On Monday, the traditional German shipyards MV Werften filed for bankruptcy. The search for the reasons ends about 8800 kilometers to the East – to Genting Hong Kong Ltd. It is the owner of the shipyards in Stralsund, Rostock and Wismar. The plan was to turn them into the most modern and successful shipyards in the world. But things turned out differently. Now 1,900 employees are on the brink of losing their jobs.
China is often criticized as one of the biggest climate sinners. And rightly so. And yet it is only one side of the coin. Nico Beckert has taken a look at the dark other side and shows what dramatic consequences climate change could have on the People’s Republic: China is at risk of losing 20 percent of its harvests; there will be work stoppages equivalent to a new COVID-19 pandemic every two years. Both China and Western nations need to finally realize: To mitigate the worst effects of the climate crisis, China is as dependent on climate protection by other countries as Western countries are on China.
But relations are still dominated by competition: Europe wants to outdo China’s prestigious Belt and Road project with its Global Gateway infrastructure initiative. Amelie Richter has analyzed the EU’s plans and concludes that its rhetoric is indeed far-reaching. But bold announcements alone will not suffice. The EU still has to make a lot of decisions before it can effectively compete with Beijing’s ambitions in emerging markets.
I hope you enjoy today’s issue!
The bad news arrived on Monday afternoon: The German shipyard MV Werften in Mecklenburg-Western Pomerania has to file for bankruptcy. For days, the federal government and the state government of Mecklenburg-Western Pomerania had been looking for a way to resolve the messy situation with the owner of MV Werften. But no solution could be found with Genting Hong Kong Ltd.
On the surface, the cruise ship “Global Dream”, of all things, caused the shipyards to go out of business. It was to be one of the largest cruise ships ever built and was intended exclusively for the Asian market. The construction of the 342 meter long dream ship was to cost a whopping 1.5 billion euros and offer space for up to 9500 passengers. Although 75 percent of the ship has already been completed, the remaining financing could not be secured. The German government was apparently ready to provide further assistance. However, it demanded Genting to pay its share. And this apparently did not happen. The latest word from Berlin was that the owners had not made a clear commitment to their shipyard.
The Hong Kong company’s entry into the German shipyards began extremely promisingly. Until then, the Asian tourism company had been known primarily for its cruise brands Star Cruises, Crystal Cruises and Dream Cruises. Business was booming, and more and more people wanted to spend their vacations on the high seas. So Genting HK was in dire need for more ships. But due to increasing demand, construction times for cruise ships were getting longer and longer. Genting was looking for a way out: to build new shipyards for large cruise ships, mainly for the Asian market. Genting CEO Lim Kok Thay said at the time that the company wanted to be prepared for the rapid growth of the Chinese cruise market. Genting found what it was looking for in Germany.
The German shipyards in Bremerhaven, Wismar, Warnemuende and Stralsund were acquired for €230 million. At the beginning of July 2016, Thay announced that the three traditional shipyards in Wismar, Rostock and Stralsund would be combined under the name MV Werften (MV for Mecklenburg-Western Pomerania) and that an investment of €100 million would be made to turn them the most modern and efficient shipyards in the cruise ship industry. More than 3,000 employees were supposed to make this ambitious goal possible.
But then the Covid pandemic hit. In China in particular, the leadership took strict measures: national borders were closed, cities with populations of several million were sent into lockdown. Accordingly, business in the cruise industry also came to a grinding halt – and Genting subsequently experienced massive payment difficulties. As early as summer 2020, the parent company of MV Werften announced that it would stop payments to banks and creditors. For the entire year of 2020, Genting had to accept a loss of $1.7 billion, and the group’s debts rose to a whopping $3.4 billion. A company statement to the Hong Kong Stock Exchange at the end of March 2021 stated that it was uncertain whether the group could continue to exist under these circumstances.
There is no improvement in sight for the cruise industry. On the few ships currently sailing the seas, the number of new infections is rising rapidly. The reason is the spread of the highly contagious Omicron variant. And this in turn is leading to an increase in Covid-related changes of plans and trip cancellations. In any case, the German Foreign Office in Berlin advises against ship travels. There is a risk that travelers on ships will be placed under quarantine, and it would also be difficult to organize transport back to Germany. Meanwhile, the US Centers for Disease Control and Prevention (CDC) has been urgently advising its citizens not to embark on a cruise since December, regardless of Vaccination status, the statement said. And Brazil has completely suspended cruise operations until January 2021 because of hundreds of infections.
Considering the pressure on the entire industry, it is not surprising that even the ambitious plans for Wismar, Rostock, and Stralsund were suddenly nothing more than wastepaper. Production of ongoing shipbuilding projects was suspended, and the shipyards were even temporarily closed altogether.
MV Werften sought safety under Germany’s Covid rescue umbrella – and Berlin expressed the will to help. In mid-May, then Minister of Economics Peter Altmaier promised to strengthen German shipbuilding against competition from abroad (China.Table reported).
But negotiations between the federal government, the state government of Mecklenburg-Western Pomerania, MV Werften and Genting Hong Kong on a rescue package remained fruitless. The positions were irreconcilable: The federal government assured until the end that it would provide around €600 million from the Economic Stabilization Fund (ESF). The new flagship “Global Dreams” could be used as collateral. However, its owner would also have to pull his weight in saving the shipyards: just under €60 million plus guarantees for the federal funds in question.
