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Even if Germany’s car manufacturers are having an increasingly hard time in China, companies that supply the country’s successful EV manufacturers, among others, are still experiencing a boom. Or does it? This does not have to last, analyzes Christian Domke-Seidel. He doubts how much the profits generated in the People’s Republic are actually of use to Germany. Moreover, five of the world’s largest automotive suppliers now come from China – the People’s Republic is thus turning into a competitor.
In an effort to be more competitive on the international market, the EU wants to introduce stricter subsidy controls for non-European companies. The regulation also targets Beijing in particular: The Commission is supposed to be empowered to intervene if companies subsidized by the Chinese government acquire European companies or use predatory pricing to win public contracts.
But the new rules will also apply to European companies that are active outside the EU. They are now fighting back – and Till Hoppe sums up with how much success.
Premature euphoria among German suppliers
Europe, in general, and Germany, in particular, rely on their export strength. Accordingly, European companies have benefited greatly from China’s ascent to the second-largest economic power. But in recent years, the economic success story has started to stall. The Federation of German Industries (BDI) declared a “systemic competition” in January 2019. And the EU spoke of a triad of “partner, competitor and rival” when talking about China. Besides geopolitical disagreements and differing values and understandings of democracy, economic considerations also play a role. The big profits have failed to materialize. The problems of German car manufacturers in China could also befall suppliers in the medium term.
Making the competition big
German car manufacturers are confronted with a daunting task in China. In compliance with political requirements, they revealed their know-how, founded joint ventures and relocated R&D activities to China. This is documented in the recent study “Gewinn deutscher Investoren in China” (Profits of German Investors in China). The Bertelsmann Foundation, the German Economic Institute (IW), the Mercator Institute for China Studies (MERICS) and the BDI participated in the study. The study reveals that German car companies themselves enabled the rise of equal Chinese competitors within a very short time, which now also “reduces the competitiveness of companies in Germany vis-à-vis Chinese competitors.”
In hardly any other sector is this as visible as in the automotive industry. It provided around 30 percent of German direct investment in China in 2020 (90 billion euros). To put this in perspective, the chemical industry comes in second with just 9 percent. Sales in China are falling simultaneously (especially in electric mobility), while competitors from the People’s Republic are now also present on the German market.
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