TSMC site in Europe + BASF Verbund begins operations

Dear reader,

When a global chip giant invests in Europe, it is highly welcome news. It reduces dependencies on other countries, shortens supply and communication routes to industrial customers, and creates high-quality jobs. After Intel has already been persuaded to build plants in Germany, all eyes are now on the Taiwanese market leader TSMC. The EU Commission is currently campaigning for such an investment, as is Germany. For background information, see our analysis below.

Whether it’s German Chancellor Scholz, Foreign Minister Baerbock, the head of Deutsche Bank or major economic research institutes – warnings about excessive dependence on China have increased in recent months. How does BASF’s €10 billion investment in Guangdong fit into the picture? The new BASF plant is the largest single investment ever made by a German company in the People’s Republic, as Fabian Kretschmer writes. This step is not without risk for the company. If relations with China deteriorate even faster, the chemical giant will find itself in a bad spot.

And the company has already had a bad experience with Russia. For decades, BASF expanded its gas trade with Gazprom. Even a year after the annexation of Crimea, the company still handed over German gas storage facilities to its Russian partner in exchange for shares in extraction projects in Siberia. These deals have contributed significantly to Germany’s dependence on Russian gas. Is the company taking too great a risk again with its €10 billion investment in China?

Today’s part of our “China Perspective” series shows just how China’s society differs from free Western ones. In it, our voice from the People’s Republic describes why so many Chinese people often so tacitly accept the government’s harsh Covid lockdowns and restrictions on freedom of expression. A major role plays the education in kindergartens and schools, where obedience is instilled and individuality is largely suppressed. Everyday life is dominated by virtually omnipresent camera surveillance and Internet censorship – and there is also a fear of government informers. Dissenters who seek to express their opinions too freely certainly life a dangerous life in China.

Your
Nico Beckert

Promoting a TSMC site in the EU

EU Commissioner for the Internal Market, Thierry Breton, hopes to persuade Taiwanese chipmaker TSMC to build a factory in the EU. “We would be very happy if they would set up in Europe – either alone or together with others,” he said on Thursday in Berlin. The world’s largest contract manufacturer is a “very important player.”

The TSMC management has been probing an investment in Europe since last year. The company’s clients, especially in the automotive industry, are urging TSMC to build its own factory on the continent. They suffer under supply bottlenecks and are afraid of being cut off from suppliers in the event of a Chinese invasion of Taiwan. Without Taiwanese semiconductors, the assembly lines of German carmakers would come to a standstill.

Industry circles are discussing Bosch, Infineon and NXP as possible partners for TSMC in the semiconductor industry. The German government is closely involved in the negotiations, which are already at an advanced stage, according to information from industry circles. In the chip industry, high subsidies from tax funds are common to encourage companies to make a capital-intensive investment.

A potential site in Germany is also in the cards. There are reportedly talks about developing land near Dresden for a TSMC site. However, other European cities are also bidding for the production site of the top employer.

More mature, slower technology is enough for the auto industry

However, experts believe that TSMC will not outfit its European factories with its advanced technology with structure sizes below seven nanometers. “If TSMC invests in Europe, it will probably be in a plant with more mature technology that manufactures structure sizes from 18 nanometers,” says Jan-Peter Kleinhans of the Stiftung Neue Verantwortung.

But this meets the needs of German clients, as car manufacturers and suppliers are particularly plagued by supply bottlenecks in more mature technology areas. They do not require super-fast high-performance chips like the manufacturers of graphics cards. Cost-efficient components are needed, which so far have been sufficient for the less demanding use in cars.

In July, ST Microelectronics and the US contract manufacturer Globalfoundries (GF) already announced plans to invest more than €5 billion in a chip plant in France to produce 18-nanometer semiconductors. The US manufacturer Intel wants to invest a total of €80 billion in Europe and is planning, among other things, to build a plant in Magdeburg, Germany.

A matter of grants and guarantees

The deciding factor for bringing TSMC to Germany will likely be supply agreements, especially with car manufacturers and their suppliers. “Production in Europe would be more expensive than in Taiwan, so the factory would produce for the local market and would probably require long-term purchase guarantees from its clients,” says Kleinhans.

The discussion about a TSMC plant in Germany has been going in several directions for quite some time. The company itself has said one thing and then another. In the end, however, it is reportedly a question of subsidies. TSMC founder and former CEO Morris Chang (Zhang Zhongmo) does not consider manufacturing in the US to be competitive either. Since costs will always be higher than in Taiwan, he says, settling there is not a good deal for TSMC. The subtext of the statement: Without permanent subsidies, such overseas locations are not viable.

TSMC manufactures chips in the US state of Oregon, where production costs are 50 percent higher than in Taiwan. Another large factory is currently under construction in Arizona. This investment decision was also influenced by government funding.

However, Breton wants to create a legal framework with the European Chips Act that will facilitate subsidies and improve the framework conditions in Europe. The Commission’s goal is to more than double Europe’s share of global semiconductor production to 20 percent by 2030 (Table.Media reported). Here, Breton has primarily microchips of the latest generation in mind, with structure sizes of less than five nanometers. TSMC is the world leader in this field.

As far as subsidies are concerned, the EU and the German government have come a long way in the past five years. Just a few years ago, they wanted to leave investment mostly to the market. But even before the pandemic, advocates of an active industrial policy gained influence. The shock of shortages, first of masks and now of parts of all kinds, has finally changed the course here.

Taiwan as a particularly sensitive source region

There is currently a shortage of chips of all kinds around the globe. As a result, products ranging from game consoles and smartphones to sports cars are also in short supply. The German industry suffers particularly under the fact that, although it is considered a high-tech site, it has long since ceased to manufacture the actual high-tech itself.