According to the CEO of Genting Hong Kong, four offers for further financing had been submitted to the federal government. However, these were all rejected, said Colin Au. In addition, due payments were said to be blocked last December when a construction milestone was reached – the so-called Milestone F. Genting was now simply unable to make any further concessions. Colin Au again pointed out that his company had invested more than €2 billion in the MV sites out of its own pocket since the takeover, and the number of employees had doubled. “To drop the shipyards now would be the biggest economic mistake that the federal government could make,” Au said, appealing to the federal and state governments to reconsider their position. Aside from jobs in the northeast, an entire industry, including domestic and foreign suppliers, are at stake.
MV Werften CEO Carsten Haake assumes that the German government currently does not want to budge – and that Genting can’t budge. “We have worn ourselves out over the requirements of the federal government,” Haake said. Some reports, on the other hand, claim that Genting CEO Thay has apparently been counting on even more tax millions from Germany.
Most recently, the parent company had stopped paying the December salaries to the shipyard’s workers. The mood at last Friday’s staff meeting in Wismar was understandably tense.
Meanwhile, some 8800 kilometers away, the drama took its course. There, the Hong Kong Stock Exchange received the following letter: “At the request of Genting Hong Kong Ltd, trading in the shares of the company on The Stock Exchange of Hong Kong Ltd will be halted with effect from 9 AM on Friday, Jan 7, 2022, pending the release of an announcement in relation to an inside information of the company.”
The news hit on Monday – and it was a big one: MV Werften has to file for bankruptcy. This leaves no doubt that the financial difficulties of the parent company Genting Hong Kong are causing the collapse of a major German company. The future of the roughly 1,900 employees remains uncertain.
They were standing up to their necks in water. Not knowing whether rescue or death by drowning was near. The footage of flooded subways in Zhengzhou in the summer of 2021 is one of the most shocking images of the past year. The floods were triggered by torrential rain. Over just three days, the Chinese province of Henan experienced as much rainfall as the average for the rest of the year. More than 300 people lost their lives.
China is already more affected by climate change than other regions of the world. In recent years, extreme weather events such as heavy precipitation, heatwaves, and droughts have increased. Disasters like the one in Henan threaten to become regular occurrences in the future. The more Earth’s atmosphere is heating up, the more frequent and the more severe the extreme weather events will become.
In addition to human tragedy, China faces high economic costs. The summer floods alone caused damages of more than $17 billion. Over the past decade, the direct economic costs of severe weather disasters have exceeded $50 billion annually.
If countries do not fight climate change more effectively, they face massive costs. The People’s Republic could experience damages of nearly $190 trillion over the next 80 years. This is the result of a joint study by Tsinghua University in Beijing and the London-based think tank Chatham House.
The scientists analyzed four areas where climate change is causing economic damage:
The most severe damage is caused by crop failures. China is at risk of losing 20 percent of its harvests if countries around the world fail to reduce CO2 emissions. The authors write of a “significant threat to major grain-growing regions” if temperatures rise by 3.5 degrees over the next 80 years. Projections by other scientists suggest that the average global temperature will rise 2.7 degrees under current climate policies. But the Chinese researchers write that even with an increase of just 1.6 degrees, eight percent of crops would be lost by 2100.
A study published in the online magazine Nature Food confirms these findings. The temperature rise could lead to a doubling of crop pests and plant diseases in China, according to an international scientific team with researchers from China, the United States, Germany, and other countries. However, it should be noted that the scientists based their findings on the highly pessimistic scenario of a four-degree temperature rise over the next 80 years.
The costs of lower labor productivity due to heat are also significant. With average emissions (3.5 degrees increase by 2100), labor productivity in China would drop by three percent. In key economic centers in eastern and southern China, this would even be a good four percent. If the temperature rise could be limited to 1.6 degrees, the productivity loss would be 0.7 percent. In 2019, China has already lost over 28 billion working hours due to heatwaves. By comparison, China lost about 70 billion work hours due to the Covid pandemic. “The impact of climate change in this area is as severe as if a COVID-19 pandemic were to occur every two to three years,” the scientists write.
The authors of the study place the direct costs of rising sea levels on infrastructure and buildings at $5 trillion for a temperature rise of 3.5 degrees. Even if temperature rise could be limited to 1.6 degrees by 2100, China faces costs of $3 trillion. China’s coastal cities are the most threatened by rising sea levels in the world (China.Table reported). Sea levels off China’s coasts are rising faster than the global average. Millions of people are at risk of flooding. Drinking water reservoirs could become salinized.
At average emissions (3.5 degrees increase by 2100), China’s power demand would increase by 90 percent by the end of the century due to climate change alone. The number of heat days with a temperature of more than 27.5 degrees would increase sharply. As a result, more air conditioners would be needed, for example. Southern and eastern China would be most affected, according to the scientists.
The Tsinghua study concludes with a strong plea to step up climate action early and globally. At the presentation of the study, one of its authors said that China needs to do more to achieve carbon neutrality. The government should redouble its efforts in non-fossil power, suggested Teng Fei, who is a professor at Tsinghua University.
If humanity failed to act quickly now, considerable climate risks and costs would be passed on to next generations, the authors write. More than 85 percent of economic climate damage would not occur until between 2050 and 2100. That’s because as temperatures rise, damages increase at an ever-increasing rate. The scientists note, “The costs of inaction on climate change are likely to be far greater than the costs of emission mitigation.”
The study also shows that the global community is sitting in the same boat. China has now become one of the main causes of climate change. The People’s Republic is responsible for a good 30 percent of global greenhouse gas emissions. However, the scientists explicitly did not calculate what risk China’s own CO2 emissions pose, but rather focused on global emissions. To avert the worst consequences of the climate crisis, China is just as dependent on climate protection by other countries as Western countries are dependent on climate protection by China.
