Global supply chains have been under severe strain for almost two years now. The Covid crisis caused supply shortages of microchips for months. Aside from the pandemic, there have been unforeseen incidents on a regular basis: At one point, a container ship was stuck across the Suez Canal for weeks. Then there was a power crisis in China – and logistics experts have now heard of blocked ports more often than they would like.
Marcel Grzanna asked German SMEs how they are dealing with the crisis. Their plea is to shift more production back to Europe – especially in critical sectors such as semiconductors and medical goods. Because China knows how to use its market power and strategically restricts exports of important goods, entrepreneurs complain.
But important questions remain: Are consumers willing to pay more for “Made in Europe”? And will corporations that shift their production back home still be able to keep up with competitors that benefit from lower Chinese prices?
At least in the medium term, the chip crisis could ease somewhat: The largest producer TSMC plans the construction of a new factory in 2022. Production is scheduled to begin in southern Taiwan in 2024. Over the next three years, the company plans to invest a total of $100 billion in new production facilities.
We hope you enjoy today’s issue!
Just a few months back, Jochen Kopitzke, Managing Director of a medical technology company, did not consider the automotive industry to be a direct competitor for electronic components. The same components used in refrigerators and SUVs sound unusual at first. But modern technology in both industries has the same tiny origin: the microchip. And because the tiring problems of Corona are massively impairing chip supply, Philipp Kirsch GmbH is now also getting involved in the struggles between Daimler, BMW, or Porsche.
It is an uneven battle when a medium-sized company from German Willstaett in Baden-Wurttemberg competes against the world’s automotive elite. Philipp Kirsch is one of the “hidden champions” of the German SME sector. But “the automotive industry has a huge purchasing power that us medium-sized companies can only dream of. Nevertheless, we are fighting them over processors,” says Kopitzke.
For Philipp Kirsch, nothing less is at stake than ensuring its own production. The calculation is simple: without chips, no refrigerators. The company now has to pay 25 times more for a processor than before the Covid pandemic. And yet CEO Kopitzke says: “We are happy that we have found ways together with German suppliers to continue production. Even though it hurts us a lot.”
When Kopitzke talks about “us”, he is referring primarily to his own company, but he is also talking about “us” as a society. Price increases in the supply chains ultimately also affect consumers. In the end, they inevitably have to bear their share of the price increases. Not only when it comes to laboratory refrigerators, but also in large parts of the industrial value chain.
Over the past year and a half, Germany and the European Union have learned that certain mass-produced industrial components are now exclusively made in Asia. Kopitzke fears that the Chinese government in particular has discovered that they are calling the shots at certain critical junctures of value creation. “China has learned how to steer certain developments by regulating exports to carefully hoard certain goods for itself, or to use them to pressure other countries into making certain decisions,” he says.
The possible political consequences of this constellation cause unease for the Head of Philipp Kirsch GmbH. A few years ago, the company decided that it would purchase key components for refrigeration and electrical engineering exclusively in Germany or other parts of the European Union. Kopitzke even convinced one of his primary suppliers to call off its plans to outsource its production to China. That was even before the Covid pandemic.
“At that time, we made it quite clear that we wouldn’t accept it. Two years ago, we believed that Made in Germany should only appear on a product if the manufacturing process actually complies with German environmental and social standards in addition to technological standards,” says Kopitzke. In the meantime, they also realized that overdependence on the People’s Republic of China can cause tremendous damage to Germany.
This “aha” effect resonated throughout large parts of the German economy. This is not just about preparing for the next pandemic, but also about being prepared for a possible escalation of geopolitical relations. Europe cannot afford to be blackmailed if it is to remain capable of acting in the event of a crisis. When it comes down to it, Germany needs to be able to supply itself with vital products.
This is also no secret to medical technology company B.Braun from Melsungen in northern Hesse, which produces and sells everything that is needed in the fight against a deadly virus. The company’s portfolio spans 5,000 products. Naturally, not every single product is of equal systemic importance. But syringes, needles, disinfectants, personal protective equipment, or infusion pumps are in times of a pandemic.