Especially the dependence on China and Taiwan is seen with concern here. The background is the growing tensions surrounding the island (China.Table reported). China continues to sharpen its threats against Taiwan, while the US has also stepped up its tone. The scenario of an armed conflict seems much more likely than it did a year ago.

A war over Taiwan would have two disastrous effects on the economy: Production sites in Taiwan would be destroyed or would no longer be connected to commodity flows. And China would probably be hit with sanctions. Either way, the current component shortage would become trivial compared to the effects of war.

On the one hand, the central position in the supply chain is therefore life insurance for Taiwan – the fact that the USA and EU are aware of their dependence motivates them to protect the island. On the other hand, the local industry also wants to diversify its production sites to be able to continue production in a safe place in case disaster strikes. Till Hoppe/Finn Mayer-Kuckuk

BASF’s billion-euro project harbors risks

When completed, BASF’s new Verbund site in Zhanjiang will be gigantic in scale.

It is a project of epic proportions: The German chemical company BASF started production this week at its new site in Zhanjiang in southern China. The plant’s first unit alone will produce 60,000 metric tons of engineering plastic compounds per year, and the company aims to use exclusively renewable energy for this purpose by 2025. By the end of the decade, the Ludwigshafen-based company plans to invest €10 billion in the site. This will be the largest investment ever made by a German company in China.

Even Vice Premier Han Zheng, a member of the nine-member Politburo Standing Committee, attended the plant opening ceremony in Beijing. According to the consulting firm Trivium China, this is highly unusual. For such a high-ranking party functionary of the Communist Party to attend such an event is extremely rare, even for state-owned enterprises – let alone for foreign companies.

China braces itself for the ‘Zeitenwende’

The message is clear: The Chinese government is desperately trying to attract international investors. After three years of zero-Covid, not only has the domestic economy taken a massive hit, but sentiment among Western corporations operating in China is also at an all-time low.

Accordingly, the Chinese state media reported extensively on the opening of the new BASF site. According to a report by “China.org”, this site represents a “new paradigm for China’s further liberalization” – regardless of “the complex international situation”.

What sounds rather euphemistic in pompous Party media speak was recently referred to by Chancellor Olaf Scholz as a so-called “Zeitenwende” – a turning point. His Foreign Minister, Annalena Baerbock, warns more openly than any of her predecessors about the dangers of economic dependence on China. In fact, the German government is currently working on a new China strategy that is likely to be far more critical than it was during the Merkel era. And the German Federal Ministry for Economic Affairs and Climate Action has also long been calling for a significant reduction of state guarantees for investments by German companies in the People’s Republic.

The German government certainly echoes this view. Christian Sewing, CEO of Deutsche Bank, said just on Wednesday at the Handelsblatt banking summit in Frankfurt: “When it comes to dependencies, we also have to face the awkward question of how to deal with China. Its increasing isolation and growing tensions, especially between China and the United States, pose a considerable risk for Germany.”

China remains indispensable as a business location

Many US companies are already setting sail for Southeast Asia and have begun to turn their backs on China. For instance, Apple will focus its production of future iPhone generations to India and Vietnam (China.Table reported). While these shifts are still merely symbolic, they should certainly serve as a warning signal to the People’s Republic. After all, restructuring supply chains is a long-term strategic process that, once implemented, is difficult to reverse.

Many German companies are also considering this, albeit more in the mid-market. The so-called “Zeitenwende” has not yet reached large corporations like BASF or the German automotive industry. There, the presence in China continues to be propagated – at least publicly – as indispensable: “In the past ten years, the greatest growth has happened in China. The fact that we now generate more than a third of our sales there is a success story,” said Daimler CEO Ola Källenius in an interview with the German newspaper Die Welt this week.

Stephan Wöllenstein, former head of China at Volkswagen, also told Bloomberg as recently as the end of July that anyone who couldn’t deal with the peculiarities of the Chinese market was unlikely to be “a leading carmaker in the next five to ten years.” He sometimes jokes about not even being sure anymore “whether we are either the most international among Chinese carmakers – or the most Chinese among international carmakers.” Fabian Kretschmer

German MPs will travel to Taiwan in October

The President of the German Bundestag, Baerbel Bas, has approved the travel request of the Parliamentary Human Rights Committee for its visit to Taiwan. The visit to the island state is scheduled for October. This was confirmed by Committee chair Renata Alt (FDP) to China.Table.

The trip was previously scheduled for 2019, but had to be postponed due to the Covid pandemic. The Human Rights Committee also plans to stop in Japan during the trip. Contrary to other reports, a visit to Hong Kong has not been requested, Alt said.

“At the insistence of the CDU/CSU parliamentary group, the Committee agreed to make up for the long-delayed trip to Taiwan in the fall. However, it is not motivated by Nancy Pelosi’s trip,” Alt said. The Taiwan visit by the Speaker of the US House of Representatives in early August sent a signal to the People’s Republic of China that the US intends to support Taiwan against the military threat posed by the People’s Republic.

As early as Tuesday, Committee members from all political groups will travel to Geneva, where the United Nations Human Rights Council will hold its 51st session. The committee is merely accredited as guest, but intends to use the occasion for numerous talks with non-governmental organizations.

At the end of the trip, the German politicians plan to visit the headquarters of the International Olympic Committee (IOC) in Lausanne next Friday. The committee is interested in a review of the awarding of the Winter Games to the People’s Republic of China. “We want to encourage that the human rights standards for receiving Olympic Games are raised,” Alt said. However, there will be no meeting with IOC President Thomas Bach because he will be out of the country at the time, according to a spokesman.

They also want to discuss the incident of tennis player Peng Shuai, who after her allegations of sexual abuse against a high-ranking functionary of the Communist Party has only appeared in public under supervision. Peng’s announced visit to Lausanne this summer never materialized. grz

Germany reconsiders investment guarantees

The German government is questioning its support for German companies in their business in China. The Federal Ministry of Economics, for example, is considering overturning state investment and export guarantees for companies operating in China, several people familiar with the proceedings told Reuters. In addition, the state development bank KfW is to scale back its credit lines for German companies’ China business and in return be able to expand them for activities in other Asian countries such as Indonesia. “We want to help avoid the German economy becoming too dependent on China,” a government official said.