Brussels’ response to China’s Belt and Road Initiative (BRI) is still in its infancy. By mid-2022, however, the EU Commission wants to propose concrete projects for its global infrastructure strategy Global Gateway. Brussels sees the involvement of the private sector as a “unique competitive advantage” here. “Global Gateway must make full use of it in order to be a viable and attractive alternative for partner countries” according to the official joint communication. What this will look like in practice is still open. Equally unclear are the details of the Business Advisory Group, which is planned as part of Global Gateway. Other aspects of the initiative also still need to be specified.
Nevertheless, the reaction from the German business community to the initiative has so far been largely positive, as Sebastian Holz from the German foreign trade agency Germany Trade and Invest (GTAI) reports. The fact that Global Gateway also seeks the expertise of the private sector is a good thing. Holz sees the EU’s cooperation with private companies as an advantage over China’s BRI. “I think the European private sector is a strength that the Chinese don’t have in that form. There, it is mainly state-owned enterprises that implement the projects,” Holz told China.Table.
The interest of the industry is there, says Holz. The initiative could help make involvement less risky, especially in emerging countries. Holz is working on various international networking projects for GTAI, which is part of the German Federal Ministry for Economic Affairs and Energy. The foreign trade agency launched its own project for this purpose at the beginning of last year. It not only monitors Global Gateway and BRI but other EU initiatives for international infrastructure as well. It also deals with the US-led “Build Back Better World” initiative of the G7 countries. Holz’ assessment of Global Gateway’s predecessor, the EU-Asia Connectivity Strategy, however, is rather poor: Brussels’ initiative, which was presented in the fall of 2018, remained “very vague,” the analyst criticizes.
Global Gateway is already much more ambitious in its rhetoric, praises Holz. To finance the project, the EU Commission has promised around €300 billion from state and private sources for the period from 2021 to 2027. This shows: Brussels sees connectivity as a central building block of its geo-economically oriented economic policy – and accordingly also wants to deliver results quickly here. The first projects are to be launched in June of this year.
Gigantic bridge and highway constructions, such as the BRI project in Montenegro, will be less of a focus. According to its statements, the EU wants to focus primarily on sustainable means of transport. “It is safe to assume that no large highway projects on the African continent will be funded under Global Gateway,” Holz says. That is not in line with the EU’s green aspirations. At the launch of Global Gateway, the Commission stressed that the highest standards would be applied in terms of sustainability, governance, and transparency. According to Holz, this goes down well with German companies: “They all want high sustainability standards to be laid down for these projects because they can serve them better than their international competitors.”
But due to the BRI’s lower sustainability standards, the Chinese prestige project and Brussels’ initiative can only be compared to a limited extent, Holz emphasizes. “The goal is not to use the same amount of concrete as the Chinese are using in their initiative.”
Private companies will be involved through the newly established Business Advisory Group. “It is not yet clear who will be part of the group, that process is still ongoing. Negotiations and considerations are currently underway for a contact person in Brussels for the companies,” explains Holz. Companies will then have a say in the advisory body’s selection of projects and their implementation.
Alicia García-Herrero, Chief Economist for the Asia Pacific at the French investment bank Natixis and a Senior Fellow at the Brussels-based think tank BRUEGEL, is still skeptical about the involvement of the private sector. In this regard, the EU initiative is far from being fleshed out, thinks García-Herrero. “It is not clear how much is business in this initiative, and how much is development assistance. There is no clear definition.”
At present, she still sees the involvement of the private sector more as an obstacle than an advantage. “Only when it is clear what the business side looks like can you start making comparisons with the BRI,” says the analyst. She criticizes the fact that while EU High Representative for Foreign Affairs Josep Borrell and Commissioner for Neighbourhood and Enlargement Olivér Várhelyi are involved in the initiative, Trade Commissioner Valdis Dombrovskis is not. In her opinion, there needs to be more precise guidance for business: “You have to explain to companies how they are assisted to export or invest globally.”
Overall, García-Herrero welcomes Global Gateway’s approach, as it bundles various initiatives under one roof – but she believes precisely the diversity of the envisioned projects could be a detriment. “So basically I want to do good for the world, and that’s great. But I’m still confused about my exact goals,” she says, summing up the crux. Brussels had simply crammed all approaches and lost sight of the clear line. So many partnerships and programs are combined in Global Gateway, that “nobody really knows what exactly they’re going to do.” García-Herrero’s advice: “The EU needs to be more specific than the BRI if it really intends to compete with it.”
She also said funding for the mega-project is still unclear. “We don’t know where these 300 billion will come from.” It will take a lot of commitment from the private sector to reach the investment amount, says García-Herrero. €135 billion is to be provided by the European Fund for Sustainable Investment (EFSD+), and €145 billion by other financial institutions, including national ones, such as the German development bank KfW – but there is no word yet of any pledges.
Whether the EU money will be more popular in beneficiary countries than funding from Beijing remains to be seen. The approach from Brussels is based on transparency and good governance. Its projects should benefit the people on the ground, emphasized EU Commission President von der Leyen at the presentation. However, García-Herrero warns that it is debatable whether the countries will accept the high standards and values that Global Gateway wants to promote. Some governments are primarily interested in getting money for projects quickly – and do not want the EU to dictate the exact conditions. Chinese loans could therefore be more interesting for such countries.
Global Gateway is an important step, no doubt. But the ambitious geoeconomic goals will not be achieved by providing gigantic funds alone; strategic direction from Brussels is also necessary.
The vocabulary of the EU initiative (“smart,” “clean,” “secure”) is intended to create the impression that European projects are qualitatively superior to BRI projects – this corresponds to the European self-image, but not necessarily to external perception. The fact that it took 14 years to build an airport in Berlin, but only four in Beijing, has not gone unnoticed outside the Western world.
