Was it a tactical mistake on the part of the German Chancellor to have gone too far on China’s charm offensive and, with twelve top CEOs in tow, to suggest: business as usual? Or did Olaf Scholz have no chance from the outset? Or worse still: Is Germany no longer needed from a Chinese perspective given its declining technological importance – and therefore hardly taken seriously?
The assessments are at least unanimous: Scholz has achieved little. The results with which the Chancellor returned from his three-day trip to China are extremely meager, says Merics foreign policy expert Abigaël Vasselier in an interview with Amelie Richter. And the former head of the Munich Security Conference, Wolfgang Ischinger, had also hoped for more. As far as a peace conference in Switzerland is concerned, the former top diplomat can understand the Chinese leadership’s reasoning in at least one respect: Without Russia, the conference is pointless.
At first glance, the actions of the technology company ZF Friedrichshafen also seem senseless. Contrary to all the geopolitical concerns of the German government, Germany’s second-largest automotive supplier wants to expand its business in China – while jobs are to be lost in Germany. Christian Domke Seidel analyzes for you how this fits in with the much-claimed strategy of de-risking.
An insightful read!
What was the concept for Chancellor Scholz’s visit to China? What was his approach?
It was business as usual. The purpose of the visit was to promote German interests. But we are confronted with a new China. And although the tone in Europe is changing, we are undergoing a paradigm shift and China is becoming a security threat, a challenge to European prosperity and competitiveness, the German Chancellor is traveling to China with a large business delegation and three ministers to push German interests while ignoring the European reality.
How important was this visit for the EU?
Every time a European head of government travels to China, it is also very important for the EU. Relations between the EU and China have deteriorated so rapidly that every national exchange is also important for Europe in some way. Germany plays a special role in EU-China relations as it is one of the few countries that does not have a trade deficit. 70 percent of German direct investment goes to China. The Chinese leadership sees the EU as a collection of 27 different interests. For them, the EU itself is a very opaque international organization. Beijing considers France and Germany to be important in the EU. France for political reasons and Germany for economic reasons. At the top of the Chinese leadership, however, Germany is seen as the driving factor behind the European approach to China.
Can Scholz exert influence on Beijing? Or is Beijing just trying to make Germany and the EU believe it?
Beijing attaches great importance to Germany and the German voice in Europe. Against the backdrop of deteriorating bilateral relations and increasing geopolitical tensions, the European dimension of the Scholz visit was even more important than a few years ago or than the visits by representatives of other member states. This is because the Chinese leadership sees Germany as the decisive shaper and driver of the European approach.
Is Brussels satisfied with Scholz’s approach?
In Brussels, it is assumed that there should be a European dimension in the way the member states organize their exchanges with China. There may be differences of opinion. But there is a degree of necessary unity and coherence in terms of the messages that are sent. Europe had little presence in Scholz’s press conference. He didn’t say much about the fact that Chinese overcapacity and unfair trade practices must have consequences. Or that Germany stands by the European Union’s decision to launch investigations into electric vehicles and wind turbines and to exert pressure on the issue of public procurement.
And what about Russia?
There were also only very weak calls for China to play a constructive role when it came to Russia, especially concerning nuclear safety. Brussels is also demanding and acting more concretely in terms of the real impact of China’s support for Russia: sanctions. That is the line from Brussels, and we have not seen much support for that. A great deal of consensus and strong support for Brussels’ position on all these issues was unfortunately lacking.
Were there other issues where Scholz took a rather passive stance?
Human rights were not mentioned during the press conference. This underlines the fact that these were very low on the Chancellor’s agenda. But if we do not push these points more strongly, we are acknowledging that we have moved to an interest-based relationship and that we have abandoned a European, value-based foreign policy.
Perhaps being too passive on certain issues is one thing. But Berlin has also agreed with Beijing to cooperate more on e-vehicles and data exchange between cars. This is something that Brussels is specifically trying to avoid. Is Berlin also actively shooting against EU approaches?
For me, the question is rather: Where is Europe in Germany’s dealings with China? Here in Berlin, the debate is fragmented between different poles of power and Scholz is failing to implement the European component of the China strategy and the statements on China in the coalition agreement. This is due to internal pressure, not only from the political parties that form his coalition but also from companies and business interests, which carry particular weight in the way Germany defines its policy towards China.