According to informed individuals, smaller programs such as the promotion of trade fairs or manager training with China are also to be reconsidered. According to the Ministry of Economy, more than one thousand Chinese managers participated in the bilateral program with China from 2008 to 2021. Since then, the program has been suspended due to the pandemic.

Within the G7 framework, it should be discussed whether to file a complaint with the World Trade Organization (WTO) against China for restrictions on the Chinese market, a government representative said. “We should show Beijing that we are also ready to fight for the principles of fairness.” It is also being considered whether not only Chinese investments in Germany are subject to audits, but also those made by German companies in China.

Decisions on the set of measures have not yet been made, said several people familiar with the deliberations. There are reportedly varying opinions on the matter within the government. The Federal Ministry of Economics did not comment on the individual measures. “The BMWK is currently examining suitable measures to provide targeted support for diversification and strengthening resilience,” a spokesman said, pointing out that not all WTO members were fully complying with agreed trade rules.

The Ministry of Economy has already halted government guarantees for investments in China’s Xinjiang province, citing the persecution of the Uyghur Muslim minority. Four requests by a company to extend investment guarantees were not granted on human rights grounds, the ministry said. rtr

India and China withdraw troops from the Western Himalayas

Indian and Chinese troops have begun to withdraw from the border area in eastern Ladakh in the Himalayas. Kashmir and Tibet overlap in this region. Just over two years ago, the region saw hostilities that resulted in casualties. According to the Indian Ministry of Defense, the withdrawal is said to be coordinated and intended to maintain peace along the border. This was agreed upon during talks in June. The withdrawal now comes ahead of next week’s meeting of the Shanghai Cooperation Organization (SOC) in Uzbekistan, which will be attended by China’s President Xi Jinping and Indian Prime Minister Narendra Modi.

“The eyeball-to-eyeball contact has ended,” Reuters quoted an Indian Defense Ministry source as saying. Both countries nevertheless continue to have thousands of troops along the de facto border, known as the Line of Actual Control (LAC).

In June 2020, Indian and Chinese troops clashed in the Galwan area of Ladakh. At least 20 Indian and four Chinese soldiers were killed in the fighting. As a result, diplomatic tensions between the two countries escalated. India dispatched some 50,000 additional troops to the region (China.Table reported). According to Reuters, Chinese troops had already cleared dozens of buildings and moved vehicles out of camps on the shores of Ladakh’s Pangong Tso Lake in February this year. ari/rtr

Evergrande headquarters in Hong Kong seized

The Evergrande headquarters in Hong Kong was seized by a lender. The over-indebted real estate group had defaulted on a loan and failed to sell the building despite giving notice. A receiver is now to take over the building on behalf of the lender and force a sale, the Financial Times reports. The building is valued at $1.2 billion, according to the report.

According to FT sources, the group mortgaged the building in return for loans. As a result, it may now be seized by lenders. The lender in question could therefore be the Hong Kong subsidiary of the state-owned bank China Citic Bank. However, the identity of the lender is still unclear. It would not be the first case of seized Evergrande assets. Earlier this year, US asset manager Oaktree Capital seized a construction site in Hong Kong and a residential and tourism resort near Shanghai.

The real estate group had actually planned to present a restructuring plan at the end of July. However, the company has not yet published any information on the matter. The company only recently announced plans to sell its stake in the Chinese Shengjing Bank for around $1.1 billion. nib

BYD’s Thailand plans move forward

Chinese automaker BYD has bought land in Thailand to build its first factory in Southeast Asia. On Thursday, the company signed a deal with a developer in Thailand, Bloomberg reported. Production at the plant is expected to start in 2024. The cars are mainly intended for the regional market and export to Europe.

The plant plans are part of a strategy to develop markets outside China. BYD plans to sell its first models in Thailand as early as the end of the year. A contract has been signed with the local dealer Rever Automotive for this purpose. BYD also plans to enter markets in Germany, Japan, Denmark, Israel and Cambodia in the near future. nib

IfW: China hardly benefits from Russia sanctions

It would stand to reason that China emerges as the economic winner from the conflict between Western countries and Russia. But trade numbers show only a limited effect or even disadvantages for China. “The sanctions also hurt trade with non-sanctioning countries,” economist Julian Hinz of IfW Kiel said Thursday at an event hosted by his institute as part of its Global China Conversations series.

Although, as expected, there is some shift in Europe’s trade toward China. But Chinese companies are cautious about getting involved in business with Russia. After all, there is a threat of sanctions from the West here, as recently illustrated by the example of five companies that were penalized by the US for their involvement in Russia. “Companies have to decide between the Western markets and the Russian market,” says Hinz. The decision is usually clearly in favor of the West. This is because Russian trade is of no particular importance to China. Its share is less than two percent. Even if its volume increases, the gain for China would be limited.

Trade figures show the effect. Exports to Russia from countries not participating in the sanctions had dropped by 40 percent since the invasion through April. This is despite the fact that China has not imposed sanctions and even provides non-material support to Russia. Over the same period, imports from sanctioning countries such as Germany and the US had plunged 60 percent, only 20 percentage points higher than those from non-sanctioning countries.

While exports from Russia to China have gone up due to increased energy supplies, gas exports have also reached their limits because there are hardly any pipelines to China. Most pipelines run west, not east. fin

China.Table is the media partner of the event series Global China Conversations of the Kiel Institute for the World Economy (IfW Kiel).

