It is and will remain hot – and not just in Germany. China has been suffering under record temperatures for weeks, with thermometers rising to 44 degrees Celsius at times. Droughts are threatening harvests, hydroelectric power is underperforming, and coal-fired power plants need to be activated to supply electricity. The industry, on the other hand, is shutting down in some places: Production at Bosch, Toyota, Foxconn, CATL, and other large companies in Sichuan has been cut back or is at a complete standstill. Nico Beckert knows more about the effects and reasons.
Just like the temperatures, the Taiwan issue is and will remain hot. Taipei and Washington want to start formal talks on trade cooperation. The People’s Republic is “not amused,” but is holding back on loud threats. Finn Mayer-Kuckuk’s analysis shows that the talks are likely to be primarily political since true free trade is currently out of the question for the United States. He reports where a possible Taiwan-US agreement could apply.
Meanwhile, Mercedes enjoys a mild climate. The Stuttgart-based company sells many vehicles in China, with 36 percent of all cars decorated with the three-pointed star going to customers in the People’s Republic. A large proportion is locally built, and research and development are also increasingly taking place in China. The Group’s shares, of which 20 percent are in different Chinese hands, are also popular. But is that a cause for concern? After all, the Stuttgart-based group is considered vulnerable to takeovers because of its ownership structure. Markus Grabitz looks into this question.
Large parts of China have been experiencing extreme temperatures since mid-June, some of which have lasted up to 30 days. The country is suffering under a record-breaking heat wave. It is the worst heat wave since records began in 1961. More than 260 weather stations measured temperatures of over 40 degrees – in some cases, the thermometer rose above 44 degrees. On the Yangtze, Asia’s largest river, there has been 45 percent less rainfall than the average in recent years. Authorities announced the severe drought along the river could last well into September.
The outlook is not positive. The heat wave is expected to continue in some provinces. “The drought in Anhui, Hubei, Hunan, and Jiangxi could develop further,” warns Liu Zhiyu, an official of the Ministry of Water Resources. Some provinces are resorting to desperate measures. They want to provide more rain through artificial clouds, which involves shooting chemicals into the clouds with hundreds of rockets. But the cloud cover is too thin in many regions, so the measures are often without success.
The heat wave is affecting millions of people. Large areas of Jiangsu, Anhui, Hubei, Zhejiang, Jiangxi, Hunan, Guizhou, Chongqing, Sichuan, and Tibet are affected by severe drought and high temperatures. The extreme weather is affecting health and the elderly in particular. According to surveys by the economic portal Caixin, 82 people suffered heatstroke in June and July, including nine deaths. However, the number of unreported cases is likely to be even higher. In parts of central China and the north of the People’s Republic, the authorities have initiated emergency measures to ensure drinking water supplies for the rural population.
Crops on more than 800,000 hectares of land are affected. The authorities sent emergency teams to the provinces to ensure the irrigation of the fields. In some cases, water pumps were distributed. For some farms, help measures are too late, and in individual cases, there are complete crop failures. It is still unclear how the heat wave will affect crop yields. The area for autumn grain has been extended this year, which provides a solid basis for stable production, Fu Linghui, an official at the National Bureau of Statistics told Xinhua optimistically.
The industrial stronghold of Sichuan is rationing electricity for companies in 19 of 21 cities from August 15-20. Production at Bosch, Toyota, Foxconn, CATL, and other major regional companies has been curtailed or is at a complete standstill. However, according to a Bosch spokeswoman, the impact is still manageable.
The neighboring metropolis of Chongqing, with a population of 30 million, has also restricted power supply to companies until August 24. In Jiangsu and Anhui, companies have adjusted their production at the request of local authorities.
Sichuan generates more than 80 percent of its electricity with hydropower. Due to droughts and low water levels, power plants can no longer supply sufficient electricity. To secure the power supply for private households and commerce – and thus to meet the high demand for electricity for air conditioning – companies have to do without. But apparently, private households also experience power outages. “The power is cut off at least twice a day for at least three hours each time. The power cuts occurred during the hottest part of the day,” a Santai district resident complains on social media. The power utility in Yuechi district reportedly had to cut off supply to each district alternately. It remained unclear how many people were affected in total. Santai and Yuechi are home to more than one million people each.
The cutback in production in Sichuan also affects lithium and polysilicon – the base material for solar cells. If the power shortage in Sichuan persists, Tesla and SAIC suppliers could also be affected, putting car production at risk, Bloomberg reports. The two automakers have already warned authorities in their “home province” of Shanghai.