I am not sure whether we can say that this is deliberately contrary to European interests. But we can say with certainty that the European approach, which according to the coalition agreement and the China strategy should be the driver of Germany’s China policy, is not there. In my opinion, this is the main problem. If Germany does not adapt its policy to have the same thrust as the EU, how can we expect other member states that have trade deficits or are facing economic constraint scenarios to do so?
The situation in Ukraine is on the agenda of the EU Council. After the meeting with Scholz, German media quoted Xi in this context: “All countries must have a seat at the table. No country should be left off the menu.” Who is he referring to?
China’s position on the war in Ukraine has always been consistent. There have been minimal changes, but only marginally. Xi has repeatedly said that Russia must be taken into account if peace is to be achieved. When the special envoy Li came to Europe a few months ago, he already said that the precondition for China’s participation in the peace conference in Switzerland was that Russia would sit at the table and the Russian peace plan would be discussed. That is the condition for China. In Europe, we want the war to end quickly. The Chinese have a slower timetable and say that the war, which has already lasted more than two years, could last even longer because the conditions for negotiations are not right at the moment. They don’t have a clear picture of what the final phase will look like. But in Beijing’s view, Russian interests should definitely not be forgotten. It is quite clear that we are in deep disagreement about the timetable and, more importantly, about China’s position as an economic and political lifeline for Moscow.
Xi is traveling to France, Serbia, and Hungary in May. Is there a risk that he will play Emmanuel Macron and Olaf Scholz off against each other?
I think that Xi playing Macron and Scholz off against each other is not just a possibility, but has long been a reality. The danger is rather that the lack of an EU perspective during Scholz’s trip will mean that Xi’s visit to Europe will also not focus enough on the pan-European approach. Paris must consider the possibility of Europeanizing the visit and clearly support the European approach towards China. One of the challenges for France now is to draw some conclusions: Why have we failed to push forward a common European agenda, which China will take advantage of? France has enormous political capital in China. Xi is traveling to France to celebrate the 60th anniversary of the establishment of diplomatic relations. This political capital should be used, on two counts: First, the issue of China’s support for Russia’s war effort should be placed at the center of the agenda. The only way China can be persuaded to change its position is if the cost of supporting Russia increases.
The second point is the trade imbalance and the issue of overcapacity and unfair trade practices related to China’s aggressive industrial policy. Beijing must be aware that this will also have consequences, both in terms of de-risking for European governments and companies and in terms of the use of European trade instruments such as anti-subsidy investigations.
Abigaël Vasselier heads the Foreign Relations team at the German-China think tank Merics. The Frenchwoman was previously Deputy Head of Department for China, Hong Kong, Macao, Taiwan, and Mongolia at the European External Action Service (EEAS) and established the Asia program at the European Council on Foreign Relations (ECFR).
Leading automotive suppliers have to reorganize their business model. For ZF Friedrichshafen, this means investing in China and cutting jobs in Germany. The company reasons that it wants to make itself crisis-proof. The strategy of de-risking is central to this: First and foremost, it means significantly increasing its commitment to the People’s Republic and localizing as much as possible.
“Our strategy is to design the structure and process to mitigate the risk in the event of extreme turbulence, while in the meantime we try to take advantage of the opportunities in the local market“, ZF China President Renee Wang explains ZF’s de-risking strategy in an interview with Table.Briefings. However, this is only possible if the company’s presence in the People’s Republic is strengthened accordingly. To both implement de-risking and be successful, ZF will expand its local presence and resilience. Particularly in the areas of systems, software and supply chain.
The German government wants companies to reduce dependencies by investing less in China. The traffic light coalition agreed on its China strategy almost a year ago, after a long struggle. For large German companies, however, de-risking means minimizing risks on trade routes or avoiding punitive tariffs should trade conflicts increase. And investing more in China to do so. This explains, among other things, why BASF is currently investing over €10 billion in a new plant in southern China. And it explains the strategy of ZF Friedrichshafen.