Together with German MEP Reinhard Buetikofer, Alicia García-Herrero will take a closer look at two infrastructure initiatives from Brussels and Beijing at a Bruegel online event on Tuesday.
“Siemens defends slave labor (again)” was the headline in the British Spectator last week. The origin of this headline is a lesson in what is amiss in the China political positioning of some German CEOs. What happened? At the turn of the year, Siemens CEO Roland Busch had warned in a German newspaper against a “confrontational foreign policy” and urged a “respectful approach” to China.
He expressed one concern very specifically: “If export bans are enacted, this could mean that we can no longer buy solar modules from China – then the energy transition will be over at this point. Do we really want that? After all, it is in our common interest to reduce global CO2 emissions.” Busch did not address it directly, but he was aiming at possible sanctions against components from Xinjiang since the use of forced labor in their production cannot be ruled out.
The American position on this is clear: In December, US President Biden signed a law that largely bans imports of products made in Xinjiang or containing components and materials from Xinjiang. The European Commission, however, remains skeptical. It said that US laws “cannot be automatically replicated in the EU”. An import ban would not abolish slave labor for these products. The EU Commission seems to favor a law with stronger due diligence requirements for suppliers.
Siemens CEO Busch burst into this discussion with his philippic against “export bans”. At the very least, Busch is right about the solar industry’s dependence on Xinjiang. But for a corporation with historic ties to slave labor, the intervention is remarkably clumsy. Especially since, according to German newspaper FAZ, Siemens is cooperating with Chinese defense supplier China Electronics Technology Group Corporation (CETC). According to Human Rights Watch, CETC has developed a surveillance app that is allegedly used to track and detain Uyghurs. It is of little help that Busch assures us concerning human rights: “We comply with them worldwide, including in our workplaces in China.”
Now, of course, Busch does not defend forced labor, unlike what the Spectator suggests. But there would have been many more clever ways to express skepticism about import bans. With his clumsy statements, Busch has opened the door to misinterpretation of his words. What is missing from his statement, for example, is an explicit commitment to uphold human rights in supply chains as well as with cooperation partners.
Busch also fails to live up to what his predecessor as Siemens CEO and chairman of the Asia-Pacific Committee of German Business, Joe Kaeser, formulated shortly before the end of his term in September 2020: “We are observing the current developments in Hong Kong, but also in the province of Xinjiang, closely and with concern. We categorically reject any form of oppression, forced labor, and involvement in human rights violations. As a matter of principle, we would not tolerate any of this in our operations, nor would we accept it from our partners without consequence.” For Kaeser, who for years had rhetorically courted the Chinese party-state, this was a remarkably clear formulation. Busch is now signaling that he does not want to follow up on Kaeser’s criticism.
Instead, Busch seems to be following Volkswagen CEO Diess, the head of another German global company with a history of forced labor. Diess had told the BBC in 2019 that he was unaware of re-education camps and was “proud” of the jobs Volkswagen had created in Xinjiang. This made him sound like Theo Sommer, former editor of the German newspaper ZEIT, who claimed in 2019 that German companies “can and will make a contribution to the successful coexistence of different peoples in Xinjiang’s difficult conditions. Then the Uyghurs – like the South African blacks at BMW once did – will one day say that whoever is employed at a German company, has hit the jackpot.”
Few German CEOs would probably argue quite as vehemently as Sommer in public. But all too often, they come across as if they had won the great prize of kowtowing to the Chinese leadership. In his book “Machtverfall” (Power Decay), journalist Robin Alexander writes about the German CEOs who accompanied Merkel on her last trip to China in September 2019: “The bosses have been urging the chancellor not to snub the Chinese government with overly explicit criticism of the suspension of the Basic Law of the former British Crown Colony of Hong Kong and the repression of its democracy movement.”
The author also recounts a vote among German managers during said trip on whether they, in turn, should approach the Chinese about the closer monitoring of Internet activities of Chinese workforce in companies with German stakes – since this not only endangers freedom of expression, but also German trade secrets. By a show of hands on the Chancellor’s plane, the CEOs voted against it. What is alarming about this, is the fact that corporate leaders seem to bow to Beijing even when their core interests might be affected.
In their search for more strategic clarity and backbone, CEOs might find what they are looking for at the Federation of German Industries (BDI). Last summer, the BDI published a discussion paper on “Foreign Economic Cooperation with Autocracies” on “Shaping Economic Relations in International System Competition” and coined the term “responsible coexistence”.
More strategic clarity in China policy is urgently needed on the part of CEOs like Busch, because the human rights component, which is distorted by the Spectator, is not the biggest problem. What is also disturbing is that Busch seems to be instrumentalizing the climate crisis for a “business as usual” course toward Beijing. And even more disconcerting is the fact that Busch reduces the issue to the question of human rights. Yet there is far more at stake in the systemic competition with Beijing’s authoritarian state capitalism.
Forced labor is not our main problem when we depend on production of core technologies in China to decarbonize our economy, or when companies like Volkswagen take on a China cluster risk by becoming overly dependent on the Chinese market. In 2020, Siemens signed a far-reaching “strategic cooperation agreement” with the aforementioned China Electronic Technology Group Corporation (CETC). The state-owned company is a crucial supplier for the Chinese military. Subsidiaries of CETC are already subject to US sanctions. And it is only a matter of time before the US also takes a closer look at Siemens’ cooperation with CETC.
Quickly hang another red lantern here: This conductor decorates the express train from Guiyang to Chengdu. The occasion was the traditional Laba festival, which was celebrated yesterday, Monday. This day is dedicated to the harvest of the past year. An important part is the consumption of Laba oatmeal (腊八粥, làbāzhōu). Such millet oatmeal is not everyone’s cup of tea, but it has been a tradition for centuries.