The China Maritime Safety Administration has repeatedly warned of low water levels on the Yangtze River. Ships are to reduce their cargo when passing through shallow passages. However, the situation is not comparable with the one on Germany’s Rhine river. And bottlenecks are not to be expected at present, as analysts explain. So far, the economic damage is not comparable with last year’s energy crisis. However, if the heat waves continue, the power shortage could hit other provinces like Zhejiang and Jiangsu hard, as they rely on power imports from Sichuan, as Reuters reports. The two provinces have already limited steel, metal, and textile production.
With the loss of hydropower, Sichuan and other provinces rely increasingly on coal. Coal consumption in the province and China in general has increased in recent weeks. However, analysts believe that the higher coal consumption for power generation will not lead to increased carbon emissions in the current year because energy-intensive sectors of the economy, such as metal and cement production, are still in crisis, so carbon emissions in these areas will be lower than last year.
Moreover, the electricity shortage in Sichuan is not only due to climate change. A rigid system for electricity trading severely limits the provinces’ ability to respond appropriately to the current crisis. According to energy and climate expert Lauri Myllyvirta, Sichuan continues to export energy to neighboring provinces despite the shortages. Long-term, fixed supply contracts oblige energy companies to do so. Electricity trading between provinces is inflexible. “For a decade they worked on a reform for power transmission and energy trading between provinces,” says Cory Combs of Trivium China, a consulting agency. So far, without much success.
The current heat wave foreshadows what China will face in the coming decades as a result of climate change. According to studies, heat waves will occur more frequently and severely in the future, and the People’s Republic will be particularly affected. According to estimates, 20 percent of harvests will be at stake in the medium term. China already owns only seven percent of the world’s agricultural land, but it has to feed 22 percent of the world population. Energy demand for cooling will continue to rise, and coastal infrastructure will be damaged by flooding. By 2100, China will face economic damage of €190 trillion (China. Table reported). If the central government fails to manage the installation of counteract measurements, this summer’s record heat waves will be just the beginning.
Mercedes was late to discover China. It was not until 2005 that the German manufacturer went to Beijing and founded the joint venture Beijing Benz Automotive Co. (BBAC) with the state-owned company BAIC. In the early days, business with China played a moderate role for the headquarters in Stuttgart. “When colleagues in Stuttgart saw the Chinese country code on the display of their phones, they didn’t even bother to answer,” recalls an employee from the finance department about his early days in China.
That has changed in the meantime. China has become very important for the company. Last year, Mercedes sold 2.093 million passenger cars worldwide, of which 763,706 went to buyers in China. That is over 36 percent of total sales. For other German manufacturers, too, China is securing the business model and bringing in the money to invest in transformation. VW sold 40 percent of the group brands’ new vehicles to China in 2021, while BMW’s figure was 34 percent.
586,804 Mercedes vehicles were assembled locally at the Beijing plant in 2021. In its 17th year in China, the group with the star thus built 28 percent of its global sales in China. Board member Hubertus Troska has been in charge of China operations in Beijing since 2012. Cars with extra-long wheelbases are produced for Chinese customers. A separate model – just for the Chinese market – has been announced.
China is not just the workbench: Research and development (R&D) are being shifted to China. A second R&D center has just opened in Shanghai. A total of around a thousand developers are already working there. CEO Ola Kaellenius has hired McKinsey consultant Paul Gao, who speaks Mandarin and has studied in China and the United States. Gao’s title is Chief Strategy Officer. His mission is to keep the specific requirements of the key Asian markets in mind when making strategic business decisions.
Mercedes not only operates from China and earns good money from its China business, but the group is to a considerable extent in the hand of the Chinese. The state-owned group BAIC has increased its share to ten percent, which did not reach the public for a long time. And the businessman Li Shufu, who has owned Volvo since 2018, as well as the manufacturer Geely, is the largest single shareholder through his investment company with a further 9.7 percent stake.
Because of the ownership structure at Mercedes – unlike BMW and VW, there are no Quandts, Porsches, or Piechs pulling the strings, and many shares are in free float – the Stuttgart-based group is considered vulnerable to takeovers. The situation was quiet just a moment ago, when Winfried Kretschmann, the Minister-President of the German state of Baden-Wuerttemberg, fuelled speculation with an announcement that the German government would veto a takeover attempt from China. Whether the Green politician had a specific reason for his intervention remained unclear.
However, it can be assumed that investors in China are looking very closely at a further increase in shareholdings. Hardly any brand is more important to the Germans. Beijing is also aware that a takeover of Mercedes in Germany would be a political issue. Nevertheless, the Group has reportedly taken precautions: When it spun off its truck division last year, it very deliberately assigned a business unit that produces a military variant of the G model to the passenger car division rather than to the truckers. “This provides the German government the option of prohibiting a takeover by China on the grounds of security interests alone,” one hears.