2023 was a good year for the automotive supplier group. Turnover increased by 6.5 percent to €46.6 billion compared to the previous year. At €2.4 billion, pre-tax profit (EBIT) was also 16 percent higher than in the previous year. Nevertheless, only €126 million remained after taxes (minus 67 percent). The biggest brake on euphoria was the enormous interest burden – the Group had to pay €575 million, primarily due to the debt-financed takeovers of TRW (2025) and Wabco (2020). To reduce these quickly, the Group plans to save a total of €6 billion over the next two years.
This means a reduction in research and development costs, productivity increases for the plants and new contractual conditions for suppliers. These are goals that are primarily based on staff reductions. Employee representatives are talking about 12,000 jobs (ZF currently employs 54,000 people) that are to be cut. A figure that the Group has already denied – it is natural fluctuation until 2030 – without being more specific.
A savings program that does not apply to China, however. ZF currently generates 17.4 percent of its total global sales there. This figure is set to rise to 30 percent by 2030. “We believe that the Chinese market is an opportunity for ZF. China is the world’s largest automotive market”, says Renee Wang in an interview with Table.Briefings. “ZF has benefited from the growth of the local market in China over the past ten years and is now facing new opportunities and challenges, especially in terms of software and system development, speed of response and new business models and partnerships.”
The market entry was by no means smooth, recalls Thomas Heck, China expert at management consultants PricewaterhouseCoopers (PWC), when ZF Friedrichshafen entered the People’s Republic around 40 years ago. “Historically, the suppliers ended up in China because they were asked by the major car manufacturers in Europe to come along – this was not always entirely voluntary, but proved to be very lucrative for many companies.” However, this also means that even large suppliers such as ZF Friedrichshafen were heavily dependent on the success of European car manufacturers in the Chinese market.
For a long time, this was a profitable business. But in recent years, there has been a perfect
storm. The coronavirus pandemic, a shortage of semiconductors, a shortage of skilled workers, political tensions, the blockade of the Suez Canal and, last but not least, the shift in mobility towards EVs have highlighted the sensitivity of this business model.
ZF reacted consistently and successfully. The company is focusing all the more on Chinese car manufacturers, several of which have overtaken the German competition in the electric segment. “China’s positioning as one of ZF’s most important strategic markets is becoming increasingly clear”, says Wang. Above all, the high pace of innovation and customers’ desire for new technologies offer growth opportunities here.
ZF has its finger on the pulse of the times: An 800-volt system, Integrated Brake Control (IBC), Continuous Damping Control (CDC), Active Kinematics Control (AKC), various driving assistants and software solutions – products that are no longer only available to European manufacturers, but also to Chinese ones. “The market share of Chinese OEMs is not only growing in China, but also worldwide”, says Wang. “We have established strong business relationships with leading Chinese OEMs and new automotive companies (NACs).”
In certain areas, a so-called “doubling down” is taking place. Companies interpret de-risking as an attempt to make their China business weatherproof, explains Heck. This requires a strong localization strategy. German companies have “a realistic and pragmatic view of China”. This was also shown by the last PwC Logistics China survey, explains Heck.
However, this strategy is not entirely free of risks. The success of German manufacturers is primarily based on enormous economies of scale. Until now, they have been able to offer the same product anywhere in the world. Increasing localization and specialized products are destroying this advantage. It is not yet clear whether customers will bear the rising costs.
But China is also an indispensable market from a development perspective, explains Heck. China is also a fitness center for European companies – as the former head of the EU Chamber of Commerce in China, Jörg Wuttke, so aptly put it. “They are confronted with a speed there – in terms of innovation and implementation – that they are not used to in their traditional markets.”
Since my recent trip to Beijing for the 25th annual China Development Forum (CDF) – the country’s most important public conference – one question has been on my mind: What’s the point?
I raise this question as a CDF insider; I am the longest-attending foreign conference participant and have been to every CDF except the very first one in 2000. I have seen this event at its best and worst. And I can safely say that this year’s event marked a new low – hence my question.
Former Prime Minister Zhu Rongji founded the CDF as a forum for debate and exchange between leading Chinese politicians and foreign academics, think tank experts and business leaders. The timing of the conference – immediately after the National People’s Congress – was deliberate: Zhu took the provocative view that State Council ministers should enter into dialog with foreign experts immediately after their internal deliberations at the People’s Congress. It was effectively a stress test for senior Chinese party and government representatives.