The strange docility of the Chinese

A single Covid case in China means the lockdown of entire cities. Two and a half years into the pandemic, the number of severe COVID-19 cases and deaths in the country is as about as low as in the rest of the world. Beijing, however, remains obsessed with its zero-Covid policy.

A Chinese lockdown is much stricter than the “hard” lockdown imposed, for example, in Germany at the very beginning of the pandemic in 2020. In the Chinese version, people are not allowed to leave their homes at all, not even for funerals, harvest work, grocery shopping, or walking the dog. Urgent medical treatments are often postponed. Deaths caused by this brutal policy are commonplace.

How can 1.4 billion people be so docile as to accept the unjustified restrictions of personal liberties for so long?

A complex answer

First of all, propaganda and misinformation are used to exaggerate the severity of the disease. Western governments’ casual handling of the pandemic (as well as their actual mistakes) are labeled as indifference to human lives, like in the handy example of the United States under former President Donald Trump. Beijing’s propaganda has very effectively used people’s fear to persuade them to cooperate.

After the population gradually began to notice the decreasing number of Covid deaths, the authorities took advantage of the general obedience of the Chinese population to the government to continue their strict measures.

The Chinese population is trained throughout their lives to obey orders from the authorities, from kindergarten to professional life.

I lived in Beijing for a long time. In my neighborhood, there was a kindergarten, an elementary school and a high school. From my kitchen window, I could see directly into the schoolyard. On school days, all the students, about 200 of them, gathered there every day at around ten in the morning and always went through the same routine.

Raised to obedience

The first part is a military-style formation drill. Everyone follows the commands of a male, authoritative voice from a loudspeaker. The second part is stretching exercises in which everyone performs the same movements simultaneously to accompanying music and on command. In the final part, a teacher, or occasionally a student of a senior class, also through a loudspeaker, presented the result of the so-called “discipline inspection,” praising the good and harshly criticizing the bad. The elementary school did the same thing; as did kindergarten, but in a shorter, softer way.

It has been almost always like this since the founding of the people’s republic, and it’s more or like the same everywhere in China.

The stretching exercise has its merits, it’s good for the body and health, even if doing the same exercise day in and day out is pretty dull. But the other two elements are basically all about discipline and following instructions.

This kind of obedience training is just one example that is deeply rooted in Chinese culture and perfectly used by the totalitarian regime for its purposes. They serve to wipe out idiosyncrasies and create a homogeneous collective body. In fact, “collective interest” is a term frequently used by those in power at various levels in China.

The collective interests are of course definitely exclusively by these people. More often than not, the “collective interests”, real or fake, are achieved at the expense of the rights of individuals, and at times, of their lives. Chinese people’s awareness of their rights has always been low, due to a lack of education in this regard. There had been some improvements in the 1990s and the first decade of this century, but the situation has deteriorated again during the past ten years. “Rights” is close to a taboo word in today’s China, especially when you demand them or cite them to defend yourself against the government, be it workers’ rights, women’s rights, LGBT rights, rights of speech, rights of union and protest. Comments promoting rights are censored, social media accounts are deleted, organizations working in these areas are shut down, and lawyers and activists are harassed and arrested.

Fear fueled by the government

As for Covid, President Xi Jinping has been unswervingly promoting his zero-Covid policy. Officials at different levels are fully aware that their choice is only to at least duly implement it, if not overdo it, to show their loyalty. Otherwise, they will be held accountable, and their career is over. The citizens also know that when the political will is expressed so clearly, they can only comply. Otherwise, various punishments await them.

The key word is fear. There are certainly brave souls who try to mobilize others to resist, for example, the unreasonably harsh Covid measures. However, such attempts are quickly exposed by the ubiquitous security cameras in the real world, and by an elaborate censorship system and a huge army of human censors policing the virtual world. The challenges posed by the dissenting few will be crushed swiftly and unnoticed by the vast majority. Any information about them, if there is any, will be quickly deleted to avoid any inspiration for the others.

People conducting the surveillance and crackdown represent, in the words of Hannah Arendt, the banal evil. Some of them may even truly believe they are doing good for the country.

A trial run for more surveillance?

But where does Beijing’s obsession with zero Covid come from? The most likely reason is Xi’s concern about social unrest ahead of the 20th Party Congress, when he is expected to break the two-term convention to start his third term as party head and president. He considers it his personal success that China initially had better control of the Covid situation than the rest of the world, and is keen to safeguard this asset until securing his third term.

Another hypothesis floated is that the government intends to use all the anti-Covid measures as an experiment for more rigid social control. This guess can’t be adequately substantiated. But even if the government didn’t set out with this intention, what they learned in social control in Covid times will surely be used in the future.

As for the question of why all the other top officials and policymakers buy into Xi’s decision. In short, that can be attributed to Xi’s brilliant skills for party infights. But that is another story.

Fish for dessert? Who could say no to such a proud fisherman? After a four-month fishing ban, fishermen at the fishing port in Xihai, Shandong Province, returned from their first fishing trips with fully loaded holds.

CHINA.TABLE EDITORIAL OFFICE

Amelie
Richter

Marcel
Grzanna

Fabian
Peltsch

Julia
Fiedler

Angela
Köckritz

Jörn
Petring

Dear reader,

When a global chip giant invests in Europe, it is highly welcome news. It reduces dependencies on other countries, shortens supply and communication routes to industrial customers, and creates high-quality jobs. After Intel has already been persuaded to build plants in Germany, all eyes are now on the Taiwanese market leader TSMC. The EU Commission is currently campaigning for such an investment, as is Germany. For background information, see our analysis below.

Whether it’s German Chancellor Scholz, Foreign Minister Baerbock, the head of Deutsche Bank or major economic research institutes – warnings about excessive dependence on China have increased in recent months. How does BASF’s €10 billion investment in Guangdong fit into the picture? The new BASF plant is the largest single investment ever made by a German company in the People’s Republic, as Fabian Kretschmer writes. This step is not without risk for the company. If relations with China deteriorate even faster, the chemical giant will find itself in a bad spot.