In total, one-fifth of Mercedes shares are in Chinese hands. When looking at the shareholder structure, it often goes unnoticed that the two Chinese players are pursuing their own interests. “BAIC and Geely do not get along at all,” says one observer. State-owned BAIC is Mercedes’ originally chosen partner.
In the case of Li Shufu, on the other hand, one can question his motivation for joining the Swabians. Did the Chinese businessman want to adorn himself with the trophy of being a shareholder in a traditional German brand? Did he initially expect more? Did he want to be in the driver’s seat at Mercedes? One analyst tells China.Table, “It’s striking that Kaellenius’ predecessor, Zetsche, has responded rather favorably to questions about BAIC and more neutrally to questions about Geely.”
Meanwhile, there is a cooperation between Geely and Mercedes for the Smart small car. The new model – the company has never made money with the Smart brand in Europe – is now built by Geely in China. The Stuttgart-based company is responsible for the design and technology.
Do Chinese investors have any influence on the operating business? Little is known about this. What is obvious is that they are not represented on the board of management or the supervisory board. It could be that Mercedes will become more Chinese in the future and that activities previously based in Europe will move away, for example, the internal combustion engine business.
Kaellenius proclaimed the “electric only” strategy. By the end of the decade, the company wants to sell only EVs. But he always adds, “where market conditions permit.” The EU will decide to phase out the internal combustion engine by 2035. But a new EV study by management consultants PWC shows that in 2035, 41 percent of newly registered cars worldwide will still have an internal combustion engine.
The study states that 27 percent of new registrations in China will still be internal combustion engines. It is hard to imagine Mercedes abandoning the internal combustion engine business entirely. Once the combustion engine will be buried in Europe, a lot of signs point toward shifting the development of new engines to China.
There is also speculation about the production of volume models. Kaellenius had recently announced the tightened luxury strategy and that four of seven body variants in the entry-level range would be discontinued. The Group has never rejected reports that the A- and B-Class production will not be continued in Rastatt. In the Group’s environment, there were rumors that production of the A- and B-Class would be handed over to shareholder Geely. A Mercedes spokesman told China.Table: “I ask for your understanding that, as usual, we do not comment on speculation.”
The US and Taiwan formally begin talks on trade cooperation. The first meetings of the delegations may now take place as early as this fall. This approach is seen as a substitute for Taiwan’s inability to participate in President Joe Biden’s current Indo-Pacific Initiative.
China’s anger was initially not quite as vocal as it might have been expected in the current tense situation. The US was urged to “carefully handle economic and trade relations with Taiwan and fully respect China’s core interests,” a spokeswoman demanded Wednesday. Safeguarding Chinese sovereignty is paramount, she said. The Foreign Ministry in Beijing also expressed “disapproval” of Taiwan-US contacts. However, there were no concrete threats, and only routine countermeasures were taken.
Taiwan does want a true free trade agreement, as the government in Taipei emphasized on Thursday. But the chances for a far-reaching deal are poor. Duty-free and unregulated movement of goods has no chance in US politics. That does not only apply to Taiwan. A long-announced deal with the UK has also stalled in the current climate. Joe Biden’s Asia-Pacific Initiative (the one in which Taiwan is not allowed to participate) also contains only offers of cooperation, not free trade.
So in Taiwan’s case, trade relations will probably be limited to a friendly document, promising better market access for several product groups and securing supply chains.
Wednesday’s announcement should therefore be understood primarily in political terms, or best in terms of economic policy. “China is not only subjecting the US or Taiwan to economic coercion, but it is also harming the global economy,” Taiwanese negotiator John Deng told reporters in Taipei. Taiwan is countering this coercion by moving closer to its allies, he stated.
By negotiating free trade with Washington, Taipei distinguishes itself as an independent actor on the world stage, which is opposed to Beijing’s claim to represent the “one China” including the People’s Republic and Taiwan. This is also how the Beijing Foreign Ministry understands the situation. A treaty conclusion would carry “connotations of sovereignty” for Taiwan and would be misleading because the island is a province of China, said the spokesman in Beijing.
In turn, the US is using the negotiations to underline its promise of protection for Taiwan. “This is an opportunity to assist Taiwan in building its resilience,” said US Assistant Secretary of Commerce Daniel Kritenbrink. That need can be observed in many US policy actions since the Russian invasion of Ukraine. The president has pledged to use the military if the island is under attack. With her trip to Taipei shortly after, senior Congresswoman Nancy Pelosi provided the impetus for what is now widely considered the “Fourth Taiwan Strait Crisis.”