But the production of infusion pumps could not cope with the high demand in the past 20 months because the necessary small electronic parts are manufactured outside the European Union. When the borders were closed, the chips stayed out too. “The pandemic has made it clear that global health care needs the free movement of goods. On the other hand, critical products must also be produced in Europe, which is what B. Braun has always done,” says company spokeswoman Christine Bossak.
Systemically important, but not immune to setbacks in times of crisis. The example of B.Braun shows just how sudden the pandemic hit the German economy, ruthlessly exposing its weaknesses. The dependence on third-party markets became especially apparent in medical tech. This lesson was not only learned within the industry, but also opened the debate throughout society.
As chairman of the Upper Rhine South Industry Committee of the German Chambers of Industry and Commerce, Jochen Kopitzke from Philipp Kirsch is aware of just how deep these issues run within value chains and continue from there. Even craftsmen are now “jumping from construction site to construction site” and are trying to complete their work, piece by piece. Depending on what materials and components are available at the time, they would decide which job to continue next.
So the solution would be quite simple: The production of essential components, no matter in which industry, needs to return to Europe. And indeed, as part of his IHK duties, Kopitzke has noticed that this trend is setting in. But the issue of higher prices for numerous goods remains. Only if consumers are prepared to dig a little deeper into their pockets, it will be economically sound for corporations to move away from Chinese supplies.
For now, consumers are playing along, says Kopitzke. However, this is also because shipping costs in the global supply chain network have increased around tenfold. This makes products from Asia significantly more expensive and buying within Europe, in turn, more affordable. But the Coronavirus will not rage forever. Once the pandemic is over, shipping costs will drop massively. Only then will we see what Germany’s consumers and corporations have really learned from the past two years.
Sinolytics is a European consulting and analysis company that focuses entirely on China. It advises European companies on strategic orientation and specific business activities in China.
In the past ten years, things have become relatively quiet around Tibet and the Dalai Lama. The spiritual leader of the Tibetans once traveled around the world to draw attention to the fate of his people. He also came to Germany, met the German Chancellor, and was a guest on TV talk shows.
But times have changed. On the one hand, the Dalai Lama is certainly not the youngest anymore. But above all, it is the threats from the People’s Republic of China that are causing large parts of the world to distance themselves from him. Beijing portrays him as a violent separatist who organizes uprisings from exile. And anyone who sees it differently is considered an enemy of the Chinese people. Therefore, the universal formula is: The closer a nation moves economically to China, the further it distances itself from the Dalai Lama.
Kai Mueller is one of those working against this trend. He is the Managing Director of the International Campaign for Tibet (ICT) in Germany and makes sure that the facts are not forgotten: Tibet is under occupation by the People’s Republic of China for 70 years. The Dalai Lama has been living in exile for more than 60 years. The human rights situation in the region is depressing. Independent UN experts repeatedly point to cases of detained Tibetans. The German government describes the human rights situation in Tibet as “particularly critical.”
Despite the lack of free access to Tibet, the ICT, as an international non-governmental organization, commits itself to the oppressed region and makes cases of imprisoned or persecuted Tibetans public. Mueller says that thanks to the work of him and his team, the ITC has gained almost 15,000 supporters in Germany since 2005.
And yet even the trained lawyer and social scientist, who served on the German national board of Amnesty International until 2005, could not prevent the situation of Tibetans from deteriorating drastically in recent years. “Tibet is becoming more and more totalitarian with each passing day. A surveillance state that is sealed off from the outside world,” Mueller stated.
More than 150 Tibetans have set themselves on fire since 2009 in protest against the Chinese occupation. A staggering number for Mueller, but one that was followed by little international reaction and no action at all. Equally tragic, he said, were the bloody protests ahead of the Beijing Olympics in 2008. The fact that the Winter Olympics will also be held in Beijing next February is a mistake, Müller says: “After the 2008 Games, the caravan moved on without any reappraisal of the events in Tibet.” He pleads for a boycott of the Winter Games.
Human rights crimes continue to be a bitter everyday occurrence in Tibet. But the economic relations with the People’s Republic and the fear of consequences make people turn a blind eye. “Tibetans disappear, are forced into Chinese work programs or arbitrarily detained.” Torture and death are not uncommon, says Mueller.
