“The Russian invasion has failed” – at least that is what European Commission chief Ursula von der Leyen and UK Prime Minister Liz Truss said after a meeting at the United Nations General Assembly in New York on Wednesday. President Vladimir Putin’s decision to order a partial Russian mobilization for the fight in Ukraine was a sign of weakness, they said. Putin’s announcement prompted EU foreign ministers to hold an emergency meeting on Wednesday to discuss new sanctions and arms deliveries to Kyiv. Speaking with Ella Joyner, Michael Gahler, foreign policy spokesman for the EPP Group, explains how he interprets Putin’s announcement and what he believes the West needs to do now.
Will the climate goals of the German government soon fall victim to high energy and food prices? The plan is already to postpone the increase of the national carbon price in the Fuel Emissions Trading Act by one year. Climate strategy plans are also shaky at the European level. Lukas Scheid analyzes what impact this will have.
China welcomes foreign investors – and they are coming, despite the rising market risks. For German companies, in particular, the growth in China is tempting. But how long will it last? China is catching up, wants to become the market leader itself, and will in all likelihood replace foreign companies at some point. My colleague Nico Beckert talks about dependencies, tensions and investment opportunities on the Chinese market.
The German government wants to postpone the increase of the national carbon price in the Fuel Emissions Trading Act (BEHG) by one year. As part of the third relief package, it was announced that the levy of currently €30 would not be raised to €35 per metric ton of CO2 until January 1, 2024. Accordingly, other planned adjustments will also be postponed by one year.
It is the first sign of what the energy crisis will do to the climate protection ambitions of the German government. After all, carbon pricing is an adequate market-based instrument to reduce emissions from industry and consumers. For the EU, it is by far the most important instrument for achieving the Green Deal goals. Nevertheless, this instrument has been cut despite Green government participation.
The demands of some industrial sectors go even further. An alliance of real estate, waste disposal and municipal companies, for example, demanded to stop the extension of the Fuel Emissions Trading Act to waste incineration planned for 2023. The argument: it is vital to avoid even higher financial burdens for private households and businesses. The economic and environmental committee of the Federal Council called for a postponement of two years.
The Federal Council did not follow this recommendation last week in its first reading of the amendment to the Fuel Emissions Trading Act submitted by the Federal Ministry for Economic Affairs and Climate Action (BMWK), arguing that the discrimination against recycling by the inclusion of waste incineration must be stopped. But here, too, it is clear that calls to stop or postpone climate protection measures are no longer all that unpopular.
And even if the price signal of the Fuel Emissions Trading Act as an incentive to conserve energy is considered to be limited – the price of CO2 reaches a plus with a total increase of 0.671 ct/kWh (gross) on the gas price, 6.7 ct/l on gasoline and 7.7 ct/l on diesel. The willingness demonstrated by the German government to accept compromises on climate protection instruments in the face of rising living and production costs shows that nothing is as impossible as it seemed just a few months ago.
This is just as true at the European level. The German Chemical Industry Association (VCI) wants to stop the EU chemicals strategy, the Industrial Emissions Directive and the planned Carbon Border Adjustment Mechanism (CBAM) for the time being, as they “further burden the competitiveness of the industry”. The intention is to mitigate the impact of the energy crisis. However, the whole truth is that the VCI’s demand is not new and is not solely motivated by rising energy prices. Even before the energy crisis started, these legislative initiatives were a thorn in the association’s side, as they pose enormous challenges for the industry. But in the current situation, calls for less climate protection are simply gaining renewed momentum.
Daniel Caspary and Angelika Niebler from the EPP also take advantage of this. “Burdensome legislation” must be put on hold, Caspary demands, referring to the Industrial Emissions Directive, the Soil Health Law and the Supply Chain Act. “Additional burdens on business and agriculture must be avoided at all costs in this dramatic time of crisis.” Niebler calls the Commission’s proposed Legislation on Plant Protection Products unacceptable in times of food shortages. It will mean “that our farmers will no longer be able to produce enough to feed the continent,” the CSU politician fears. Nor are Caspary and Niebler’s criticisms of these legislative proposals new, only the rationale has changed.