Wednesday’s document authorizing the US side’s negotiators shows areas a possible Taiwan-US agreement could cover:
These are indeed minor issues that commit both sides to little change in their practices. Only a permanent opening of the Taiwanese market to US beef and pork would have a significant impact. The US wants to sell its surplus production to East Asia as freely as possible. However, Taiwan has repeatedly imposed restrictions on imports. Whenever Taiwan wants to improve trade relations with the US, it first relaxes regulations on meat imports. Last year, Taiwan lifted restrictions on pigs raised on fattening equipment, to the delight of the United States.
For the US, the supply of semiconductor components is also a key strategic issue. This is also likely to be a reason for negotiations, even though neither Taiwan nor the US is currently putting obstacles in the way of chip imports. For the EU, securing semiconductor supplies (China.Table reported) is one of the main reasons for its own trade talks with Taiwan. Here, free trade is not a realistic topic for the foreseeable future either.
The Chinese propaganda apparatus currently has plenty of work on two fronts. The party congress is coming up in the fall. It is only helpful if the vast majority of citizens are convinced that the promised “common prosperity” is still a realistic goal. However, parts of the international community are increasingly skeptical about the People’s Republic because of Zero Covid, Taiwan, Xinjiang, Tibet, and Hong Kong.
Chief ideologue Wang Huning, a member of the Politburo Standing Committee, demanded from representatives of Chinese state media in the spring that the country’s international communications be improved. In principle, that’s old news. President Xi Jinping has been drumming his doctrine of “telling the China story well” into cadres since 2013. But apparently, that is not working out as desired.
Xu Lin has taken up his new post in this conflict situation. The 59-year-old has been the director of the National Radio and Television Administration (NRTA) since June. As such, Xu is responsible for the content of state media such as the TV station CCTV or China’s national and international radio stations.
The NRTA chief in China enjoys ministerial status. The status was equipped successively with greater responsibility in recent decades through various restructurings and mergers. State control of the media is as old as the People’s Republic itself, but the NRTA has only existed in its current centrally organized form since 2018.
The personnel move in the year of the party congress, during which Xi Jinping wants to secure a third term as president against decades of custom, seems well thought out. Xu Lin is no stranger to Xi. He is considered a pupil of the party leader. In 2007, Xi, who was already designated as the future head of state, elevated the then 44-year-old to the 13-member Standing Committee of the Shanghai People’s Congress. A cover story in the 21st Century Business Herald newspaper ennobled Xu as the biggest political star after Xi in the round.
In his younger years, Xu Lin had already made a name for himself at lower levels of administration in Shanghai. At 29, he became deputy district chief in Nanhui, which is now part of Pudong. Three years later, Xu became the first Shanghai official to take a post in Tibet, where he served as Party Vice-Chairman in Xigazê Prefecture. After returning to Shanghai, he collected further laurels as manager of a state-owned supermarket chain and finally as head of the local Civil Affairs Bureau.
The Communist Party’s Organization Department, that powerful behind-the-scenes institution that pulls the strings for the careers of every promising cadre in the country, already had its eye on Xu at the time. His extensive experience in many areas of Chinese administration seemed to predestine him for higher tasks.
In 2006, the organization department carefully observed Xu’s environment, as one of his old companions recalled. The delegation wanted to understand what made Xu tick and whether they could give him more responsibility. The profile that colleagues drew was that of a decisive character with a talent for coordination and organization. “We all felt he was a workaholic,” one ex-colleague told 21st Century Business Herald.
The feedback from Shanghai and his work were so convincing that Xu Lin steadily climbed the career ladder after Xi’s appointment. Since 2016, he has been in charge of the Cyberspace Administration CAC. It was his first ministerial-level post. Since then, Xu Lin has been one of China’s absolute top officials. Two years later, he became Director of the State Council Information Office, the mouthpiece of the State Council, the country’s quasi-cabinet.
The intensive experience on the propaganda front of the state is now to benefit him in his new function. Media content is planned and analyzed to the smallest detail, internally and externally. Nothing is to be left to chance. China’s entire media policy is geared toward preserving, or better yet, steadily strengthening the party’s leadership role, which includes controlling public opinion and preventing digitalization from generating dynamics that even the party can no longer capture.
The state media play a central role here. According to Xu, their core task is to “stick to the right political direction, the orientation of public opinion and values.” With Xi Jinping trusting him and a reputation as a workaholic, Xu presumably has the best prerequisites for fulfilling this role. Whether he can improve the image of the People’s Republic abroad, depends not only on his abilities as a spin doctor but also directly on the policies of his supreme boss. grz
Fine strands of noodle dough, pulled by hand. Li Nianping has perfected the art; noodle making is a family tradition. Once dried, the noodles are cut, packaged and wrapped with paper sleeves. Li inherited the noodle business in Luonan, Shaanxi Province, from his father. The handmade noodles of Luonan are a cultural heritage of the province.
