German joint ventures helped school Chinese partners and propel an economic miracle that saw China become the world’s second-largest economy, and that cushioned Germany from successive economic crises.
German leader begins China visit amid mounting EU concerns over unfair competition From this side, any disruption to Sino-German trade is troublesome.
Germany dodged a “China shock” when China joined the WTO a generation ago.
Now, with the German economy ailing, some predict its China shock has arrived.
They are being outmuscled in the Chinese market, undercut by Chinese rivals on third markets and now see them showing up in Europe, too.
Because otherwise we have no chance of beating this unfair competition,” Ackermann said.
For Baur, the China shock is here, even if Germany’s political classes are slow to realise it.
“But in a few years when energy prices are normalised, everybody’s going to see that it’s been China all along.”
As newly wealthy Chinese consumers purchased their first cars, German exports surged and factories in the manufacturing heartland needed machine tools and equipment. German joint ventures served as a learning tool for Chinese partners, fueled China’s economic miracle (making it the second-largest economy in the world) and protected Germany from further economic downturns.
However, in the last few years, fissures have become apparent. Webasto declared it would eliminate 1,600 positions from its worldwide workforce due to dwindling demand and increased competition.
“We observe that the nation’s automotive supply market is becoming more competitive. Holger Engelmann, chairman of Webasto, stated, “There are a lot of new players in the market, and particularly Chinese automakers have suppliers inside their own corporate structures.
The demand for our products has decreased recently, following many years of growth. As a result, we saw a decline [in] 2023 and a stagnation in sales in 2020 compared to the prior year for the first time. “.
More and more analysts are of the opinion that the protracted Sino-German honeymoon is coming to an end. With the complementary nature that has enriched both sides over the past 25 years eroding, stories such as Webasto’s battle with Chinese competition will become the norm in the relationship rather than the exception.
On the one hand, some major corporations are increasing their investments in China. Volkswagen, for example, announced last week that it would invest US$2.68 billion to expand its research and production facilities in Hefei, in the southeast Chinese province of Anhui.
As EU worries about unfair competition grow, the German leader begins his visit to China.
We find it concerning when trade between China and Germany is disrupted. Senior German auto lobbyist Andreas Rade claimed that there was “no consensus” among member states and that the European Union’s probe into Chinese subsidies for electric vehicles was “not a good signal.”.
However, a large number of front-line businesses disagree. Chinese suppliers and consumers are now fierce rivals to German industry as China’s manufacturers have advanced up the value chain and grown more sophisticated. A whole new set of challenges are presented by China’s remarkable rise in this sector and the German automotive industry’s slow adoption of new electric vehicles.
When China joined the WTO a generation ago, Germany escaped “China shock.”. However, research indicates that the trend has eliminated over 500,000 manufacturing jobs in America, creating frustrations that have contributed to the rise of Donald Trump in the political sphere.
Given the current state of the German economy, some believe the China shock has arrived.
Large German corporations were found to be laying off workers in their home country in order to increase their investment in China, according to a study by the research firm Rhodium Group, which also highlighted strikes by labor unions.
The massive chemical company BASF revealed 2,600 job losses in Germany last year, despite increasing its investments in China, a move labor unions deemed to be “inappropriate.”.
The multinational engineering company Bosch has eliminated thousands of automotive jobs in Germany during the past year, but has invested billions of euros in Chinese production and R&D centers. According to the Rhodium report released in February, the labor union IG Metall called it “a fatal signal for Germany as an industrial hub.”. The three major automakers—Mercedes-Benz, Volkswagen, and ZF Friedrichshafen—saw comparable patterns.
German exports to China have been falling at the same period. They decreased 4.2 percent in 2023 compared to the year prior. Chinese customs data indicate that the trend deteriorated into 2024, with a 16 point 6 percent decline in the first quarter.
As Chinese competitors exert increasing pressure on German companies in third markets, Rhodium analysts predicted that German market shares in China would decline.
“Job losses in important German industries could set off a backlash that has been mostly lacking up until now, given the backdrop of a stagnating German economy and a more turbulent political environment. “.