Zhu practiced what he preached. At my first CDF in 2001 – a much smaller and more intimate gathering – I gave a lunchtime keynote speech on the state of the global economy, arguing that a downturn was now imminent after the dotcom boom. Fred Bergsten, the founding director of the Petersen Institute for International Economics, challenged this in the ensuing discussion. At the closing session of the 2001 CDF, Zhu interrupted HSBC Chairman John Bond during his summary of the three-day event and instead asked me and Bergsten to briefly reiterate our views. Zhu was more interested in the debate than Bond’s comments.
After the meeting, Zhu took me aside and said in perfect English: “Roach, I hope you are wrong, but we will plan as if you are right.” At the CDF the following year, he greeted me warmly with a simple “Thank you”.
It is in this spirit, and the spirit of many subsequent years of active participation in CDF meetings, that I lament the loss of the once vibrant culture of debate in China. The CDF was effectively eliminated as an open and honest platform for dialog. It was made clear from the top that there was only room for “good stories about China”. Anyone who raises questions about problems or even challenges is threatened with exclusion from the public meetings.
That certainly applies to me. In the run-up to this year’s CDF, I was informed by an authoritative source that my recent comments on the Chinese economy had attracted “intense attention and even controversy” in the Chinese and international press. This suggested that anything I would say publicly at the conference would be “misinterpreted and even blown up by the media”. It was made clear to me that this would not be in my – or China’s – interest.
So it was no surprise that for the first time in 24 years I was not asked to give a presentation. In addition, my background paper on the realignment of the Chinese economy, which I had been invited to prepare as part of the CDF Engagement Initiative, was neither published nor distributed, as had always been the case with invited papers.
Nor was I the only one: An economist friend of mine, whom I have known and respected for years, was instructed before he came to the podium not to say anything negative about the economic outlook.
Political correctness can be bad enough. But censorship and attempts at thought control to stifle debate are something completely different. This left me with a resigned feeling of apparent futility. Why bother at all?
My response to this is both idealistic and admittedly naïve. I flew to Beijing at the end of March in the hope that the CDF would retain a sliver of its original spirit. In my book Accidental Conflict I am fully aware of the changes within the Chinese discourse in recent years. However, even taking into account the recent efforts of the Chinese authorities to control the narrative more tightly, I held on to the hope that there might still be room for empirical research and analysis. After all, I was China’s “good friend“. My mistake was to assume that this seemingly special status would allow me to raise uncomfortable questions about China’s medium- to longer-term growth prospects.
The CDF 2024 closed the door to this possibility. This year’s event ran strictly to the script, with no debate or genuine exchange of views – even at the smaller roundtables intended for dialog. While a lot of Western business leaders were present, it was mostly to shamelessly engage in commercialized self-promotion with their involvement in China. In addition, the truncated conference had a smoothed agenda. The normally high-profile Monday lunchtime slot was left empty, while the Prime Minister’s closing session was replaced by an opening address that echoed the work report he had presented to the People’s Congress on March 5.
It saddens me to see the CDF becoming a sad remnant of itself. However, this does not detract from my admiration for the Chinese people and the extraordinary transformation of the Chinese economy over the past 45 years. I still disagree with the consensus view in the West that the Chinese miracle was always doomed to fail. Moreover, I remain highly critical of America’s virulent hostility towards China, and I maintain the view that China faces serious structural growth challenges. And I continue to believe that the interdependence of the US and China offers a recipe for a mutually beneficial conflict resolution. My agenda remains analytically driven, not politically motivated.
Ultimately, I intend to continue to participate in the CDF. In the spirit of Deng Xiaoping’s credo of “striving for truth based on facts”, I will continue to push for a free and open debate in China. I will not give up. Ultimately, that is the point of it all.
Stephen S. Roach teaches at Yale University. He is the former Chairman of Morgan Stanley Asia and the author of Unbalanced: The Codependency of America and China (Yale University Press, 2014) and Accidental Conflict: America, China, and the Clash of False Narratives (Yale University Press, 2022).
Copyright: Project Syndicate, 2024.
www.project-syndicate.org
Farmers in Shandong province sow peanuts. China is by far the largest peanut producer in the world – estimates for the 2022/23 season are over 18 million tons. But don’t worry: There are no dependencies in this case. Germany still sources the majority of its peanuts from South America.