It is and will remain hot – and not just in Germany. China has been suffering under record temperatures for weeks, with thermometers rising to 44 degrees Celsius at times. Droughts are threatening harvests, hydroelectric power is underperforming, and coal-fired power plants need to be activated to supply electricity. The industry, on the other hand, is shutting down in some places: Production at Bosch, Toyota, Foxconn, CATL, and other large companies in Sichuan has been cut back or is at a complete standstill. Nico Beckert knows more about the effects and reasons.
Just like the temperatures, the Taiwan issue is and will remain hot. Taipei and Washington want to start formal talks on trade cooperation. The People’s Republic is “not amused,” but is holding back on loud threats. Finn Mayer-Kuckuk’s analysis shows that the talks are likely to be primarily political since true free trade is currently out of the question for the United States. He reports where a possible Taiwan-US agreement could apply.
Meanwhile, Mercedes enjoys a mild climate. The Stuttgart-based company sells many vehicles in China, with 36 percent of all cars decorated with the three-pointed star going to customers in the People’s Republic. A large proportion is locally built, and research and development are also increasingly taking place in China. The Group’s shares, of which 20 percent are in different Chinese hands, are also popular. But is that a cause for concern? After all, the Stuttgart-based group is considered vulnerable to takeovers because of its ownership structure. Markus Grabitz looks into this question.
Large parts of China have been experiencing extreme temperatures since mid-June, some of which have lasted up to 30 days. The country is suffering under a record-breaking heat wave. It is the worst heat wave since records began in 1961. More than 260 weather stations measured temperatures of over 40 degrees – in some cases, the thermometer rose above 44 degrees. On the Yangtze, Asia’s largest river, there has been 45 percent less rainfall than the average in recent years. Authorities announced the severe drought along the river could last well into September.
The outlook is not positive. The heat wave is expected to continue in some provinces. “The drought in Anhui, Hubei, Hunan, and Jiangxi could develop further,” warns Liu Zhiyu, an official of the Ministry of Water Resources. Some provinces are resorting to desperate measures. They want to provide more rain through artificial clouds, which involves shooting chemicals into the clouds with hundreds of rockets. But the cloud cover is too thin in many regions, so the measures are often without success.
The heat wave is affecting millions of people. Large areas of Jiangsu, Anhui, Hubei, Zhejiang, Jiangxi, Hunan, Guizhou, Chongqing, Sichuan, and Tibet are affected by severe drought and high temperatures. The extreme weather is affecting health and the elderly in particular. According to surveys by the economic portal Caixin, 82 people suffered heatstroke in June and July, including nine deaths. However, the number of unreported cases is likely to be even higher. In parts of central China and the north of the People’s Republic, the authorities have initiated emergency measures to ensure drinking water supplies for the rural population.
Crops on more than 800,000 hectares of land are affected. The authorities sent emergency teams to the provinces to ensure the irrigation of the fields. In some cases, water pumps were distributed. For some farms, help measures are too late, and in individual cases, there are complete crop failures. It is still unclear how the heat wave will affect crop yields. The area for autumn grain has been extended this year, which provides a solid basis for stable production, Fu Linghui, an official at the National Bureau of Statistics told Xinhua optimistically.
The industrial stronghold of Sichuan is rationing electricity for companies in 19 of 21 cities from August 15-20. Production at Bosch, Toyota, Foxconn, CATL, and other major regional companies has been curtailed or is at a complete standstill. However, according to a Bosch spokeswoman, the impact is still manageable.
The neighboring metropolis of Chongqing, with a population of 30 million, has also restricted power supply to companies until August 24. In Jiangsu and Anhui, companies have adjusted their production at the request of local authorities.
Sichuan generates more than 80 percent of its electricity with hydropower. Due to droughts and low water levels, power plants can no longer supply sufficient electricity. To secure the power supply for private households and commerce – and thus to meet the high demand for electricity for air conditioning – companies have to do without. But apparently, private households also experience power outages. “The power is cut off at least twice a day for at least three hours each time. The power cuts occurred during the hottest part of the day,” a Santai district resident complains on social media. The power utility in Yuechi district reportedly had to cut off supply to each district alternately. It remained unclear how many people were affected in total. Santai and Yuechi are home to more than one million people each.
The cutback in production in Sichuan also affects lithium and polysilicon – the base material for solar cells. If the power shortage in Sichuan persists, Tesla and SAIC suppliers could also be affected, putting car production at risk, Bloomberg reports. The two automakers have already warned authorities in their “home province” of Shanghai.