However, the position of group colleague Peter Liese, EPP spokesman on environmental policy and rapporteur for the reform of the European Emissions Trading System (ETS), seems to have actually changed. Liese no longer defends the importance of a strong price signal from the ETS for climate protection as fiercely as he did a few months ago. While he still prevailed in the negotiations in the EU Parliament’s Environment Committee against a number of more conservative EPP MEPs who would have welcomed a less ambitious ETS reform, he now strikes different tones.
Liese supports his group’s demand for a short-term intervention in emissions trading to relieve the burden on electricity consumers and companies. The EPP wants to extend the Commission’s much-criticized proposal to sell emission allowances from the market stability reserve worth €20 billion to finance REPowerEU. Liese explicitly demands that the allowances be released onto the market as quickly as possible so that the measure also has a swift dampening effect on the carbon price.
Unlike the German Fuel Emissions Trading Act, the European carbon price already has a clear steering effect. According to the EU Commission, emissions from the sectors covered by the ETS have been reduced by 42.8 percent since its introduction in 2005. The reform is intended to strengthen the system even further, which is why high hopes for climate protection rest on the instrument.
This is why watering down ambitions is also seen critically, even in the face of the energy crisis. “Calls to weaken the EU ETS are based on the mistaken belief that we can lower energy prices and inflation by lowering ETS allowance prices,” argues Sabine Frank, Executive Director at Carbon Market Watch. Selling MSR allowances would set a precedent, she says. “Even if the European Parliament or the Council impose strict conditions and amend the text to say it is an ‘exceptional and one-off measure,’ there is a risk it would be used again.” The MSR is not a fundraising tool, Frank warns.
The word from Green circles in Brussels is that they want to prevent the postponement or halting of climate policy measures at all costs. A lower emission price, like through the sale of MSR allowances, would also lead to lower revenues from the ETS. Revenue that would be missing from EU members and various investment funds to support the transformation of the economy. “It is possible that some countries have already earmarked part of these revenues for climate protection projects, so they will have to find other sources of funding if prices fall drastically,” says Sabine Frank.
The Commission does not want to hear anything about these concerns. According to Commission sources, member states cannot earmark revenues from the rising carbon price resulting from the ETS reform, as the reform has not yet been finalized anyway.
That the EU would lose sight of its climate protection ambitions is denied at every opportunity by both Green Deal Commissioner Frans Timmermans and Commission President Ursula von der Leyen. The goals of the Green Deal are to remain untouched, and the measures to contain the energy crisis are not to burden the climate through increased carbon emissions. Carbon Market Watch believes this is credible, too. “Since the State of the Union address and the proposed measures, including an overhaul of the electricity market design, calls for intervention in the carbon market have quieted down a bit,” Frank says.
China’s Vice Premier, Han Zheng, usually has more important things to do than inaugurate new factories. But Han made an exception for BASF. As the chemical giant celebrated the start of production at its ten-billion-euro Verbund site in Zhanjiang, Han dropped by for an event in Beijing. The high-profile visit was meant to send a signal: China welcomes foreign investors.
Actually, the People’s Republic does not even have to woo German companies. Apart from BASF, the automotive industry continues to be one of the biggest investors in the country. In 2020, Volkswagen announced plans to invest €15 billion in electric mobility with its Chinese joint venture partners by 2024.
After European countries and the United States, China is the biggest target market for German companies. They have made a total of over 90 billion in investments there – more than a third of which came from the automotive industry.
Economists believe, however, that major investments by the German industry in China are no longer as low-risk as they were a few years ago. The People’s Republic remains a growth market. But for how much longer? The government in Beijing is pursuing a clear medium-term strategy: Catching up technologically and turning its own champions into market leaders. “German producers have to brace themselves for being replaced by domestic companies. They are in the hands of the government,” says Rolf Langhammer of the Kiel Institute for the World Economy (IfW). The trade expert warns, “Anyone who runs a business in China knows that these investments are only temporary.”
But is China growing so fast that even investments in the billions will yield quick profits with correspondingly low business risk? According to Langhammer, there are definitely risks: “It may well be that large German companies will have to adjust their forecasts for the Chinese market again in the future and revise them downward“.
Moreover, China’s growth is cooling noticeably. Zero-Covid and geopolitical tensions are further added to the mix. “China is likely to become a more difficult market for all foreign companies in the coming years,” says Noah Barkin of the analysis firm Rhodium Group. The cost-benefit ratio “is tipping in an unfavorable direction,” he estimates. According to Barkin, it cannot be ruled out that European companies will be forced to accept large financial losses on their investments in China.