And the company has already had a bad experience with Russia. For decades, BASF expanded its gas trade with Gazprom. Even a year after the annexation of Crimea, the company still handed over German gas storage facilities to its Russian partner in exchange for shares in extraction projects in Siberia. These deals have contributed significantly to Germany’s dependence on Russian gas. Is the company taking too great a risk again with its €10 billion investment in China?

Today’s part of our “China Perspective” series shows just how China’s society differs from free Western ones. In it, our voice from the People’s Republic describes why so many Chinese people often so tacitly accept the government’s harsh Covid lockdowns and restrictions on freedom of expression. A major role plays the education in kindergartens and schools, where obedience is instilled and individuality is largely suppressed. Everyday life is dominated by virtually omnipresent camera surveillance and Internet censorship – and there is also a fear of government informers. Dissenters who seek to express their opinions too freely certainly life a dangerous life in China.

Your
Nico Beckert

Promoting a TSMC site in the EU

EU Commissioner for the Internal Market, Thierry Breton, hopes to persuade Taiwanese chipmaker TSMC to build a factory in the EU. “We would be very happy if they would set up in Europe – either alone or together with others,” he said on Thursday in Berlin. The world’s largest contract manufacturer is a “very important player.”

The TSMC management has been probing an investment in Europe since last year. The company’s clients, especially in the automotive industry, are urging TSMC to build its own factory on the continent. They suffer under supply bottlenecks and are afraid of being cut off from suppliers in the event of a Chinese invasion of Taiwan. Without Taiwanese semiconductors, the assembly lines of German carmakers would come to a standstill.

Industry circles are discussing Bosch, Infineon and NXP as possible partners for TSMC in the semiconductor industry. The German government is closely involved in the negotiations, which are already at an advanced stage, according to information from industry circles. In the chip industry, high subsidies from tax funds are common to encourage companies to make a capital-intensive investment.

A potential site in Germany is also in the cards. There are reportedly talks about developing land near Dresden for a TSMC site. However, other European cities are also bidding for the production site of the top employer.

More mature, slower technology is enough for the auto industry

However, experts believe that TSMC will not outfit its European factories with its advanced technology with structure sizes below seven nanometers. “If TSMC invests in Europe, it will probably be in a plant with more mature technology that manufactures structure sizes from 18 nanometers,” says Jan-Peter Kleinhans of the Stiftung Neue Verantwortung.

But this meets the needs of German clients, as car manufacturers and suppliers are particularly plagued by supply bottlenecks in more mature technology areas. They do not require super-fast high-performance chips like the manufacturers of graphics cards. Cost-efficient components are needed, which so far have been sufficient for the less demanding use in cars.

In July, ST Microelectronics and the US contract manufacturer Globalfoundries (GF) already announced plans to invest more than €5 billion in a chip plant in France to produce 18-nanometer semiconductors. The US manufacturer Intel wants to invest a total of €80 billion in Europe and is planning, among other things, to build a plant in Magdeburg, Germany.

A matter of grants and guarantees

The deciding factor for bringing TSMC to Germany will likely be supply agreements, especially with car manufacturers and their suppliers. “Production in Europe would be more expensive than in Taiwan, so the factory would produce for the local market and would probably require long-term purchase guarantees from its clients,” says Kleinhans.

The discussion about a TSMC plant in Germany has been going in several directions for quite some time. The company itself has said one thing and then another. In the end, however, it is reportedly a question of subsidies. TSMC founder and former CEO Morris Chang (Zhang Zhongmo) does not consider manufacturing in the US to be competitive either. Since costs will always be higher than in Taiwan, he says, settling there is not a good deal for TSMC. The subtext of the statement: Without permanent subsidies, such overseas locations are not viable.

TSMC manufactures chips in the US state of Oregon, where production costs are 50 percent higher than in Taiwan. Another large factory is currently under construction in Arizona. This investment decision was also influenced by government funding.

However, Breton wants to create a legal framework with the European Chips Act that will facilitate subsidies and improve the framework conditions in Europe. The Commission’s goal is to more than double Europe’s share of global semiconductor production to 20 percent by 2030 (Table.Media reported). Here, Breton has primarily microchips of the latest generation in mind, with structure sizes of less than five nanometers. TSMC is the world leader in this field.

As far as subsidies are concerned, the EU and the German government have come a long way in the past five years. Just a few years ago, they wanted to leave investment mostly to the market. But even before the pandemic, advocates of an active industrial policy gained influence. The shock of shortages, first of masks and now of parts of all kinds, has finally changed the course here.

Taiwan as a particularly sensitive source region

There is currently a shortage of chips of all kinds around the globe. As a result, products ranging from game consoles and smartphones to sports cars are also in short supply. The German industry suffers particularly under the fact that, although it is considered a high-tech site, it has long since ceased to manufacture the actual high-tech itself.

Especially the dependence on China and Taiwan is seen with concern here. The background is the growing tensions surrounding the island (China.Table reported). China continues to sharpen its threats against Taiwan, while the US has also stepped up its tone. The scenario of an armed conflict seems much more likely than it did a year ago.

A war over Taiwan would have two disastrous effects on the economy: Production sites in Taiwan would be destroyed or would no longer be connected to commodity flows. And China would probably be hit with sanctions. Either way, the current component shortage would become trivial compared to the effects of war.

On the one hand, the central position in the supply chain is therefore life insurance for Taiwan – the fact that the USA and EU are aware of their dependence motivates them to protect the island. On the other hand, the local industry also wants to diversify its production sites to be able to continue production in a safe place in case disaster strikes. Till Hoppe/Finn Mayer-Kuckuk

BASF’s billion-euro project harbors risks

It is a project of epic proportions: The German chemical company BASF started production this week at its new site in Zhanjiang in southern China. The plant’s first unit alone will produce 60,000 metric tons of engineering plastic compounds per year, and the company aims to use exclusively renewable energy for this purpose by 2025. By the end of the decade, the Ludwigshafen-based company plans to invest €10 billion in the site. This will be the largest investment ever made by a German company in China.

