson on secure procurement. If the West was complacent, and was shocked out of it by China's rise (despite being warned that China had moved beyond being a cheap outsourced market over a decade ago) - it has nothing to do with China. But the fact that the Western govts tried 1. austerity; then 2. cake-ism and wooly thinking on their economy in the same period. Now the second part of the sentence is that China kick-started the West's economic growth. Huh? The US economy is going strong, its manufacturing is weaker than it should (let me come to that) but the US economy has been strong because of covid aid, that caused a consumption growth and inflation - and then US worked on inflation measures. And almost very little of the funds have trickled into the economy as of now. (Means whoever wins Nov's election will still be the beneficiary of Biden's policies) This is reflected by the increased in IMPORTS from China that are demand driven (some of the imports are dumping, just some). The problem for US and EU is that in the EV space, the current leaders of the tech and battery are Chinese. And they have to tread a fine line between getting Chinese firms investing in the West (more jobs) and added competition leading to local firms closing (less jobs). In the chip space, TSMC's Arizona plant is on track to mass produce chips more advanced than China's SMICs - it shows that onshoring company leaders from friendly nations can work. The rise of China is not because the West was merely complacent. This cheapens China's achievement, and weakens the will to restructure the Western economic model. The reaction to China's rise is tariffs and the end of free trade - because buyers decide that. The core problem is lack of innovation and scale in manufacturing. 996 work weeks are normal in China. And these are not laborers, these are engineers.

When VCs and governments come together: Great and insightful kick off meeting in San Francisco last week between Cathay Innovation and Germany Trade & Invest leadership team as part of the agencies’ new structures and strategies. ➡️ GOAL is to collaborate on our global portfolio’s ambitions to enter, grow and invest in the European market through #Germany 🇩🇪 💡Cathay Innovation also invests in German #startups and its’ office and investment practise in #Berlin is led by Costanza Carissimo 🦄 Cathay Innovation 4 Investment verticals include #digitalhealhcare #energyandmobility #fintech and #consumer to support transformation through emerging tech 🙌 Thank you Achim Hartig Dennis Wilkens and Kerstin Coates for your time and sharing your international knowledge. As a VC firm that focuses on growth stage investments, I am sure there will be some inspiring case studies soon ↗️ Denis Barrier Simon Wu Margot Briole Emanuele De Leonardis Matthieu Soulé Costanza Carissimo Colombe Moinet Adélaïde Renié #germany #investment #marketentry #europe