Deutsche Bank’s CEO also voiced concern about dependencies. “The country’s increasing isolation and growing tensions, especially with the US, pose a significant risk for Germany,” Christian Sewing said. Some economists demand a fundamental rethinking. After all, shareholders and creditors of companies with a strong China focus could also be affected by increasing China risks, said Juergen Matthes of the German Economic Institute (IW) in Cologne. Because of geopolitical tensions, “it’s about looking at risk exposure and making sure the company can survive in case of escalation.” The head of the Global and Regional Markets cluster at the IW assumes that “the financial market will also demand greater transparency about China risks.”
The German Federal Ministry for Economic Affairs and Climate Action also considered exercising more control. Investments by German companies in China should be subject to greater scrutiny. But after fierce criticism from the business community, the ministry appears to abandon these plans, as Reuters reports.
However, there are also economists who are more positive about the situation. “The investment opportunities in China are still great,” says Horst Loechel, head of the Sino-German Center at the Frankfurt School of Finance & Management. “If you compare the opportunities to the potential risks – geopolitical and otherwise – it is still reasonable to be invested in China.” He remains optimistic that bridges between the People’s Republic and the West will not be burned. “The peak of geopolitical tensions is very likely already behind us.”
Yet, the number of companies that continue to show unlimited enthusiasm for China is steadily declining. While investments in the People’s Republic are growing in volume, the majority of the money comes from fewer and larger companies. The top ten European investors in China have accounted for an average of nearly 80 percent of all investments over the past four years, according to a new analysis by Rhodium Group. German conglomerates rank among the top investors.
Volkswagen, BMW, Daimler and BASF alone accounted for about 34 percent of all European investments in China between 2018 and 2021, according to Rhodium. “Our findings point to a widening gap in how European firms perceive the balance of risks and opportunities in the Chinese market,” the authors conclude.
BASF, for example, points out the opportunities. When asked about potential investment risks, a company spokeswoman commented that China remains an important growth market. “By 2030, China will account for more than two-thirds of global chemical production growth. China will then account for 50 percent of the global market.” Developing additional markets in the People’s Republic would be “of high strategic and economic value,” the spokeswoman said. The company monitors geopolitical developments and takes measures to safeguard investments, she added.
Some companies pursue a rather surprising strategy to cope with the risks. They are “investing even more in China, but to make their local business more independent of their global operations,” Mikko Huotari, director of the Merics research institute, told Reuters. China, he said, is considered a separate business entity. Workforce, supply chains and data flows are becoming increasingly localized, the Rhodium research also notes. That would reduce risks, the report says. In the event of any sanctions against the People’s Republic, there would then be fewer exchanges with company units in other countries.
Huotari believes companies act “logically” in the short term. “Many are trying to do good business in China for at least another 10, 15, maybe 20 years.” The important question here is whether companies will be able to find the right time to jump ship. The situation with Russia, for example, has shown that escalation can happen fairly abruptly. Huotari warns, “Some companies underestimate not only the downward pressure of the Chinese economy, but above all geopolitical risks of the location.”
So how can the risks of major investments in China be reduced? Matthes of the IW suggests that companies “should be obligated in their financial statement to report on geopolitical cluster risks and on potential operating losses in the realization of these risks.” This would make the risks of doing business in China more transparent. Company leaders would then possibly calculate differently.
Politics should also scale back existing incentives for doing business in China, Matthes said. The German Ministry of Economics is already considering scaling back government investment and export guarantees and China loans granted by the German development bank KfW. In addition, trade relations are to be diversified and agreements signed with other countries in the region.
“I was told that I once was the youngest professor in Germany for a time,” says Michael Zürn about his meteoric entry into the academic world. In 1993, he became professor of international and transnational relations, including peace and conflict research, at the University of Bremen – just two years after he earned his Ph.D. In his mid-thirties, he benefited from the reunification of Germany, he says with a sly smile: “The appointments in the new federal states brought an incredible amount of dynamism into play.”
Michael Zürn is still a professor; he has been teaching at the Free University of Berlin since 2004. Since then, he has also headed the Global Governance Department at the Berlin Social Science Center (WZB). Together with 25 colleagues, he conducts research on the question of how politics can be organized on the global stage – or rather, where it fails. “Institutionalism has taken a few blows lately,” Zürn says, for example, about the school of thought that has accompanied him since his doctoral thesis.