Was it a tactical mistake on the part of the German Chancellor to have gone too far on China’s charm offensive and, with twelve top CEOs in tow, to suggest: business as usual? Or did Olaf Scholz have no chance from the outset? Or worse still: Is Germany no longer needed from a Chinese perspective given its declining technological importance – and therefore hardly taken seriously?
The assessments are at least unanimous: Scholz has achieved little. The results with which the Chancellor returned from his three-day trip to China are extremely meager, says Merics foreign policy expert Abigaël Vasselier in an interview with Amelie Richter. And the former head of the Munich Security Conference, Wolfgang Ischinger, had also hoped for more. As far as a peace conference in Switzerland is concerned, the former top diplomat can understand the Chinese leadership’s reasoning in at least one respect: Without Russia, the conference is pointless.
At first glance, the actions of the technology company ZF Friedrichshafen also seem senseless. Contrary to all the geopolitical concerns of the German government, Germany’s second-largest automotive supplier wants to expand its business in China – while jobs are to be lost in Germany. Christian Domke Seidel analyzes for you how this fits in with the much-claimed strategy of de-risking.
An insightful read!
What was the concept for Chancellor Scholz’s visit to China? What was his approach?
It was business as usual. The purpose of the visit was to promote German interests. But we are confronted with a new China. And although the tone in Europe is changing, we are undergoing a paradigm shift and China is becoming a security threat, a challenge to European prosperity and competitiveness, the German Chancellor is traveling to China with a large business delegation and three ministers to push German interests while ignoring the European reality.
How important was this visit for the EU?
Every time a European head of government travels to China, it is also very important for the EU. Relations between the EU and China have deteriorated so rapidly that every national exchange is also important for Europe in some way. Germany plays a special role in EU-China relations as it is one of the few countries that does not have a trade deficit. 70 percent of German direct investment goes to China. The Chinese leadership sees the EU as a collection of 27 different interests. For them, the EU itself is a very opaque international organization. Beijing considers France and Germany to be important in the EU. France for political reasons and Germany for economic reasons. At the top of the Chinese leadership, however, Germany is seen as the driving factor behind the European approach to China.
Can Scholz exert influence on Beijing? Or is Beijing just trying to make Germany and the EU believe it?
Beijing attaches great importance to Germany and the German voice in Europe. Against the backdrop of deteriorating bilateral relations and increasing geopolitical tensions, the European dimension of the Scholz visit was even more important than a few years ago or than the visits by representatives of other member states. This is because the Chinese leadership sees Germany as the decisive shaper and driver of the European approach.
Is Brussels satisfied with Scholz’s approach?
In Brussels, it is assumed that there should be a European dimension in the way the member states organize their exchanges with China. There may be differences of opinion. But there is a degree of necessary unity and coherence in terms of the messages that are sent. Europe had little presence in Scholz’s press conference. He didn’t say much about the fact that Chinese overcapacity and unfair trade practices must have consequences. Or that Germany stands by the European Union’s decision to launch investigations into electric vehicles and wind turbines and to exert pressure on the issue of public procurement.
And what about Russia?
There were also only very weak calls for China to play a constructive role when it came to Russia, especially concerning nuclear safety. Brussels is also demanding and acting more concretely in terms of the real impact of China’s support for Russia: sanctions. That is the line from Brussels, and we have not seen much support for that. A great deal of consensus and strong support for Brussels’ position on all these issues was unfortunately lacking.
Were there other issues where Scholz took a rather passive stance?
Human rights were not mentioned during the press conference. This underlines the fact that these were very low on the Chancellor’s agenda. But if we do not push these points more strongly, we are acknowledging that we have moved to an interest-based relationship and that we have abandoned a European, value-based foreign policy.
Perhaps being too passive on certain issues is one thing. But Berlin has also agreed with Beijing to cooperate more on e-vehicles and data exchange between cars. This is something that Brussels is specifically trying to avoid. Is Berlin also actively shooting against EU approaches?
For me, the question is rather: Where is Europe in Germany’s dealings with China? Here in Berlin, the debate is fragmented between different poles of power and Scholz is failing to implement the European component of the China strategy and the statements on China in the coalition agreement. This is due to internal pressure, not only from the political parties that form his coalition but also from companies and business interests, which carry particular weight in the way Germany defines its policy towards China.
