De-risking: 'Absolutely fragmented globalization'

As a lawyer, you advise many German companies on their business in China. How do you perceive the mood among companies?

German companies in China continue to focus on traditional problems such as market access, data or technology protection. Added to this are the more complex political framework conditions and the emphasis on national security interests. All of this complicates planning and predictability. Competition with Chinese companies has also intensified.

China risks must be strategically assessed at German corporate headquarters. This repeatedly raises the question of who is a reliable partner. At present, we are seeing hardly any departure from China, but also no new projects. Instead, we are seeing a stronger focus on existing projects in terms of local self-sufficiency.

The new German government wants to revise the China strategy in line with the principle of de-risking. What are the implications for companies?

For decades, we have built on the complementarity between German and Chinese industry. These synergies no longer exist. Chinese companies are active in the same fields and products as we are. We have to learn to cope with this even more. When the China strategy was devised, it was not so much about competition in the traditional sense, but about reducing unhealthy dependencies. Of course, the companies themselves are also examining this as part of a project strategy. However, politicians must examine the systemic economic and political dependencies of the country and its companies. In the meantime, there is a consensus that strong dependencies have lost their charm.

Some large German corporations have even expanded their activities in China and are increasingly pursuing an "in China for China" strategy.

The latter does not necessarily contradict the political understanding of de-risking. If a company clearly knows that it cannot do without China, it should structure its existing China business in such a way that supply chains, financing, data exchange, IT systems, sales markets and other factors are affected as little as possible by external shocks. From a purely German perspective, however, it must also be said that expanding production in China means fewer export opportunities from Germany.

Things become politically relevant when business in China leads to weight shifting, and the company's survival in Germany becomes dependent on this market. On top of this, there are geopolitical risks, such as the unstable situation with Taiwan.

The German coalition contract states that "elements of systemic rivalry have come to the fore as a result of China's behavior." What do you think of this assessment?

For me, this is an expression of a fundamental assessment that also underlies the China strategy: We don't want to change China. We don't want to lecture China, but we have to deal with the fact that China and the economic environment have changed.

German companies often talk about China as a kind of fitness center they need to remain competitive. This certainly does not quite capture the whole picture, because it only compares companies with companies and their innovative strength. Chinese companies are highly innovative, but there are also massive subsidies. In addition, there are further distortions of competition. This is hardly fair competition.

In the end, it is not just about competition at the company level in the traditional market economy sense. Businesses live in different economic policy worlds. It is therefore a matter of maintaining or developing our systemic competitiveness.

How will Trump's trade dispute affect the European triangle with China?

We have arrived in an absolutely fragmented globalization. Take shipping: Companies have to re-evaluate almost daily which logistics companies they choose, as transportation costs are surprisingly increasing due to possible punitive fees at US ports. These are currently levied by the US government, depending on whether a ship is owned or built in China.

Entrepreneurs have to wade through quite a maze. It is becoming extremely fragmented and expensive. You could already call it "double-de-risking" towards the US and China. My impression is that many companies are currently watching what happens in the trade dispute, adapting almost daily, and hoping that they won't be forced to choose an economic area soon.

In the summer of 2023, you and former Chinese Science Minister Wan Gang became co-chairs of the Sino-German Dialogue Forum. Why was there no more dialogue after 2019, even after the pandemic?

First of all, the change in chairmanship and some members on the German side caused a delay. The Chinese side, on the other hand, re-evaluated the political framework conditions. We are all confident that things will work out soon. The German side is the regular host, and we want to continue the dialogue.

How do you want to shape this dialogue?

My personal goal is for this to be a forum with such strong personal connections and a common basis of trust that it is always approachable, even in difficult questions and times. As we haven't seen each other for the past four years, we first have to pick up where we left off. But I've been part of the forum for almost 20 years. Over the years, we have always been at different points on the spectrum of distance, closeness and critical exchange. But it's always been a pleasure to meet up.

Do you believe that the new German government is willing to promote dialogue with China's politics and civil society?

I don't see any doubt at all. If we have a common denominator here, it is that this dialogue can only be beneficial. The Dialogue Forum is a forum of civil societies that is politically independent and has always received strong political support since its founding.

Sabine Stricker-Kellerer is a corporate lawyer with over 40 years of professional experience with China. She has been Co-Chair of the Sino-German Dialogue Forum since September 2023.