Even Vice Premier Han Zheng, a member of the nine-member Politburo Standing Committee, attended the plant opening ceremony in Beijing. According to the consulting firm Trivium China, this is highly unusual. For such a high-ranking party functionary of the Communist Party to attend such an event is extremely rare, even for state-owned enterprises – let alone for foreign companies.

China braces itself for the ‘Zeitenwende’

The message is clear: The Chinese government is desperately trying to attract international investors. After three years of zero-Covid, not only has the domestic economy taken a massive hit, but sentiment among Western corporations operating in China is also at an all-time low.

Accordingly, the Chinese state media reported extensively on the opening of the new BASF site. According to a report by “China.org”, this site represents a “new paradigm for China’s further liberalization” – regardless of “the complex international situation”.

What sounds rather euphemistic in pompous Party media speak was recently referred to by Chancellor Olaf Scholz as a so-called “Zeitenwende” – a turning point. His Foreign Minister, Annalena Baerbock, warns more openly than any of her predecessors about the dangers of economic dependence on China. In fact, the German government is currently working on a new China strategy that is likely to be far more critical than it was during the Merkel era. And the German Federal Ministry for Economic Affairs and Climate Action has also long been calling for a significant reduction of state guarantees for investments by German companies in the People’s Republic.

The German government certainly echoes this view. Christian Sewing, CEO of Deutsche Bank, said just on Wednesday at the Handelsblatt banking summit in Frankfurt: “When it comes to dependencies, we also have to face the awkward question of how to deal with China. Its increasing isolation and growing tensions, especially between China and the United States, pose a considerable risk for Germany.”

China remains indispensable as a business location

Many US companies are already setting sail for Southeast Asia and have begun to turn their backs on China. For instance, Apple will focus its production of future iPhone generations to India and Vietnam (China.Table reported). While these shifts are still merely symbolic, they should certainly serve as a warning signal to the People’s Republic. After all, restructuring supply chains is a long-term strategic process that, once implemented, is difficult to reverse.

Many German companies are also considering this, albeit more in the mid-market. The so-called “Zeitenwende” has not yet reached large corporations like BASF or the German automotive industry. There, the presence in China continues to be propagated – at least publicly – as indispensable: “In the past ten years, the greatest growth has happened in China. The fact that we now generate more than a third of our sales there is a success story,” said Daimler CEO Ola Källenius in an interview with the German newspaper Die Welt this week.

Stephan Wöllenstein, former head of China at Volkswagen, also told Bloomberg as recently as the end of July that anyone who couldn’t deal with the peculiarities of the Chinese market was unlikely to be “a leading carmaker in the next five to ten years.” He sometimes jokes about not even being sure anymore “whether we are either the most international among Chinese carmakers – or the most Chinese among international carmakers.” Fabian Kretschmer

German MPs will travel to Taiwan in October

The President of the German Bundestag, Baerbel Bas, has approved the travel request of the Parliamentary Human Rights Committee for its visit to Taiwan. The visit to the island state is scheduled for October. This was confirmed by Committee chair Renata Alt (FDP) to China.Table.

The trip was previously scheduled for 2019, but had to be postponed due to the Covid pandemic. The Human Rights Committee also plans to stop in Japan during the trip. Contrary to other reports, a visit to Hong Kong has not been requested, Alt said.

“At the insistence of the CDU/CSU parliamentary group, the Committee agreed to make up for the long-delayed trip to Taiwan in the fall. However, it is not motivated by Nancy Pelosi’s trip,” Alt said. The Taiwan visit by the Speaker of the US House of Representatives in early August sent a signal to the People’s Republic of China that the US intends to support Taiwan against the military threat posed by the People’s Republic.

As early as Tuesday, Committee members from all political groups will travel to Geneva, where the United Nations Human Rights Council will hold its 51st session. The committee is merely accredited as guest, but intends to use the occasion for numerous talks with non-governmental organizations.

At the end of the trip, the German politicians plan to visit the headquarters of the International Olympic Committee (IOC) in Lausanne next Friday. The committee is interested in a review of the awarding of the Winter Games to the People’s Republic of China. “We want to encourage that the human rights standards for receiving Olympic Games are raised,” Alt said. However, there will be no meeting with IOC President Thomas Bach because he will be out of the country at the time, according to a spokesman.

They also want to discuss the incident of tennis player Peng Shuai, who after her allegations of sexual abuse against a high-ranking functionary of the Communist Party has only appeared in public under supervision. Peng’s announced visit to Lausanne this summer never materialized. grz

Germany reconsiders investment guarantees

The German government is questioning its support for German companies in their business in China. The Federal Ministry of Economics, for example, is considering overturning state investment and export guarantees for companies operating in China, several people familiar with the proceedings told Reuters. In addition, the state development bank KfW is to scale back its credit lines for German companies’ China business and in return be able to expand them for activities in other Asian countries such as Indonesia. “We want to help avoid the German economy becoming too dependent on China,” a government official said.

According to informed individuals, smaller programs such as the promotion of trade fairs or manager training with China are also to be reconsidered. According to the Ministry of Economy, more than one thousand Chinese managers participated in the bilateral program with China from 2008 to 2021. Since then, the program has been suspended due to the pandemic.

Within the G7 framework, it should be discussed whether to file a complaint with the World Trade Organization (WTO) against China for restrictions on the Chinese market, a government representative said. “We should show Beijing that we are also ready to fight for the principles of fairness.” It is also being considered whether not only Chinese investments in Germany are subject to audits, but also those made by German companies in China.