Even peaceful advocacy for Tibetan culture is reason enough to be persecuted and sentenced to long prison terms. Therefore, Mueller and the ICT demand free access to Tibet for independent media, UN representatives, diplomats, and civil society. Beijing must change its policy and the world community must stand up for the rights of Tibetans.
The ICT presents individual cases of persecuted Tibetans to the UN Human Rights Council. Despite or perhaps because of its efforts, the organization is usually denied accreditation at international conferences. Most of the time for various other reasons. The organization was represented at the climate conference in Glasgow but was not officially accredited. And this is despite its many years of work for the environment and human rights. Mueller sees the growing influence of the Chinese government behind this, particularly with its efforts to systematically restrict civil society, especially at the United Nations. Tibet organizations like the ICT are the first to feel the effects.
Mueller also criticized the “imbalance” at the United Nations with regard to criticism of Beijing and other states. There is no resolution on the human rights situation in China in the Human Rights Council. “A human rights council should discuss important human rights issues and not keep quiet about them. Instead, the worst human rights violators are represented within. It is then of no surprise that countries like China can put an end to criticism of their policies.”
Meanwhile, the Communist Party pursues its aggressive policy of adapting Tibet to its ideology, appointing the next Dalai Lama, and securing mineral resources, water, and strategic access in the region. Many accept the narratives that the CP places in the West and around the world, Mueller says. “There are other underlying goals behind the so-called poverty alleviation, environment and development policies of the CP.” According to Mueller, the CP is acting out of its power ambitions instead of its altruistic way, as the party likes to portray. “An entire culture is being assimilated. A religion is losing its essence. A language is dying out,” Mueller laments. Lisa Marie Jordan
Snow angel – or rather snow globe: A giant panda cub plays in the first frosty precipitation of the year at the “Qinling Giant Panda Research Center” in Xian. Much of northern and central China was hit by freezing temperatures and first snowfall earlier this week.
Global supply chains have been under severe strain for almost two years now. The Covid crisis caused supply shortages of microchips for months. Aside from the pandemic, there have been unforeseen incidents on a regular basis: At one point, a container ship was stuck across the Suez Canal for weeks. Then there was a power crisis in China – and logistics experts have now heard of blocked ports more often than they would like.
Marcel Grzanna asked German SMEs how they are dealing with the crisis. Their plea is to shift more production back to Europe – especially in critical sectors such as semiconductors and medical goods. Because China knows how to use its market power and strategically restricts exports of important goods, entrepreneurs complain.
But important questions remain: Are consumers willing to pay more for “Made in Europe”? And will corporations that shift their production back home still be able to keep up with competitors that benefit from lower Chinese prices?
At least in the medium term, the chip crisis could ease somewhat: The largest producer TSMC plans the construction of a new factory in 2022. Production is scheduled to begin in southern Taiwan in 2024. Over the next three years, the company plans to invest a total of $100 billion in new production facilities.
We hope you enjoy today’s issue!
Just a few months back, Jochen Kopitzke, Managing Director of a medical technology company, did not consider the automotive industry to be a direct competitor for electronic components. The same components used in refrigerators and SUVs sound unusual at first. But modern technology in both industries has the same tiny origin: the microchip. And because the tiring problems of Corona are massively impairing chip supply, Philipp Kirsch GmbH is now also getting involved in the struggles between Daimler, BMW, or Porsche.
It is an uneven battle when a medium-sized company from German Willstaett in Baden-Wurttemberg competes against the world’s automotive elite. Philipp Kirsch is one of the “hidden champions” of the German SME sector. But “the automotive industry has a huge purchasing power that us medium-sized companies can only dream of. Nevertheless, we are fighting them over processors,” says Kopitzke.
For Philipp Kirsch, nothing less is at stake than ensuring its own production. The calculation is simple: without chips, no refrigerators. The company now has to pay 25 times more for a processor than before the Covid pandemic. And yet CEO Kopitzke says: “We are happy that we have found ways together with German suppliers to continue production. Even though it hurts us a lot.”