The China Maritime Safety Administration has repeatedly warned of low water levels on the Yangtze River. Ships are to reduce their cargo when passing through shallow passages. However, the situation is not comparable with the one on Germany’s Rhine river. And bottlenecks are not to be expected at present, as analysts explain. So far, the economic damage is not comparable with last year’s energy crisis. However, if the heat waves continue, the power shortage could hit other provinces like Zhejiang and Jiangsu hard, as they rely on power imports from Sichuan, as Reuters reports. The two provinces have already limited steel, metal, and textile production.
With the loss of hydropower, Sichuan and other provinces rely increasingly on coal. Coal consumption in the province and China in general has increased in recent weeks. However, analysts believe that the higher coal consumption for power generation will not lead to increased carbon emissions in the current year because energy-intensive sectors of the economy, such as metal and cement production, are still in crisis, so carbon emissions in these areas will be lower than last year.
Moreover, the electricity shortage in Sichuan is not only due to climate change. A rigid system for electricity trading severely limits the provinces’ ability to respond appropriately to the current crisis. According to energy and climate expert Lauri Myllyvirta, Sichuan continues to export energy to neighboring provinces despite the shortages. Long-term, fixed supply contracts oblige energy companies to do so. Electricity trading between provinces is inflexible. “For a decade they worked on a reform for power transmission and energy trading between provinces,” says Cory Combs of Trivium China, a consulting agency. So far, without much success.
The current heat wave foreshadows what China will face in the coming decades as a result of climate change. According to studies, heat waves will occur more frequently and severely in the future, and the People’s Republic will be particularly affected. According to estimates, 20 percent of harvests will be at stake in the medium term. China already owns only seven percent of the world’s agricultural land, but it has to feed 22 percent of the world population. Energy demand for cooling will continue to rise, and coastal infrastructure will be damaged by flooding. By 2100, China will face economic damage of €190 trillion (China. Table reported). If the central government fails to manage the installation of counteract measurements, this summer’s record heat waves will be just the beginning.
Mercedes was late to discover China. It was not until 2005 that the German manufacturer went to Beijing and founded the joint venture Beijing Benz Automotive Co. (BBAC) with the state-owned company BAIC. In the early days, business with China played a moderate role for the headquarters in Stuttgart. “When colleagues in Stuttgart saw the Chinese country code on the display of their phones, they didn’t even bother to answer,” recalls an employee from the finance department about his early days in China.
That has changed in the meantime. China has become very important for the company. Last year, Mercedes sold 2.093 million passenger cars worldwide, of which 763,706 went to buyers in China. That is over 36 percent of total sales. For other German manufacturers, too, China is securing the business model and bringing in the money to invest in transformation. VW sold 40 percent of the group brands’ new vehicles to China in 2021, while BMW’s figure was 34 percent.
586,804 Mercedes vehicles were assembled locally at the Beijing plant in 2021. In its 17th year in China, the group with the star thus built 28 percent of its global sales in China. Board member Hubertus Troska has been in charge of China operations in Beijing since 2012. Cars with extra-long wheelbases are produced for Chinese customers. A separate model – just for the Chinese market – has been announced.
China is not just the workbench: Research and development (R&D) are being shifted to China. A second R&D center has just opened in Shanghai. A total of around a thousand developers are already working there. CEO Ola Kaellenius has hired McKinsey consultant Paul Gao, who speaks Mandarin and has studied in China and the United States. Gao’s title is Chief Strategy Officer. His mission is to keep the specific requirements of the key Asian markets in mind when making strategic business decisions.
Mercedes not only operates from China and earns good money from its China business, but the group is to a considerable extent in the hand of the Chinese. The state-owned group BAIC has increased its share to ten percent, which did not reach the public for a long time. And the businessman Li Shufu, who has owned Volvo since 2018, as well as the manufacturer Geely, is the largest single shareholder through his investment company with a further 9.7 percent stake.
Because of the ownership structure at Mercedes – unlike BMW and VW, there are no Quandts, Porsches, or Piechs pulling the strings, and many shares are in free float – the Stuttgart-based group is considered vulnerable to takeovers. The situation was quiet just a moment ago, when Winfried Kretschmann, the Minister-President of the German state of Baden-Wuerttemberg, fuelled speculation with an announcement that the German government would veto a takeover attempt from China. Whether the Green politician had a specific reason for his intervention remained unclear.
However, it can be assumed that investors in China are looking very closely at a further increase in shareholdings. Hardly any brand is more important to the Germans. Beijing is also aware that a takeover of Mercedes in Germany would be a political issue. Nevertheless, the Group has reportedly taken precautions: When it spun off its truck division last year, it very deliberately assigned a business unit that produces a military variant of the G model to the passenger car division rather than to the truckers. “This provides the German government the option of prohibiting a takeover by China on the grounds of security interests alone,” one hears.