Because one of their basic assumptions is that governments have an interest in cooperation and establishing international institutions due to mutual dependencies. But these institutions have faced a double challenge for some years, Zürn analyzes: “On the one hand, they have too little influence, and on the other, too much.” Too little, in the sense that they are too weak to effectively regulate climate change or financial markets. “And too much, in the sense that significant parts of society reject these institutions.”
In a globalized world, where important decisions are often made in EU, NATO or IMF bodies, many people have the feeling that they no longer have a voice. Populists of all stripes and governments of some countries would exploit this feeling and demand the abolition of these organizations. “This is one of the core issues of the dispute along this new line of conflict between cosmopolitans and communitarians,” Zürn explains.
As a spokesperson for the Cluster of Excellence “Contestations of the Liberal Script,” the 63-year-old focuses extensively on the challenges liberal democracies have to face. And with possible solutions: Zürn believes international institutions like the EU need to become more democratic. But it is a dilemma to have to reach consensus on EU reforms with EU opponents, he says. “In the meantime, even former advocates of this system like Germany or France are realizing: it’s a problem if there’s someone who always says no.”
Yet, constitutional reform is particularly necessary at present. But Zürn can also imagine scenarios in which changes become possible: “I don’t want to rule out at all that we will end up in situations where the pressure becomes so great that even people like Orbán and Kaczyński realize: We have to build our own European defense capability.” And that capability, he says, is now really hard to imagine with the Unanimity Rule. Paul Meerkamp
“The Russian invasion has failed” – at least that is what European Commission chief Ursula von der Leyen and UK Prime Minister Liz Truss said after a meeting at the United Nations General Assembly in New York on Wednesday. President Vladimir Putin’s decision to order a partial Russian mobilization for the fight in Ukraine was a sign of weakness, they said. Putin’s announcement prompted EU foreign ministers to hold an emergency meeting on Wednesday to discuss new sanctions and arms deliveries to Kyiv. Speaking with Ella Joyner, Michael Gahler, foreign policy spokesman for the EPP Group, explains how he interprets Putin’s announcement and what he believes the West needs to do now.
Will the climate goals of the German government soon fall victim to high energy and food prices? The plan is already to postpone the increase of the national carbon price in the Fuel Emissions Trading Act by one year. Climate strategy plans are also shaky at the European level. Lukas Scheid analyzes what impact this will have.
China welcomes foreign investors – and they are coming, despite the rising market risks. For German companies, in particular, the growth in China is tempting. But how long will it last? China is catching up, wants to become the market leader itself, and will in all likelihood replace foreign companies at some point. My colleague Nico Beckert talks about dependencies, tensions and investment opportunities on the Chinese market.
The German government wants to postpone the increase of the national carbon price in the Fuel Emissions Trading Act (BEHG) by one year. As part of the third relief package, it was announced that the levy of currently €30 would not be raised to €35 per metric ton of CO2 until January 1, 2024. Accordingly, other planned adjustments will also be postponed by one year.
It is the first sign of what the energy crisis will do to the climate protection ambitions of the German government. After all, carbon pricing is an adequate market-based instrument to reduce emissions from industry and consumers. For the EU, it is by far the most important instrument for achieving the Green Deal goals. Nevertheless, this instrument has been cut despite Green government participation.
The demands of some industrial sectors go even further. An alliance of real estate, waste disposal and municipal companies, for example, demanded to stop the extension of the Fuel Emissions Trading Act to waste incineration planned for 2023. The argument: it is vital to avoid even higher financial burdens for private households and businesses. The economic and environmental committee of the Federal Council called for a postponement of two years.
The Federal Council did not follow this recommendation last week in its first reading of the amendment to the Fuel Emissions Trading Act submitted by the Federal Ministry for Economic Affairs and Climate Action (BMWK), arguing that the discrimination against recycling by the inclusion of waste incineration must be stopped. But here, too, it is clear that calls to stop or postpone climate protection measures are no longer all that unpopular.