Decisions on the set of measures have not yet been made, said several people familiar with the deliberations. There are reportedly varying opinions on the matter within the government. The Federal Ministry of Economics did not comment on the individual measures. “The BMWK is currently examining suitable measures to provide targeted support for diversification and strengthening resilience,” a spokesman said, pointing out that not all WTO members were fully complying with agreed trade rules.

The Ministry of Economy has already halted government guarantees for investments in China’s Xinjiang province, citing the persecution of the Uyghur Muslim minority. Four requests by a company to extend investment guarantees were not granted on human rights grounds, the ministry said. rtr

India and China withdraw troops from the Western Himalayas

Indian and Chinese troops have begun to withdraw from the border area in eastern Ladakh in the Himalayas. Kashmir and Tibet overlap in this region. Just over two years ago, the region saw hostilities that resulted in casualties. According to the Indian Ministry of Defense, the withdrawal is said to be coordinated and intended to maintain peace along the border. This was agreed upon during talks in June. The withdrawal now comes ahead of next week’s meeting of the Shanghai Cooperation Organization (SOC) in Uzbekistan, which will be attended by China’s President Xi Jinping and Indian Prime Minister Narendra Modi.

“The eyeball-to-eyeball contact has ended,” Reuters quoted an Indian Defense Ministry source as saying. Both countries nevertheless continue to have thousands of troops along the de facto border, known as the Line of Actual Control (LAC).

In June 2020, Indian and Chinese troops clashed in the Galwan area of Ladakh. At least 20 Indian and four Chinese soldiers were killed in the fighting. As a result, diplomatic tensions between the two countries escalated. India dispatched some 50,000 additional troops to the region (China.Table reported). According to Reuters, Chinese troops had already cleared dozens of buildings and moved vehicles out of camps on the shores of Ladakh’s Pangong Tso Lake in February this year. ari/rtr

Evergrande headquarters in Hong Kong seized

The Evergrande headquarters in Hong Kong was seized by a lender. The over-indebted real estate group had defaulted on a loan and failed to sell the building despite giving notice. A receiver is now to take over the building on behalf of the lender and force a sale, the Financial Times reports. The building is valued at $1.2 billion, according to the report.

According to FT sources, the group mortgaged the building in return for loans. As a result, it may now be seized by lenders. The lender in question could therefore be the Hong Kong subsidiary of the state-owned bank China Citic Bank. However, the identity of the lender is still unclear. It would not be the first case of seized Evergrande assets. Earlier this year, US asset manager Oaktree Capital seized a construction site in Hong Kong and a residential and tourism resort near Shanghai.

The real estate group had actually planned to present a restructuring plan at the end of July. However, the company has not yet published any information on the matter. The company only recently announced plans to sell its stake in the Chinese Shengjing Bank for around $1.1 billion. nib

BYD’s Thailand plans move forward

Chinese automaker BYD has bought land in Thailand to build its first factory in Southeast Asia. On Thursday, the company signed a deal with a developer in Thailand, Bloomberg reported. Production at the plant is expected to start in 2024. The cars are mainly intended for the regional market and export to Europe.

The plant plans are part of a strategy to develop markets outside China. BYD plans to sell its first models in Thailand as early as the end of the year. A contract has been signed with the local dealer Rever Automotive for this purpose. BYD also plans to enter markets in Germany, Japan, Denmark, Israel and Cambodia in the near future. nib

IfW: China hardly benefits from Russia sanctions

It would stand to reason that China emerges as the economic winner from the conflict between Western countries and Russia. But trade numbers show only a limited effect or even disadvantages for China. “The sanctions also hurt trade with non-sanctioning countries,” economist Julian Hinz of IfW Kiel said Thursday at an event hosted by his institute as part of its Global China Conversations series.

Although, as expected, there is some shift in Europe’s trade toward China. But Chinese companies are cautious about getting involved in business with Russia. After all, there is a threat of sanctions from the West here, as recently illustrated by the example of five companies that were penalized by the US for their involvement in Russia. “Companies have to decide between the Western markets and the Russian market,” says Hinz. The decision is usually clearly in favor of the West. This is because Russian trade is of no particular importance to China. Its share is less than two percent. Even if its volume increases, the gain for China would be limited.

Trade figures show the effect. Exports to Russia from countries not participating in the sanctions had dropped by 40 percent since the invasion through April. This is despite the fact that China has not imposed sanctions and even provides non-material support to Russia. Over the same period, imports from sanctioning countries such as Germany and the US had plunged 60 percent, only 20 percentage points higher than those from non-sanctioning countries.

While exports from Russia to China have gone up due to increased energy supplies, gas exports have also reached their limits because there are hardly any pipelines to China. Most pipelines run west, not east. fin

China.Table is the media partner of the event series Global China Conversations of the Kiel Institute for the World Economy (IfW Kiel).

The strange docility of the Chinese

A single Covid case in China means the lockdown of entire cities. Two and a half years into the pandemic, the number of severe COVID-19 cases and deaths in the country is as about as low as in the rest of the world. Beijing, however, remains obsessed with its zero-Covid policy.

A Chinese lockdown is much stricter than the “hard” lockdown imposed, for example, in Germany at the very beginning of the pandemic in 2020. In the Chinese version, people are not allowed to leave their homes at all, not even for funerals, harvest work, grocery shopping, or walking the dog. Urgent medical treatments are often postponed. Deaths caused by this brutal policy are commonplace.

How can 1.4 billion people be so docile as to accept the unjustified restrictions of personal liberties for so long?

A complex answer

First of all, propaganda and misinformation are used to exaggerate the severity of the disease. Western governments’ casual handling of the pandemic (as well as their actual mistakes) are labeled as indifference to human lives, like in the handy example of the United States under former President Donald Trump. Beijing’s propaganda has very effectively used people’s fear to persuade them to cooperate.

