When the container ship “Ever Given” became stuck in the Suez Canal in March 2021, Chinese goods arrived in Europe a week late, sending shivers down the spines of German businesses, an ill omen of a trade troubles with China in the future.
Germany’s primary fear of antagonising Russia was the prospect of losing access to low-cost energy, which is precisely what transpired. However, the situation cannot be compared to relations with China.
According to Dieter Wermuth, economist and partner at Wermuth Asset Management, Germany’s share of exports to China in the first half of 2022 was 7.1%, compared to only 1.1% for Russia. Additionally, China currently accounts for 12.4% of German imports, while Russia accounts for just 3.0%. [i]
As tensions are brewing between China and the US over Taiwan, German economists are anxiously assessing how Berlin must react if the Chinese try to capture the breakaway island.
In an article by Matthew Karnitschnig published in Politico on August 12, the author remarked that if hostilities break out between China and the United States and its Western allies, Berlin is unlikely to slap sanctions on Beijing to protect its export-driven economy.
In recent decades, China has propelled the German economy and exceeded the United States as Germany’s largest financial partner, accounting for almost 10% of Germany’s €2.6 trillion in foreign trade last year.[ii]
Meanwhile, due to its reliance on the Chinese market, the German automobile industry is aware of the risks concomitant with any radical shift in China-Germany political ties, as Volkswagen AG’s outgoing China director, Stephan Wollenstein, highlighted that China, the most significant economic powerhouse in Asia, is indispensable to the prosperity of the German automaker giant, which depends on China for 40% of its first-quarter sales.
Nevertheless, Sino-German economic ties are under increasing scrutiny.
Hence, the German industry’s reliance on exports to China has “created a dependency that leaves us helpless,” Norbert Röttgen, a prominent centre-right MP in the German Bundestag, said. [iii]
Stefan Wolf, President of the Gesamtmetall [Federation of German Employer Associations in the Metal and Electrical Engineering Industries], believes that reducing economic dependency on China in the short term is almost impossible. “It is inconceivable.” [iv]
Moreover, Germany relies heavily on China for industrial metals and rare earths, which are required for wind turbines, electric vehicles, and solar cells, all of which are expected to grow in demand rapidly.[v]
A recent study by Jürgen Matthes of the Cologne-based Institute for Economic Research suggests that the Chinese purchase one-third of all German-made automobiles. Furthermore, German automakers have an extensive network of factories across China, producing 4.3 million cars in 2021 alone, thus creating at least one million jobs in Germany associated with the export.
Thus, in the event of any military conflict between the US and China over Taiwan, the Germans will likely offer nothing more than Nichts, “Nothing.”
Nonetheless, according to the same research by Matthes, while German exports to all countries climbed by at least 13.3% in the first half of 2022 compared to the same time the previous year, exports to China increased by just under 3%
This implies that China’s proportion of overall German exports has plummeted to 7.4%, underscoring the significance of exports to China for the German economy, teetering on Stagflation.[vi]
Matthes also cites Deutsche Bundesbank [German Central Bank] balance of payments statistics revealing that the German economy invested about 10 billion euros in China in just the first half of 2022.
The German conundrum of economic dependency on China prompted the CEO of Deutsche Bank, Christian Sewing, to remark, “When it comes to dependencies, we also have to confront the difficult question of how to deal with China.” “The rising isolation of China and the developing tensions, particularly with the United States, constitute a huge threat to Germany,” Sewing noted. [vii]
However, as far as one can fathom, the Germans cannot break the shackles of financial reliance on China and establish a more self-reliant economy.