I am not sure whether we can say that this is deliberately contrary to European interests. But we can say with certainty that the European approach, which according to the coalition agreement and the China strategy should be the driver of Germany’s China policy, is not there. In my opinion, this is the main problem. If Germany does not adapt its policy to have the same thrust as the EU, how can we expect other member states that have trade deficits or are facing economic constraint scenarios to do so?
The situation in Ukraine is on the agenda of the EU Council. After the meeting with Scholz, German media quoted Xi in this context: “All countries must have a seat at the table. No country should be left off the menu.” Who is he referring to?
China’s position on the war in Ukraine has always been consistent. There have been minimal changes, but only marginally. Xi has repeatedly said that Russia must be taken into account if peace is to be achieved. When the special envoy Li came to Europe a few months ago, he already said that the precondition for China’s participation in the peace conference in Switzerland was that Russia would sit at the table and the Russian peace plan would be discussed. That is the condition for China. In Europe, we want the war to end quickly. The Chinese have a slower timetable and say that the war, which has already lasted more than two years, could last even longer because the conditions for negotiations are not right at the moment. They don’t have a clear picture of what the final phase will look like. But in Beijing’s view, Russian interests should definitely not be forgotten. It is quite clear that we are in deep disagreement about the timetable and, more importantly, about China’s position as an economic and political lifeline for Moscow.
Xi is traveling to France, Serbia, and Hungary in May. Is there a risk that he will play Emmanuel Macron and Olaf Scholz off against each other?
I think that Xi playing Macron and Scholz off against each other is not just a possibility, but has long been a reality. The danger is rather that the lack of an EU perspective during Scholz’s trip will mean that Xi’s visit to Europe will also not focus enough on the pan-European approach. Paris must consider the possibility of Europeanizing the visit and clearly support the European approach towards China. One of the challenges for France now is to draw some conclusions: Why have we failed to push forward a common European agenda, which China will take advantage of? France has enormous political capital in China. Xi is traveling to France to celebrate the 60th anniversary of the establishment of diplomatic relations. This political capital should be used, on two counts: First, the issue of China’s support for Russia’s war effort should be placed at the center of the agenda. The only way China can be persuaded to change its position is if the cost of supporting Russia increases.
The second point is the trade imbalance and the issue of overcapacity and unfair trade practices related to China’s aggressive industrial policy. Beijing must be aware that this will also have consequences, both in terms of de-risking for European governments and companies and in terms of the use of European trade instruments such as anti-subsidy investigations.
Abigaël Vasselier heads the Foreign Relations team at the German-China think tank Merics. The Frenchwoman was previously Deputy Head of Department for China, Hong Kong, Macao, Taiwan, and Mongolia at the European External Action Service (EEAS) and established the Asia program at the European Council on Foreign Relations (ECFR).
Leading automotive suppliers have to reorganize their business model. For ZF Friedrichshafen, this means investing in China and cutting jobs in Germany. The company reasons that it wants to make itself crisis-proof. The strategy of de-risking is central to this: First and foremost, it means significantly increasing its commitment to the People’s Republic and localizing as much as possible.
“Our strategy is to design the structure and process to mitigate the risk in the event of extreme turbulence, while in the meantime we try to take advantage of the opportunities in the local market“, ZF China President Renee Wang explains ZF’s de-risking strategy in an interview with Table.Briefings. However, this is only possible if the company’s presence in the People’s Republic is strengthened accordingly. To both implement de-risking and be successful, ZF will expand its local presence and resilience. Particularly in the areas of systems, software and supply chain.
The German government wants companies to reduce dependencies by investing less in China. The traffic light coalition agreed on its China strategy almost a year ago, after a long struggle. For large German companies, however, de-risking means minimizing risks on trade routes or avoiding punitive tariffs should trade conflicts increase. And investing more in China to do so. This explains, among other things, why BASF is currently investing over €10 billion in a new plant in southern China. And it explains the strategy of ZF Friedrichshafen.