After thirty years, Ulrich Ackermann has worked in the German machinery industry. However, he has not witnessed a circumstance akin to what the industry is currently facing since 2022.
The Mechanical Engineering Industry Association (VDMA), which represents 3,600 German companies, said that Ackermann, managing director of foreign trade, “it’s true that China was for our industry a fast and continuously growing market – turnover in China grew by 10-20 per cent every year for 20 years.”.
“Continuous growth came to an abrupt end” as a result of the epidemic. However, its surveys indicated that VDMA members were optimistic heading into last year after China’s strict zero-Covid policy ended.
“They said that 2023 will be prosperous once more, just like it was before COVID.”. However, the year ended up being largely uneventful. And they are still not high right now. This year, the Chinese machinery market is not expected to grow significantly, according to Ackermann.
He describes a dire scenario in which German manufacturers of machinery face constant attacks from their Chinese rivals. They are being outmanoeuvred in the Chinese market, undercutting their Chinese competitors in third markets, and now they are beginning to appear in Europe.
“This is very new: since the beginning of the year, the European market has seen an increasing number of Chinese products in various machinery sectors related to mass or volume production. These are essentially standard machines that are quickly making their way into the European market at prices that occasionally prevent Europeans from purchasing the necessary materials, according to Ackermann.
According to a recent report released last month by the Council on Foreign Relations, a think tank with its headquarters in New York, “it should go without saying that a large manufacturing surplus requires an offsetting deficit in manufactures elsewhere in the global economy.”.
BMW is assembling EVs, including Minis, for global consumers in China.
Stated differently, other countries’ market shares will be reduced by China’s excess capacity. As a result, there has been a political backlash and numerous inquiries at the EU level, where officials claim to be witnessing the dilution of local competition by cheap Chinese exports.
Beijing is accused of “distortions” in important economic sectors by Beijing, according to a 700-page report released this week by Brussels based on state data from China.
The paper’s objective, according to insiders, was to give European businesses the information they needed to support their anti-dumping claims. More trade disputes are expected as a result of Beijing’s intensifying economic policies rather than paying attention to EU worries about overcapacity.
Social Democratic Party of Chancellor Scholz’s spokesperson on foreign affairs is Nils Schmid. In a pre-election interview in 2021, he expressed concern that Chinese partners would eventually “eat their lunch” by acquiring German companies.
He now asks if the time has come, pointing to Chinese electric car showrooms in German cities.
“You see cars on the streets, in relatively small numbers, but still, and you see car dealerships in very noticeable locations. Here in Germany, this is likely the most obvious indication that something is changing. According to Schmid, the German auto industry is a distinctive aspect of the country’s economy and a source of pride.
Experienced free-trader Ackermann concurs back at the VDMA.
“Using political tools, anti-dumping, anti-subsidy laws, punitive tariffs, and anything else you can think of are some options. Not only will we see more of this machinery here, but I believe we will see it in other areas of the industry as well. Because if we don’t, we won’t be able to win this unfair competition, Ackermann stated.
It would be inaccurate to characterize Schmid or Ackermann as protectionist hawks, but current events seem to have persuaded them that Europe needs to react because China’s economic model is unlikely to alter.
Volkmar Baur, a China economist at the German financial firm Union Investment, stated from his Frankfurt offices that this state of affairs would persist due to economic realities.
Drawing attention to China’s “high and rising share of not only automobiles, but also machinery,” he declared, “I think it’s absolutely fair to say that China is moving into the kind of space that Germany used to occupy quite prominently in the world economy.”.
Even though Germany’s political elites are taking their time to recognize it, Baur believes that the China shock has arrived.
“I believe that we are currently witnessing it. He said, “And I think a lot of people are still saying, well, it’s the Ampelkoalition, it’s their fault that the economy is going down the drain, or it’s the energy shock, or it’s a climate hoax that’s putting people under pressure, but I don’t see a lot of people talking about China,” using the German term for the nation’s coalition government, also known as the “traffic light.”.
But everyone will realize that China has been involved all along when energy prices return to normal in a few years. “.
