High industrial incentives in China jeopardize the competitiveness of the German economy, according to research by the Prognos Institute for Economic Research. While China has been Germany’s largest trading partner for the last 6 years, the German public has been discussing its economic dependence on China after the recent energy dependence on Russia resulted in an “energy crisis”. German companies have long benefited from the acceleration of economic development in China. Many executives, experts and politicians now claim that Beijing’s administration deliberately discriminates against foreign companies. According to the research conducted by the Prognos Institute of Economic Research for the Bavarian Chamber of Commerce, foreign industrial companies benefit from cost and competitive advantages in China due to high incentives. In the research, which noted that foreign companies in China are also disadvantaged in other respects, “prohibitions to invest in foreign companies, non-transparent regulations, arbitrary enforcement of regulations and insufficient protection of intellectual property” were cited among the disadvantages in question. It is stated in the research that it is not known to what extent and to what extent China encourages the domestic industry, and it is estimated that the usual incentives in Germany, Japan and the USA are 3-4 times higher. It was reported that it could rise to about 1.7 percent of GDP, compared to 0.5 percent in .
“Beijing wants to take the lead in technology”
In the research, it was stated that Beijing wants to take the lead in technology, and it was noted that China provides high incentives to many important sectors from biotechnology to aviation. In the research, it was emphasized that China’s incentives are important for Germany, and it was stated that German and European companies have so far had a strong international position in many of the industrial sectors such as mechanical engineering, medical technology and aerospace. It was noted in the research that German companies are advantageous in a way because China has to import technology, and it was pointed out that if the Beijing administration achieves its industrial policy targets, billions of euros will be lost on German medical technology. In the research, it was recommended that the World Trade Organization (WTO) take stronger measures against China’s activities that negatively affect competition and reduce the dependence of German companies on the Chinese market as a precaution against China.
Germany-China relations
While Western countries, especially the USA, Canada and Australia, started to take a tougher stance against China, which is expanding its economy and influence, it is observed that Germany does not approach this by keeping its trade relations ahead of politics. China’s increasing effectiveness in Europe through investments and acquisitions in critical sectors such as infrastructure and technology, including European Union (EU) countries, has been a matter of public debate for a long time. The fact that the economic relations of Germany, which has the largest economy in Europe, with China play a decisive role on political relations, also causes criticism on the continent. Former German Chancellor Angela Merkel visited China 12 times during her 16-year rule. The government prioritized economic relations over human rights. While the Chinese policy of the Merkel era was frequently criticized by the opponents, it is noteworthy that Prime Minister Olaf Scholz continued his economic cooperation with China, with an approach similar to Merkel’s, taking into account the trade balances.
Germany is among the countries that benefit most from China’s opening up to the global economy.
The EU sees China as a negotiating partner for the union as well as an economic and systemic competitor. Germany, which has an export-oriented economy, was one of the countries that benefited the most from China’s opening to the global economy for years. German cars and machines are in high demand in China. While exports to China supported Germany’s longest post-World War II economic growth in the last 10 years, China became Germany’s largest trading partner in 2016. Germany’s dependence on China draws attention in foreign trade, supply chains or the big market. Germany has a “strong import dependency” on China, even for raw materials such as lithium batteries and rare earth elements, which are becoming increasingly important for electric cars.
Trade volume between Germany and China exceeded 245 billion euros last year
The Covid-19 lockdown in Shanghai, which has severely disrupted supply chains around the world in recent months, has also revealed how dependent the German economy is on primary and intermediate products from China. According to the data of the German Foreign Trade Chamber (AHK), approximately 5 thousand German companies operate in China. 1.1 million jobs in Germany depend on trade with China. The Chinese market is of great importance for German companies, especially German automobile manufacturers, both in terms of sales and growth. German companies develop and test the latest technologies in China for the global market. While China has been Germany’s largest trading partner for the last 6 years, the trade volume between the two countries exceeded 245 billion euros ($246 billion) last year. Emphasizing the importance of China for the German economy for these reasons, the German business world also warns that “they cannot do without China”.