2023 was a good year for the automotive supplier group. Turnover increased by 6.5 percent to €46.6 billion compared to the previous year. At €2.4 billion, pre-tax profit (EBIT) was also 16 percent higher than in the previous year. Nevertheless, only €126 million remained after taxes (minus 67 percent). The biggest brake on euphoria was the enormous interest burden – the Group had to pay €575 million, primarily due to the debt-financed takeovers of TRW (2025) and Wabco (2020). To reduce these quickly, the Group plans to save a total of €6 billion over the next two years.
This means a reduction in research and development costs, productivity increases for the plants and new contractual conditions for suppliers. These are goals that are primarily based on staff reductions. Employee representatives are talking about 12,000 jobs (ZF currently employs 54,000 people) that are to be cut. A figure that the Group has already denied – it is natural fluctuation until 2030 – without being more specific.
A savings program that does not apply to China, however. ZF currently generates 17.4 percent of its total global sales there. This figure is set to rise to 30 percent by 2030. “We believe that the Chinese market is an opportunity for ZF. China is the world’s largest automotive market”, says Renee Wang in an interview with Table.Briefings. “ZF has benefited from the growth of the local market in China over the past ten years and is now facing new opportunities and challenges, especially in terms of software and system development, speed of response and new business models and partnerships.”
The market entry was by no means smooth, recalls Thomas Heck, China expert at management consultants PricewaterhouseCoopers (PWC), when ZF Friedrichshafen entered the People’s Republic around 40 years ago. “Historically, the suppliers ended up in China because they were asked by the major car manufacturers in Europe to come along – this was not always entirely voluntary, but proved to be very lucrative for many companies.” However, this also means that even large suppliers such as ZF Friedrichshafen were heavily dependent on the success of European car manufacturers in the Chinese market.
For a long time, this was a profitable business. But in recent years, there has been a perfect
storm. The coronavirus pandemic, a shortage of semiconductors, a shortage of skilled workers, political tensions, the blockade of the Suez Canal and, last but not least, the shift in mobility towards EVs have highlighted the sensitivity of this business model.
ZF reacted consistently and successfully. The company is focusing all the more on Chinese car manufacturers, several of which have overtaken the German competition in the electric segment. “China’s positioning as one of ZF’s most important strategic markets is becoming increasingly clear”, says Wang. Above all, the high pace of innovation and customers’ desire for new technologies offer growth opportunities here.
ZF has its finger on the pulse of the times: An 800-volt system, Integrated Brake Control (IBC), Continuous Damping Control (CDC), Active Kinematics Control (AKC), various driving assistants and software solutions – products that are no longer only available to European manufacturers, but also to Chinese ones. “The market share of Chinese OEMs is not only growing in China, but also worldwide”, says Wang. “We have established strong business relationships with leading Chinese OEMs and new automotive companies (NACs).”
In certain areas, a so-called “doubling down” is taking place. Companies interpret de-risking as an attempt to make their China business weatherproof, explains Heck. This requires a strong localization strategy. German companies have “a realistic and pragmatic view of China”. This was also shown by the last PwC Logistics China survey, explains Heck.
However, this strategy is not entirely free of risks. The success of German manufacturers is primarily based on enormous economies of scale. Until now, they have been able to offer the same product anywhere in the world. Increasing localization and specialized products are destroying this advantage. It is not yet clear whether customers will bear the rising costs.
But China is also an indispensable market from a development perspective, explains Heck. China is also a fitness center for European companies – as the former head of the EU Chamber of Commerce in China, Jörg Wuttke, so aptly put it. “They are confronted with a speed there – in terms of innovation and implementation – that they are not used to in their traditional markets.”
Since my recent trip to Beijing for the 25th annual China Development Forum (CDF) – the country’s most important public conference – one question has been on my mind: What’s the point?
I raise this question as a CDF insider; I am the longest-attending foreign conference participant and have been to every CDF except the very first one in 2000. I have seen this event at its best and worst. And I can safely say that this year’s event marked a new low – hence my question.
Former Prime Minister Zhu Rongji founded the CDF as a forum for debate and exchange between leading Chinese politicians and foreign academics, think tank experts and business leaders. The timing of the conference – immediately after the National People’s Congress – was deliberate: Zhu took the provocative view that State Council ministers should enter into dialog with foreign experts immediately after their internal deliberations at the People’s Congress. It was effectively a stress test for senior Chinese party and government representatives.