In total, one-fifth of Mercedes shares are in Chinese hands. When looking at the shareholder structure, it often goes unnoticed that the two Chinese players are pursuing their own interests. “BAIC and Geely do not get along at all,” says one observer. State-owned BAIC is Mercedes’ originally chosen partner.
In the case of Li Shufu, on the other hand, one can question his motivation for joining the Swabians. Did the Chinese businessman want to adorn himself with the trophy of being a shareholder in a traditional German brand? Did he initially expect more? Did he want to be in the driver’s seat at Mercedes? One analyst tells China.Table, “It’s striking that Kaellenius’ predecessor, Zetsche, has responded rather favorably to questions about BAIC and more neutrally to questions about Geely.”
Meanwhile, there is a cooperation between Geely and Mercedes for the Smart small car. The new model – the company has never made money with the Smart brand in Europe – is now built by Geely in China. The Stuttgart-based company is responsible for the design and technology.
Do Chinese investors have any influence on the operating business? Little is known about this. What is obvious is that they are not represented on the board of management or the supervisory board. It could be that Mercedes will become more Chinese in the future and that activities previously based in Europe will move away, for example, the internal combustion engine business.
Kaellenius proclaimed the “electric only” strategy. By the end of the decade, the company wants to sell only EVs. But he always adds, “where market conditions permit.” The EU will decide to phase out the internal combustion engine by 2035. But a new EV study by management consultants PWC shows that in 2035, 41 percent of newly registered cars worldwide will still have an internal combustion engine.
The study states that 27 percent of new registrations in China will still be internal combustion engines. It is hard to imagine Mercedes abandoning the internal combustion engine business entirely. Once the combustion engine will be buried in Europe, a lot of signs point toward shifting the development of new engines to China.
There is also speculation about the production of volume models. Kaellenius had recently announced the tightened luxury strategy and that four of seven body variants in the entry-level range would be discontinued. The Group has never rejected reports that the A- and B-Class production will not be continued in Rastatt. In the Group’s environment, there were rumors that production of the A- and B-Class would be handed over to shareholder Geely. A Mercedes spokesman told China.Table: “I ask for your understanding that, as usual, we do not comment on speculation.”
The US and Taiwan formally begin talks on trade cooperation. The first meetings of the delegations may now take place as early as this fall. This approach is seen as a substitute for Taiwan’s inability to participate in President Joe Biden’s current Indo-Pacific Initiative.
China’s anger was initially not quite as vocal as it might have been expected in the current tense situation. The US was urged to “carefully handle economic and trade relations with Taiwan and fully respect China’s core interests,” a spokeswoman demanded Wednesday. Safeguarding Chinese sovereignty is paramount, she said. The Foreign Ministry in Beijing also expressed “disapproval” of Taiwan-US contacts. However, there were no concrete threats, and only routine countermeasures were taken.
Taiwan does want a true free trade agreement, as the government in Taipei emphasized on Thursday. But the chances for a far-reaching deal are poor. Duty-free and unregulated movement of goods has no chance in US politics. That does not only apply to Taiwan. A long-announced deal with the UK has also stalled in the current climate. Joe Biden’s Asia-Pacific Initiative (the one in which Taiwan is not allowed to participate) also contains only offers of cooperation, not free trade.
So in Taiwan’s case, trade relations will probably be limited to a friendly document, promising better market access for several product groups and securing supply chains.
Wednesday’s announcement should therefore be understood primarily in political terms, or best in terms of economic policy. “China is not only subjecting the US or Taiwan to economic coercion, but it is also harming the global economy,” Taiwanese negotiator John Deng told reporters in Taipei. Taiwan is countering this coercion by moving closer to its allies, he stated.
By negotiating free trade with Washington, Taipei distinguishes itself as an independent actor on the world stage, which is opposed to Beijing’s claim to represent the “one China” including the People’s Republic and Taiwan. This is also how the Beijing Foreign Ministry understands the situation. A treaty conclusion would carry “connotations of sovereignty” for Taiwan and would be misleading because the island is a province of China, said the spokesman in Beijing.
In turn, the US is using the negotiations to underline its promise of protection for Taiwan. “This is an opportunity to assist Taiwan in building its resilience,” said US Assistant Secretary of Commerce Daniel Kritenbrink. That need can be observed in many US policy actions since the Russian invasion of Ukraine. The president has pledged to use the military if the island is under attack. With her trip to Taipei shortly after, senior Congresswoman Nancy Pelosi provided the impetus for what is now widely considered the “Fourth Taiwan Strait Crisis.”