On Monday, the traditional German shipyards MV Werften filed for bankruptcy. The search for the reasons ends about 8800 kilometers to the East – to Genting Hong Kong Ltd. It is the owner of the shipyards in Stralsund, Rostock and Wismar. The plan was to turn them into the most modern and successful shipyards in the world. But things turned out differently. Now 1,900 employees are on the brink of losing their jobs.
China is often criticized as one of the biggest climate sinners. And rightly so. And yet it is only one side of the coin. Nico Beckert has taken a look at the dark other side and shows what dramatic consequences climate change could have on the People’s Republic: China is at risk of losing 20 percent of its harvests; there will be work stoppages equivalent to a new COVID-19 pandemic every two years. Both China and Western nations need to finally realize: To mitigate the worst effects of the climate crisis, China is as dependent on climate protection by other countries as Western countries are on China.
But relations are still dominated by competition: Europe wants to outdo China’s prestigious Belt and Road project with its Global Gateway infrastructure initiative. Amelie Richter has analyzed the EU’s plans and concludes that its rhetoric is indeed far-reaching. But bold announcements alone will not suffice. The EU still has to make a lot of decisions before it can effectively compete with Beijing’s ambitions in emerging markets.
I hope you enjoy today’s issue!
The bad news arrived on Monday afternoon: The German shipyard MV Werften in Mecklenburg-Western Pomerania has to file for bankruptcy. For days, the federal government and the state government of Mecklenburg-Western Pomerania had been looking for a way to resolve the messy situation with the owner of MV Werften. But no solution could be found with Genting Hong Kong Ltd.
On the surface, the cruise ship “Global Dream”, of all things, caused the shipyards to go out of business. It was to be one of the largest cruise ships ever built and was intended exclusively for the Asian market. The construction of the 342 meter long dream ship was to cost a whopping 1.5 billion euros and offer space for up to 9500 passengers. Although 75 percent of the ship has already been completed, the remaining financing could not be secured. The German government was apparently ready to provide further assistance. However, it demanded Genting to pay its share. And this apparently did not happen. The latest word from Berlin was that the owners had not made a clear commitment to their shipyard.
The Hong Kong company’s entry into the German shipyards began extremely promisingly. Until then, the Asian tourism company had been known primarily for its cruise brands Star Cruises, Crystal Cruises and Dream Cruises. Business was booming, and more and more people wanted to spend their vacations on the high seas. So Genting HK was in dire need for more ships. But due to increasing demand, construction times for cruise ships were getting longer and longer. Genting was looking for a way out: to build new shipyards for large cruise ships, mainly for the Asian market. Genting CEO Lim Kok Thay said at the time that the company wanted to be prepared for the rapid growth of the Chinese cruise market. Genting found what it was looking for in Germany.
The German shipyards in Bremerhaven, Wismar, Warnemuende and Stralsund were acquired for €230 million. At the beginning of July 2016, Thay announced that the three traditional shipyards in Wismar, Rostock and Stralsund would be combined under the name MV Werften (MV for Mecklenburg-Western Pomerania) and that an investment of €100 million would be made to turn them the most modern and efficient shipyards in the cruise ship industry. More than 3,000 employees were supposed to make this ambitious goal possible.
But then the Covid pandemic hit. In China in particular, the leadership took strict measures: national borders were closed, cities with populations of several million were sent into lockdown. Accordingly, business in the cruise industry also came to a grinding halt – and Genting subsequently experienced massive payment difficulties. As early as summer 2020, the parent company of MV Werften announced that it would stop payments to banks and creditors. For the entire year of 2020, Genting had to accept a loss of $1.7 billion, and the group’s debts rose to a whopping $3.4 billion. A company statement to the Hong Kong Stock Exchange at the end of March 2021 stated that it was uncertain whether the group could continue to exist under these circumstances.
There is no improvement in sight for the cruise industry. On the few ships currently sailing the seas, the number of new infections is rising rapidly. The reason is the spread of the highly contagious Omicron variant. And this in turn is leading to an increase in Covid-related changes of plans and trip cancellations. In any case, the German Foreign Office in Berlin advises against ship travels. There is a risk that travelers on ships will be placed under quarantine, and it would also be difficult to organize transport back to Germany. Meanwhile, the US Centers for Disease Control and Prevention (CDC) has been urgently advising its citizens not to embark on a cruise since December, regardless of Vaccination status, the statement said. And Brazil has completely suspended cruise operations until January 2021 because of hundreds of infections.
Considering the pressure on the entire industry, it is not surprising that even the ambitious plans for Wismar, Rostock, and Stralsund were suddenly nothing more than wastepaper. Production of ongoing shipbuilding projects was suspended, and the shipyards were even temporarily closed altogether.
MV Werften sought safety under Germany’s Covid rescue umbrella – and Berlin expressed the will to help. In mid-May, then Minister of Economics Peter Altmaier promised to strengthen German shipbuilding against competition from abroad (China.Table reported).
But negotiations between the federal government, the state government of Mecklenburg-Western Pomerania, MV Werften and Genting Hong Kong on a rescue package remained fruitless. The positions were irreconcilable: The federal government assured until the end that it would provide around €600 million from the Economic Stabilization Fund (ESF). The new flagship “Global Dreams” could be used as collateral. However, its owner would also have to pull his weight in saving the shipyards: just under €60 million plus guarantees for the federal funds in question.