When Kopitzke talks about “us”, he is referring primarily to his own company, but he is also talking about “us” as a society. Price increases in the supply chains ultimately also affect consumers. In the end, they inevitably have to bear their share of the price increases. Not only when it comes to laboratory refrigerators, but also in large parts of the industrial value chain.
Over the past year and a half, Germany and the European Union have learned that certain mass-produced industrial components are now exclusively made in Asia. Kopitzke fears that the Chinese government in particular has discovered that they are calling the shots at certain critical junctures of value creation. “China has learned how to steer certain developments by regulating exports to carefully hoard certain goods for itself, or to use them to pressure other countries into making certain decisions,” he says.
The possible political consequences of this constellation cause unease for the Head of Philipp Kirsch GmbH. A few years ago, the company decided that it would purchase key components for refrigeration and electrical engineering exclusively in Germany or other parts of the European Union. Kopitzke even convinced one of his primary suppliers to call off its plans to outsource its production to China. That was even before the Covid pandemic.
“At that time, we made it quite clear that we wouldn’t accept it. Two years ago, we believed that Made in Germany should only appear on a product if the manufacturing process actually complies with German environmental and social standards in addition to technological standards,” says Kopitzke. In the meantime, they also realized that overdependence on the People’s Republic of China can cause tremendous damage to Germany.
This “aha” effect resonated throughout large parts of the German economy. This is not just about preparing for the next pandemic, but also about being prepared for a possible escalation of geopolitical relations. Europe cannot afford to be blackmailed if it is to remain capable of acting in the event of a crisis. When it comes down to it, Germany needs to be able to supply itself with vital products.
This is also no secret to medical technology company B.Braun from Melsungen in northern Hesse, which produces and sells everything that is needed in the fight against a deadly virus. The company’s portfolio spans 5,000 products. Naturally, not every single product is of equal systemic importance. But syringes, needles, disinfectants, personal protective equipment, or infusion pumps are in times of a pandemic.
But the production of infusion pumps could not cope with the high demand in the past 20 months because the necessary small electronic parts are manufactured outside the European Union. When the borders were closed, the chips stayed out too. “The pandemic has made it clear that global health care needs the free movement of goods. On the other hand, critical products must also be produced in Europe, which is what B. Braun has always done,” says company spokeswoman Christine Bossak.
Systemically important, but not immune to setbacks in times of crisis. The example of B.Braun shows just how sudden the pandemic hit the German economy, ruthlessly exposing its weaknesses. The dependence on third-party markets became especially apparent in medical tech. This lesson was not only learned within the industry, but also opened the debate throughout society.
As chairman of the Upper Rhine South Industry Committee of the German Chambers of Industry and Commerce, Jochen Kopitzke from Philipp Kirsch is aware of just how deep these issues run within value chains and continue from there. Even craftsmen are now “jumping from construction site to construction site” and are trying to complete their work, piece by piece. Depending on what materials and components are available at the time, they would decide which job to continue next.
So the solution would be quite simple: The production of essential components, no matter in which industry, needs to return to Europe. And indeed, as part of his IHK duties, Kopitzke has noticed that this trend is setting in. But the issue of higher prices for numerous goods remains. Only if consumers are prepared to dig a little deeper into their pockets, it will be economically sound for corporations to move away from Chinese supplies.
For now, consumers are playing along, says Kopitzke. However, this is also because shipping costs in the global supply chain network have increased around tenfold. This makes products from Asia significantly more expensive and buying within Europe, in turn, more affordable. But the Coronavirus will not rage forever. Once the pandemic is over, shipping costs will drop massively. Only then will we see what Germany’s consumers and corporations have really learned from the past two years.
Sinolytics is a European consulting and analysis company that focuses entirely on China. It advises European companies on strategic orientation and specific business activities in China.
In the past ten years, things have become relatively quiet around Tibet and the Dalai Lama. The spiritual leader of the Tibetans once traveled around the world to draw attention to the fate of his people. He also came to Germany, met the German Chancellor, and was a guest on TV talk shows.