Wednesday’s document authorizing the US side’s negotiators shows areas a possible Taiwan-US agreement could cover:
These are indeed minor issues that commit both sides to little change in their practices. Only a permanent opening of the Taiwanese market to US beef and pork would have a significant impact. The US wants to sell its surplus production to East Asia as freely as possible. However, Taiwan has repeatedly imposed restrictions on imports. Whenever Taiwan wants to improve trade relations with the US, it first relaxes regulations on meat imports. Last year, Taiwan lifted restrictions on pigs raised on fattening equipment, to the delight of the United States.
For the US, the supply of semiconductor components is also a key strategic issue. This is also likely to be a reason for negotiations, even though neither Taiwan nor the US is currently putting obstacles in the way of chip imports. For the EU, securing semiconductor supplies (China.Table reported) is one of the main reasons for its own trade talks with Taiwan. Here, free trade is not a realistic topic for the foreseeable future either.
The Chinese propaganda apparatus currently has plenty of work on two fronts. The party congress is coming up in the fall. It is only helpful if the vast majority of citizens are convinced that the promised “common prosperity” is still a realistic goal. However, parts of the international community are increasingly skeptical about the People’s Republic because of Zero Covid, Taiwan, Xinjiang, Tibet, and Hong Kong.
Chief ideologue Wang Huning, a member of the Politburo Standing Committee, demanded from representatives of Chinese state media in the spring that the country’s international communications be improved. In principle, that’s old news. President Xi Jinping has been drumming his doctrine of “telling the China story well” into cadres since 2013. But apparently, that is not working out as desired.
Xu Lin has taken up his new post in this conflict situation. The 59-year-old has been the director of the National Radio and Television Administration (NRTA) since June. As such, Xu is responsible for the content of state media such as the TV station CCTV or China’s national and international radio stations.
The NRTA chief in China enjoys ministerial status. The status was equipped successively with greater responsibility in recent decades through various restructurings and mergers. State control of the media is as old as the People’s Republic itself, but the NRTA has only existed in its current centrally organized form since 2018.
The personnel move in the year of the party congress, during which Xi Jinping wants to secure a third term as president against decades of custom, seems well thought out. Xu Lin is no stranger to Xi. He is considered a pupil of the party leader. In 2007, Xi, who was already designated as the future head of state, elevated the then 44-year-old to the 13-member Standing Committee of the Shanghai People’s Congress. A cover story in the 21st Century Business Herald newspaper ennobled Xu as the biggest political star after Xi in the round.
In his younger years, Xu Lin had already made a name for himself at lower levels of administration in Shanghai. At 29, he became deputy district chief in Nanhui, which is now part of Pudong. Three years later, Xu became the first Shanghai official to take a post in Tibet, where he served as Party Vice-Chairman in Xigazê Prefecture. After returning to Shanghai, he collected further laurels as manager of a state-owned supermarket chain and finally as head of the local Civil Affairs Bureau.
The Communist Party’s Organization Department, that powerful behind-the-scenes institution that pulls the strings for the careers of every promising cadre in the country, already had its eye on Xu at the time. His extensive experience in many areas of Chinese administration seemed to predestine him for higher tasks.
In 2006, the organization department carefully observed Xu’s environment, as one of his old companions recalled. The delegation wanted to understand what made Xu tick and whether they could give him more responsibility. The profile that colleagues drew was that of a decisive character with a talent for coordination and organization. “We all felt he was a workaholic,” one ex-colleague told 21st Century Business Herald.
The feedback from Shanghai and his work were so convincing that Xu Lin steadily climbed the career ladder after Xi’s appointment. Since 2016, he has been in charge of the Cyberspace Administration CAC. It was his first ministerial-level post. Since then, Xu Lin has been one of China’s absolute top officials. Two years later, he became Director of the State Council Information Office, the mouthpiece of the State Council, the country’s quasi-cabinet.
The intensive experience on the propaganda front of the state is now to benefit him in his new function. Media content is planned and analyzed to the smallest detail, internally and externally. Nothing is to be left to chance. China’s entire media policy is geared toward preserving, or better yet, steadily strengthening the party’s leadership role, which includes controlling public opinion and preventing digitalization from generating dynamics that even the party can no longer capture.
The state media play a central role here. According to Xu, their core task is to “stick to the right political direction, the orientation of public opinion and values.” With Xi Jinping trusting him and a reputation as a workaholic, Xu presumably has the best prerequisites for fulfilling this role. Whether he can improve the image of the People’s Republic abroad, depends not only on his abilities as a spin doctor but also directly on the policies of his supreme boss. grz
Fine strands of noodle dough, pulled by hand. Li Nianping has perfected the art; noodle making is a family tradition. Once dried, the noodles are cut, packaged and wrapped with paper sleeves. Li inherited the noodle business in Luonan, Shaanxi Province, from his father. The handmade noodles of Luonan are a cultural heritage of the province.