According to the CEO of Genting Hong Kong, four offers for further financing had been submitted to the federal government. However, these were all rejected, said Colin Au. In addition, due payments were said to be blocked last December when a construction milestone was reached – the so-called Milestone F. Genting was now simply unable to make any further concessions. Colin Au again pointed out that his company had invested more than €2 billion in the MV sites out of its own pocket since the takeover, and the number of employees had doubled. “To drop the shipyards now would be the biggest economic mistake that the federal government could make,” Au said, appealing to the federal and state governments to reconsider their position. Aside from jobs in the northeast, an entire industry, including domestic and foreign suppliers, are at stake.
MV Werften CEO Carsten Haake assumes that the German government currently does not want to budge – and that Genting can’t budge. “We have worn ourselves out over the requirements of the federal government,” Haake said. Some reports, on the other hand, claim that Genting CEO Thay has apparently been counting on even more tax millions from Germany.
Most recently, the parent company had stopped paying the December salaries to the shipyard’s workers. The mood at last Friday’s staff meeting in Wismar was understandably tense.
Meanwhile, some 8800 kilometers away, the drama took its course. There, the Hong Kong Stock Exchange received the following letter: “At the request of Genting Hong Kong Ltd, trading in the shares of the company on The Stock Exchange of Hong Kong Ltd will be halted with effect from 9 AM on Friday, Jan 7, 2022, pending the release of an announcement in relation to an inside information of the company.”
The news hit on Monday – and it was a big one: MV Werften has to file for bankruptcy. This leaves no doubt that the financial difficulties of the parent company Genting Hong Kong are causing the collapse of a major German company. The future of the roughly 1,900 employees remains uncertain.
They were standing up to their necks in water. Not knowing whether rescue or death by drowning was near. The footage of flooded subways in Zhengzhou in the summer of 2021 is one of the most shocking images of the past year. The floods were triggered by torrential rain. Over just three days, the Chinese province of Henan experienced as much rainfall as the average for the rest of the year. More than 300 people lost their lives.
China is already more affected by climate change than other regions of the world. In recent years, extreme weather events such as heavy precipitation, heatwaves, and droughts have increased. Disasters like the one in Henan threaten to become regular occurrences in the future. The more Earth’s atmosphere is heating up, the more frequent and the more severe the extreme weather events will become.
In addition to human tragedy, China faces high economic costs. The summer floods alone caused damages of more than $17 billion. Over the past decade, the direct economic costs of severe weather disasters have exceeded $50 billion annually.
If countries do not fight climate change more effectively, they face massive costs. The People’s Republic could experience damages of nearly $190 trillion over the next 80 years. This is the result of a joint study by Tsinghua University in Beijing and the London-based think tank Chatham House.
The scientists analyzed four areas where climate change is causing economic damage:
The most severe damage is caused by crop failures. China is at risk of losing 20 percent of its harvests if countries around the world fail to reduce CO2 emissions. The authors write of a “significant threat to major grain-growing regions” if temperatures rise by 3.5 degrees over the next 80 years. Projections by other scientists suggest that the average global temperature will rise 2.7 degrees under current climate policies. But the Chinese researchers write that even with an increase of just 1.6 degrees, eight percent of crops would be lost by 2100.
A study published in the online magazine Nature Food confirms these findings. The temperature rise could lead to a doubling of crop pests and plant diseases in China, according to an international scientific team with researchers from China, the United States, Germany, and other countries. However, it should be noted that the scientists based their findings on the highly pessimistic scenario of a four-degree temperature rise over the next 80 years.
The costs of lower labor productivity due to heat are also significant. With average emissions (3.5 degrees increase by 2100), labor productivity in China would drop by three percent. In key economic centers in eastern and southern China, this would even be a good four percent. If the temperature rise could be limited to 1.6 degrees, the productivity loss would be 0.7 percent. In 2019, China has already lost over 28 billion working hours due to heatwaves. By comparison, China lost about 70 billion work hours due to the Covid pandemic. “The impact of climate change in this area is as severe as if a COVID-19 pandemic were to occur every two to three years,” the scientists write.
The authors of the study place the direct costs of rising sea levels on infrastructure and buildings at $5 trillion for a temperature rise of 3.5 degrees. Even if temperature rise could be limited to 1.6 degrees by 2100, China faces costs of $3 trillion. China’s coastal cities are the most threatened by rising sea levels in the world (China.Table reported). Sea levels off China’s coasts are rising faster than the global average. Millions of people are at risk of flooding. Drinking water reservoirs could become salinized.
At average emissions (3.5 degrees increase by 2100), China’s power demand would increase by 90 percent by the end of the century due to climate change alone. The number of heat days with a temperature of more than 27.5 degrees would increase sharply. As a result, more air conditioners would be needed, for example. Southern and eastern China would be most affected, according to the scientists.
The Tsinghua study concludes with a strong plea to step up climate action early and globally. At the presentation of the study, one of its authors said that China needs to do more to achieve carbon neutrality. The government should redouble its efforts in non-fossil power, suggested Teng Fei, who is a professor at Tsinghua University.
If humanity failed to act quickly now, considerable climate risks and costs would be passed on to next generations, the authors write. More than 85 percent of economic climate damage would not occur until between 2050 and 2100. That’s because as temperatures rise, damages increase at an ever-increasing rate. The scientists note, “The costs of inaction on climate change are likely to be far greater than the costs of emission mitigation.”
The study also shows that the global community is sitting in the same boat. China has now become one of the main causes of climate change. The People’s Republic is responsible for a good 30 percent of global greenhouse gas emissions. However, the scientists explicitly did not calculate what risk China’s own CO2 emissions pose, but rather focused on global emissions. To avert the worst consequences of the climate crisis, China is just as dependent on climate protection by other countries as Western countries are dependent on climate protection by China.