But times have changed. On the one hand, the Dalai Lama is certainly not the youngest anymore. But above all, it is the threats from the People’s Republic of China that are causing large parts of the world to distance themselves from him. Beijing portrays him as a violent separatist who organizes uprisings from exile. And anyone who sees it differently is considered an enemy of the Chinese people. Therefore, the universal formula is: The closer a nation moves economically to China, the further it distances itself from the Dalai Lama.
Kai Mueller is one of those working against this trend. He is the Managing Director of the International Campaign for Tibet (ICT) in Germany and makes sure that the facts are not forgotten: Tibet is under occupation by the People’s Republic of China for 70 years. The Dalai Lama has been living in exile for more than 60 years. The human rights situation in the region is depressing. Independent UN experts repeatedly point to cases of detained Tibetans. The German government describes the human rights situation in Tibet as “particularly critical.”
Despite the lack of free access to Tibet, the ICT, as an international non-governmental organization, commits itself to the oppressed region and makes cases of imprisoned or persecuted Tibetans public. Mueller says that thanks to the work of him and his team, the ITC has gained almost 15,000 supporters in Germany since 2005.
And yet even the trained lawyer and social scientist, who served on the German national board of Amnesty International until 2005, could not prevent the situation of Tibetans from deteriorating drastically in recent years. “Tibet is becoming more and more totalitarian with each passing day. A surveillance state that is sealed off from the outside world,” Mueller stated.
More than 150 Tibetans have set themselves on fire since 2009 in protest against the Chinese occupation. A staggering number for Mueller, but one that was followed by little international reaction and no action at all. Equally tragic, he said, were the bloody protests ahead of the Beijing Olympics in 2008. The fact that the Winter Olympics will also be held in Beijing next February is a mistake, Müller says: “After the 2008 Games, the caravan moved on without any reappraisal of the events in Tibet.” He pleads for a boycott of the Winter Games.
Human rights crimes continue to be a bitter everyday occurrence in Tibet. But the economic relations with the People’s Republic and the fear of consequences make people turn a blind eye. “Tibetans disappear, are forced into Chinese work programs or arbitrarily detained.” Torture and death are not uncommon, says Mueller.
Even peaceful advocacy for Tibetan culture is reason enough to be persecuted and sentenced to long prison terms. Therefore, Mueller and the ICT demand free access to Tibet for independent media, UN representatives, diplomats, and civil society. Beijing must change its policy and the world community must stand up for the rights of Tibetans.
The ICT presents individual cases of persecuted Tibetans to the UN Human Rights Council. Despite or perhaps because of its efforts, the organization is usually denied accreditation at international conferences. Most of the time for various other reasons. The organization was represented at the climate conference in Glasgow but was not officially accredited. And this is despite its many years of work for the environment and human rights. Mueller sees the growing influence of the Chinese government behind this, particularly with its efforts to systematically restrict civil society, especially at the United Nations. Tibet organizations like the ICT are the first to feel the effects.
Mueller also criticized the “imbalance” at the United Nations with regard to criticism of Beijing and other states. There is no resolution on the human rights situation in China in the Human Rights Council. “A human rights council should discuss important human rights issues and not keep quiet about them. Instead, the worst human rights violators are represented within. It is then of no surprise that countries like China can put an end to criticism of their policies.”
Meanwhile, the Communist Party pursues its aggressive policy of adapting Tibet to its ideology, appointing the next Dalai Lama, and securing mineral resources, water, and strategic access in the region. Many accept the narratives that the CP places in the West and around the world, Mueller says. “There are other underlying goals behind the so-called poverty alleviation, environment and development policies of the CP.” According to Mueller, the CP is acting out of its power ambitions instead of its altruistic way, as the party likes to portray. “An entire culture is being assimilated. A religion is losing its essence. A language is dying out,” Mueller laments. Lisa Marie Jordan
Snow angel – or rather snow globe: A giant panda cub plays in the first frosty precipitation of the year at the “Qinling Giant Panda Research Center” in Xian. Much of northern and central China was hit by freezing temperatures and first snowfall earlier this week.