Zhu practiced what he preached. At my first CDF in 2001 – a much smaller and more intimate gathering – I gave a lunchtime keynote speech on the state of the global economy, arguing that a downturn was now imminent after the dotcom boom. Fred Bergsten, the founding director of the Petersen Institute for International Economics, challenged this in the ensuing discussion. At the closing session of the 2001 CDF, Zhu interrupted HSBC Chairman John Bond during his summary of the three-day event and instead asked me and Bergsten to briefly reiterate our views. Zhu was more interested in the debate than Bond’s comments.
After the meeting, Zhu took me aside and said in perfect English: “Roach, I hope you are wrong, but we will plan as if you are right.” At the CDF the following year, he greeted me warmly with a simple “Thank you”.
It is in this spirit, and the spirit of many subsequent years of active participation in CDF meetings, that I lament the loss of the once vibrant culture of debate in China. The CDF was effectively eliminated as an open and honest platform for dialog. It was made clear from the top that there was only room for “good stories about China”. Anyone who raises questions about problems or even challenges is threatened with exclusion from the public meetings.
That certainly applies to me. In the run-up to this year’s CDF, I was informed by an authoritative source that my recent comments on the Chinese economy had attracted “intense attention and even controversy” in the Chinese and international press. This suggested that anything I would say publicly at the conference would be “misinterpreted and even blown up by the media”. It was made clear to me that this would not be in my – or China’s – interest.
So it was no surprise that for the first time in 24 years I was not asked to give a presentation. In addition, my background paper on the realignment of the Chinese economy, which I had been invited to prepare as part of the CDF Engagement Initiative, was neither published nor distributed, as had always been the case with invited papers.
Nor was I the only one: An economist friend of mine, whom I have known and respected for years, was instructed before he came to the podium not to say anything negative about the economic outlook.
Political correctness can be bad enough. But censorship and attempts at thought control to stifle debate are something completely different. This left me with a resigned feeling of apparent futility. Why bother at all?
My response to this is both idealistic and admittedly naïve. I flew to Beijing at the end of March in the hope that the CDF would retain a sliver of its original spirit. In my book Accidental Conflict I am fully aware of the changes within the Chinese discourse in recent years. However, even taking into account the recent efforts of the Chinese authorities to control the narrative more tightly, I held on to the hope that there might still be room for empirical research and analysis. After all, I was China’s “good friend“. My mistake was to assume that this seemingly special status would allow me to raise uncomfortable questions about China’s medium- to longer-term growth prospects.
The CDF 2024 closed the door to this possibility. This year’s event ran strictly to the script, with no debate or genuine exchange of views – even at the smaller roundtables intended for dialog. While a lot of Western business leaders were present, it was mostly to shamelessly engage in commercialized self-promotion with their involvement in China. In addition, the truncated conference had a smoothed agenda. The normally high-profile Monday lunchtime slot was left empty, while the Prime Minister’s closing session was replaced by an opening address that echoed the work report he had presented to the People’s Congress on March 5.
It saddens me to see the CDF becoming a sad remnant of itself. However, this does not detract from my admiration for the Chinese people and the extraordinary transformation of the Chinese economy over the past 45 years. I still disagree with the consensus view in the West that the Chinese miracle was always doomed to fail. Moreover, I remain highly critical of America’s virulent hostility towards China, and I maintain the view that China faces serious structural growth challenges. And I continue to believe that the interdependence of the US and China offers a recipe for a mutually beneficial conflict resolution. My agenda remains analytically driven, not politically motivated.
Ultimately, I intend to continue to participate in the CDF. In the spirit of Deng Xiaoping’s credo of “striving for truth based on facts”, I will continue to push for a free and open debate in China. I will not give up. Ultimately, that is the point of it all.
Stephen S. Roach teaches at Yale University. He is the former Chairman of Morgan Stanley Asia and the author of Unbalanced: The Codependency of America and China (Yale University Press, 2014) and Accidental Conflict: America, China, and the Clash of False Narratives (Yale University Press, 2022).
Copyright: Project Syndicate, 2024.
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Farmers in Shandong province sow peanuts. China is by far the largest peanut producer in the world – estimates for the 2022/23 season are over 18 million tons. But don’t worry: There are no dependencies in this case. Germany still sources the majority of its peanuts from South America.