Brussels’ response to China’s Belt and Road Initiative (BRI) is still in its infancy. By mid-2022, however, the EU Commission wants to propose concrete projects for its global infrastructure strategy Global Gateway. Brussels sees the involvement of the private sector as a “unique competitive advantage” here. “Global Gateway must make full use of it in order to be a viable and attractive alternative for partner countries” according to the official joint communication. What this will look like in practice is still open. Equally unclear are the details of the Business Advisory Group, which is planned as part of Global Gateway. Other aspects of the initiative also still need to be specified.
Nevertheless, the reaction from the German business community to the initiative has so far been largely positive, as Sebastian Holz from the German foreign trade agency Germany Trade and Invest (GTAI) reports. The fact that Global Gateway also seeks the expertise of the private sector is a good thing. Holz sees the EU’s cooperation with private companies as an advantage over China’s BRI. “I think the European private sector is a strength that the Chinese don’t have in that form. There, it is mainly state-owned enterprises that implement the projects,” Holz told China.Table.
The interest of the industry is there, says Holz. The initiative could help make involvement less risky, especially in emerging countries. Holz is working on various international networking projects for GTAI, which is part of the German Federal Ministry for Economic Affairs and Energy. The foreign trade agency launched its own project for this purpose at the beginning of last year. It not only monitors Global Gateway and BRI but other EU initiatives for international infrastructure as well. It also deals with the US-led “Build Back Better World” initiative of the G7 countries. Holz’ assessment of Global Gateway’s predecessor, the EU-Asia Connectivity Strategy, however, is rather poor: Brussels’ initiative, which was presented in the fall of 2018, remained “very vague,” the analyst criticizes.
Global Gateway is already much more ambitious in its rhetoric, praises Holz. To finance the project, the EU Commission has promised around €300 billion from state and private sources for the period from 2021 to 2027. This shows: Brussels sees connectivity as a central building block of its geo-economically oriented economic policy – and accordingly also wants to deliver results quickly here. The first projects are to be launched in June of this year.
Gigantic bridge and highway constructions, such as the BRI project in Montenegro, will be less of a focus. According to its statements, the EU wants to focus primarily on sustainable means of transport. “It is safe to assume that no large highway projects on the African continent will be funded under Global Gateway,” Holz says. That is not in line with the EU’s green aspirations. At the launch of Global Gateway, the Commission stressed that the highest standards would be applied in terms of sustainability, governance, and transparency. According to Holz, this goes down well with German companies: “They all want high sustainability standards to be laid down for these projects because they can serve them better than their international competitors.”
But due to the BRI’s lower sustainability standards, the Chinese prestige project and Brussels’ initiative can only be compared to a limited extent, Holz emphasizes. “The goal is not to use the same amount of concrete as the Chinese are using in their initiative.”
Private companies will be involved through the newly established Business Advisory Group. “It is not yet clear who will be part of the group, that process is still ongoing. Negotiations and considerations are currently underway for a contact person in Brussels for the companies,” explains Holz. Companies will then have a say in the advisory body’s selection of projects and their implementation.
Alicia García-Herrero, Chief Economist for the Asia Pacific at the French investment bank Natixis and a Senior Fellow at the Brussels-based think tank BRUEGEL, is still skeptical about the involvement of the private sector. In this regard, the EU initiative is far from being fleshed out, thinks García-Herrero. “It is not clear how much is business in this initiative, and how much is development assistance. There is no clear definition.”
At present, she still sees the involvement of the private sector more as an obstacle than an advantage. “Only when it is clear what the business side looks like can you start making comparisons with the BRI,” says the analyst. She criticizes the fact that while EU High Representative for Foreign Affairs Josep Borrell and Commissioner for Neighbourhood and Enlargement Olivér Várhelyi are involved in the initiative, Trade Commissioner Valdis Dombrovskis is not. In her opinion, there needs to be more precise guidance for business: “You have to explain to companies how they are assisted to export or invest globally.”
Overall, García-Herrero welcomes Global Gateway’s approach, as it bundles various initiatives under one roof – but she believes precisely the diversity of the envisioned projects could be a detriment. “So basically I want to do good for the world, and that’s great. But I’m still confused about my exact goals,” she says, summing up the crux. Brussels had simply crammed all approaches and lost sight of the clear line. So many partnerships and programs are combined in Global Gateway, that “nobody really knows what exactly they’re going to do.” García-Herrero’s advice: “The EU needs to be more specific than the BRI if it really intends to compete with it.”
She also said funding for the mega-project is still unclear. “We don’t know where these 300 billion will come from.” It will take a lot of commitment from the private sector to reach the investment amount, says García-Herrero. €135 billion is to be provided by the European Fund for Sustainable Investment (EFSD+), and €145 billion by other financial institutions, including national ones, such as the German development bank KfW – but there is no word yet of any pledges.
Whether the EU money will be more popular in beneficiary countries than funding from Beijing remains to be seen. The approach from Brussels is based on transparency and good governance. Its projects should benefit the people on the ground, emphasized EU Commission President von der Leyen at the presentation. However, García-Herrero warns that it is debatable whether the countries will accept the high standards and values that Global Gateway wants to promote. Some governments are primarily interested in getting money for projects quickly – and do not want the EU to dictate the exact conditions. Chinese loans could therefore be more interesting for such countries.
Global Gateway is an important step, no doubt. But the ambitious geoeconomic goals will not be achieved by providing gigantic funds alone; strategic direction from Brussels is also necessary.
The vocabulary of the EU initiative (“smart,” “clean,” “secure”) is intended to create the impression that European projects are qualitatively superior to BRI projects – this corresponds to the European self-image, but not necessarily to external perception. The fact that it took 14 years to build an airport in Berlin, but only four in Beijing, has not gone unnoticed outside the Western world.