After the population gradually began to notice the decreasing number of Covid deaths, the authorities took advantage of the general obedience of the Chinese population to the government to continue their strict measures.

The Chinese population is trained throughout their lives to obey orders from the authorities, from kindergarten to professional life.

I lived in Beijing for a long time. In my neighborhood, there was a kindergarten, an elementary school and a high school. From my kitchen window, I could see directly into the schoolyard. On school days, all the students, about 200 of them, gathered there every day at around ten in the morning and always went through the same routine.

Raised to obedience

The first part is a military-style formation drill. Everyone follows the commands of a male, authoritative voice from a loudspeaker. The second part is stretching exercises in which everyone performs the same movements simultaneously to accompanying music and on command. In the final part, a teacher, or occasionally a student of a senior class, also through a loudspeaker, presented the result of the so-called “discipline inspection,” praising the good and harshly criticizing the bad. The elementary school did the same thing; as did kindergarten, but in a shorter, softer way.

It has been almost always like this since the founding of the people’s republic, and it’s more or like the same everywhere in China.

The stretching exercise has its merits, it’s good for the body and health, even if doing the same exercise day in and day out is pretty dull. But the other two elements are basically all about discipline and following instructions.

This kind of obedience training is just one example that is deeply rooted in Chinese culture and perfectly used by the totalitarian regime for its purposes. They serve to wipe out idiosyncrasies and create a homogeneous collective body. In fact, “collective interest” is a term frequently used by those in power at various levels in China.

The collective interests are of course definitely exclusively by these people. More often than not, the “collective interests”, real or fake, are achieved at the expense of the rights of individuals, and at times, of their lives. Chinese people’s awareness of their rights has always been low, due to a lack of education in this regard. There had been some improvements in the 1990s and the first decade of this century, but the situation has deteriorated again during the past ten years. “Rights” is close to a taboo word in today’s China, especially when you demand them or cite them to defend yourself against the government, be it workers’ rights, women’s rights, LGBT rights, rights of speech, rights of union and protest. Comments promoting rights are censored, social media accounts are deleted, organizations working in these areas are shut down, and lawyers and activists are harassed and arrested.

Fear fueled by the government

As for Covid, President Xi Jinping has been unswervingly promoting his zero-Covid policy. Officials at different levels are fully aware that their choice is only to at least duly implement it, if not overdo it, to show their loyalty. Otherwise, they will be held accountable, and their career is over. The citizens also know that when the political will is expressed so clearly, they can only comply. Otherwise, various punishments await them.

The key word is fear. There are certainly brave souls who try to mobilize others to resist, for example, the unreasonably harsh Covid measures. However, such attempts are quickly exposed by the ubiquitous security cameras in the real world, and by an elaborate censorship system and a huge army of human censors policing the virtual world. The challenges posed by the dissenting few will be crushed swiftly and unnoticed by the vast majority. Any information about them, if there is any, will be quickly deleted to avoid any inspiration for the others.

People conducting the surveillance and crackdown represent, in the words of Hannah Arendt, the banal evil. Some of them may even truly believe they are doing good for the country.

A trial run for more surveillance?

But where does Beijing’s obsession with zero Covid come from? The most likely reason is Xi’s concern about social unrest ahead of the 20th Party Congress, when he is expected to break the two-term convention to start his third term as party head and president. He considers it his personal success that China initially had better control of the Covid situation than the rest of the world, and is keen to safeguard this asset until securing his third term.

Another hypothesis floated is that the government intends to use all the anti-Covid measures as an experiment for more rigid social control. This guess can’t be adequately substantiated. But even if the government didn’t set out with this intention, what they learned in social control in Covid times will surely be used in the future.

As for the question of why all the other top officials and policymakers buy into Xi’s decision. In short, that can be attributed to Xi’s brilliant skills for party infights. But that is another story.

Fish for dessert? Who could say no to such a proud fisherman? After a four-month fishing ban, fishermen at the fishing port in Xihai, Shandong Province, returned from their first fishing trips with fully loaded holds.

CHINA.TABLE EDITORIAL OFFICE

Amelie
Richter

Marcel
Grzanna

Fabian
Peltsch

Julia
Fiedler

Angela
Köckritz

Jörn
Petring

Feature

Promoting a TSMC site in the EU

More mature, slower technology is enough for the auto industry

A matter of grants and guarantees

Taiwan as a particularly sensitive source region

BASF’s billion-euro project harbors risks

China braces itself for the ‘Zeitenwende’

China remains indispensable as a business location

News

German MPs will travel to Taiwan in October

Germany reconsiders investment guarantees

India and China withdraw troops from the Western Himalayas

Evergrande headquarters in Hong Kong seized

BYD’s Thailand plans move forward

IfW: China hardly benefits from Russia sanctions

China Perspective

The strange docility of the Chinese

A complex answer

Raised to obedience

Fear fueled by the government

A trial run for more surveillance?

Executive Moves

Dessert

China.Table editorial office

CHINA.TABLE EDITORIAL OFFICE

Feature

Promoting a TSMC site in the EU

More mature, slower technology is enough for the auto industry

A matter of grants and guarantees

Taiwan as a particularly sensitive source region

BASF’s billion-euro project harbors risks

China braces itself for the ‘Zeitenwende’

China remains indispensable as a business location

News

German MPs will travel to Taiwan in October

Germany reconsiders investment guarantees

India and China withdraw troops from the Western Himalayas

Evergrande headquarters in Hong Kong seized

BYD’s Thailand plans move forward

IfW: China hardly benefits from Russia sanctions

China Perspective

The strange docility of the Chinese

A complex answer

Raised to obedience

Fear fueled by the government

A trial run for more surveillance?

Executive Moves

Dessert

China.Table editorial office

CHINA.TABLE EDITORIAL OFFICE

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