Together with German MEP Reinhard Buetikofer, Alicia García-Herrero will take a closer look at two infrastructure initiatives from Brussels and Beijing at a Bruegel online event on Tuesday.
“Siemens defends slave labor (again)” was the headline in the British Spectator last week. The origin of this headline is a lesson in what is amiss in the China political positioning of some German CEOs. What happened? At the turn of the year, Siemens CEO Roland Busch had warned in a German newspaper against a “confrontational foreign policy” and urged a “respectful approach” to China.
He expressed one concern very specifically: “If export bans are enacted, this could mean that we can no longer buy solar modules from China – then the energy transition will be over at this point. Do we really want that? After all, it is in our common interest to reduce global CO2 emissions.” Busch did not address it directly, but he was aiming at possible sanctions against components from Xinjiang since the use of forced labor in their production cannot be ruled out.
The American position on this is clear: In December, US President Biden signed a law that largely bans imports of products made in Xinjiang or containing components and materials from Xinjiang. The European Commission, however, remains skeptical. It said that US laws “cannot be automatically replicated in the EU”. An import ban would not abolish slave labor for these products. The EU Commission seems to favor a law with stronger due diligence requirements for suppliers.
Siemens CEO Busch burst into this discussion with his philippic against “export bans”. At the very least, Busch is right about the solar industry’s dependence on Xinjiang. But for a corporation with historic ties to slave labor, the intervention is remarkably clumsy. Especially since, according to German newspaper FAZ, Siemens is cooperating with Chinese defense supplier China Electronics Technology Group Corporation (CETC). According to Human Rights Watch, CETC has developed a surveillance app that is allegedly used to track and detain Uyghurs. It is of little help that Busch assures us concerning human rights: “We comply with them worldwide, including in our workplaces in China.”
Now, of course, Busch does not defend forced labor, unlike what the Spectator suggests. But there would have been many more clever ways to express skepticism about import bans. With his clumsy statements, Busch has opened the door to misinterpretation of his words. What is missing from his statement, for example, is an explicit commitment to uphold human rights in supply chains as well as with cooperation partners.
Busch also fails to live up to what his predecessor as Siemens CEO and chairman of the Asia-Pacific Committee of German Business, Joe Kaeser, formulated shortly before the end of his term in September 2020: “We are observing the current developments in Hong Kong, but also in the province of Xinjiang, closely and with concern. We categorically reject any form of oppression, forced labor, and involvement in human rights violations. As a matter of principle, we would not tolerate any of this in our operations, nor would we accept it from our partners without consequence.” For Kaeser, who for years had rhetorically courted the Chinese party-state, this was a remarkably clear formulation. Busch is now signaling that he does not want to follow up on Kaeser’s criticism.
Instead, Busch seems to be following Volkswagen CEO Diess, the head of another German global company with a history of forced labor. Diess had told the BBC in 2019 that he was unaware of re-education camps and was “proud” of the jobs Volkswagen had created in Xinjiang. This made him sound like Theo Sommer, former editor of the German newspaper ZEIT, who claimed in 2019 that German companies “can and will make a contribution to the successful coexistence of different peoples in Xinjiang’s difficult conditions. Then the Uyghurs – like the South African blacks at BMW once did – will one day say that whoever is employed at a German company, has hit the jackpot.”
Few German CEOs would probably argue quite as vehemently as Sommer in public. But all too often, they come across as if they had won the great prize of kowtowing to the Chinese leadership. In his book “Machtverfall” (Power Decay), journalist Robin Alexander writes about the German CEOs who accompanied Merkel on her last trip to China in September 2019: “The bosses have been urging the chancellor not to snub the Chinese government with overly explicit criticism of the suspension of the Basic Law of the former British Crown Colony of Hong Kong and the repression of its democracy movement.”
The author also recounts a vote among German managers during said trip on whether they, in turn, should approach the Chinese about the closer monitoring of Internet activities of Chinese workforce in companies with German stakes – since this not only endangers freedom of expression, but also German trade secrets. By a show of hands on the Chancellor’s plane, the CEOs voted against it. What is alarming about this, is the fact that corporate leaders seem to bow to Beijing even when their core interests might be affected.
In their search for more strategic clarity and backbone, CEOs might find what they are looking for at the Federation of German Industries (BDI). Last summer, the BDI published a discussion paper on “Foreign Economic Cooperation with Autocracies” on “Shaping Economic Relations in International System Competition” and coined the term “responsible coexistence”.
More strategic clarity in China policy is urgently needed on the part of CEOs like Busch, because the human rights component, which is distorted by the Spectator, is not the biggest problem. What is also disturbing is that Busch seems to be instrumentalizing the climate crisis for a “business as usual” course toward Beijing. And even more disconcerting is the fact that Busch reduces the issue to the question of human rights. Yet there is far more at stake in the systemic competition with Beijing’s authoritarian state capitalism.
Forced labor is not our main problem when we depend on production of core technologies in China to decarbonize our economy, or when companies like Volkswagen take on a China cluster risk by becoming overly dependent on the Chinese market. In 2020, Siemens signed a far-reaching “strategic cooperation agreement” with the aforementioned China Electronic Technology Group Corporation (CETC). The state-owned company is a crucial supplier for the Chinese military. Subsidiaries of CETC are already subject to US sanctions. And it is only a matter of time before the US also takes a closer look at Siemens’ cooperation with CETC.
Quickly hang another red lantern here: This conductor decorates the express train from Guiyang to Chengdu. The occasion was the traditional Laba festival, which was celebrated yesterday, Monday. This day is dedicated to the harvest of the past year. An important part is the consumption of Laba oatmeal (腊八粥, làbāzhōu). Such millet oatmeal is not everyone’s cup of tea, but it has been a tradition for centuries.