And even if the price signal of the Fuel Emissions Trading Act as an incentive to conserve energy is considered to be limited – the price of CO2 reaches a plus with a total increase of 0.671 ct/kWh (gross) on the gas price, 6.7 ct/l on gasoline and 7.7 ct/l on diesel. The willingness demonstrated by the German government to accept compromises on climate protection instruments in the face of rising living and production costs shows that nothing is as impossible as it seemed just a few months ago.
This is just as true at the European level. The German Chemical Industry Association (VCI) wants to stop the EU chemicals strategy, the Industrial Emissions Directive and the planned Carbon Border Adjustment Mechanism (CBAM) for the time being, as they “further burden the competitiveness of the industry”. The intention is to mitigate the impact of the energy crisis. However, the whole truth is that the VCI’s demand is not new and is not solely motivated by rising energy prices. Even before the energy crisis started, these legislative initiatives were a thorn in the association’s side, as they pose enormous challenges for the industry. But in the current situation, calls for less climate protection are simply gaining renewed momentum.
Daniel Caspary and Angelika Niebler from the EPP also take advantage of this. “Burdensome legislation” must be put on hold, Caspary demands, referring to the Industrial Emissions Directive, the Soil Health Law and the Supply Chain Act. “Additional burdens on business and agriculture must be avoided at all costs in this dramatic time of crisis.” Niebler calls the Commission’s proposed Legislation on Plant Protection Products unacceptable in times of food shortages. It will mean “that our farmers will no longer be able to produce enough to feed the continent,” the CSU politician fears. Nor are Caspary and Niebler’s criticisms of these legislative proposals new, only the rationale has changed.
However, the position of group colleague Peter Liese, EPP spokesman on environmental policy and rapporteur for the reform of the European Emissions Trading System (ETS), seems to have actually changed. Liese no longer defends the importance of a strong price signal from the ETS for climate protection as fiercely as he did a few months ago. While he still prevailed in the negotiations in the EU Parliament’s Environment Committee against a number of more conservative EPP MEPs who would have welcomed a less ambitious ETS reform, he now strikes different tones.
Liese supports his group’s demand for a short-term intervention in emissions trading to relieve the burden on electricity consumers and companies. The EPP wants to extend the Commission’s much-criticized proposal to sell emission allowances from the market stability reserve worth €20 billion to finance REPowerEU. Liese explicitly demands that the allowances be released onto the market as quickly as possible so that the measure also has a swift dampening effect on the carbon price.
Unlike the German Fuel Emissions Trading Act, the European carbon price already has a clear steering effect. According to the EU Commission, emissions from the sectors covered by the ETS have been reduced by 42.8 percent since its introduction in 2005. The reform is intended to strengthen the system even further, which is why high hopes for climate protection rest on the instrument.
This is why watering down ambitions is also seen critically, even in the face of the energy crisis. “Calls to weaken the EU ETS are based on the mistaken belief that we can lower energy prices and inflation by lowering ETS allowance prices,” argues Sabine Frank, Executive Director at Carbon Market Watch. Selling MSR allowances would set a precedent, she says. “Even if the European Parliament or the Council impose strict conditions and amend the text to say it is an ‘exceptional and one-off measure,’ there is a risk it would be used again.” The MSR is not a fundraising tool, Frank warns.
The word from Green circles in Brussels is that they want to prevent the postponement or halting of climate policy measures at all costs. A lower emission price, like through the sale of MSR allowances, would also lead to lower revenues from the ETS. Revenue that would be missing from EU members and various investment funds to support the transformation of the economy. “It is possible that some countries have already earmarked part of these revenues for climate protection projects, so they will have to find other sources of funding if prices fall drastically,” says Sabine Frank.
The Commission does not want to hear anything about these concerns. According to Commission sources, member states cannot earmark revenues from the rising carbon price resulting from the ETS reform, as the reform has not yet been finalized anyway.
That the EU would lose sight of its climate protection ambitions is denied at every opportunity by both Green Deal Commissioner Frans Timmermans and Commission President Ursula von der Leyen. The goals of the Green Deal are to remain untouched, and the measures to contain the energy crisis are not to burden the climate through increased carbon emissions. Carbon Market Watch believes this is credible, too. “Since the State of the Union address and the proposed measures, including an overhaul of the electricity market design, calls for intervention in the carbon market have quieted down a bit,” Frank says.
China’s Vice Premier, Han Zheng, usually has more important things to do than inaugurate new factories. But Han made an exception for BASF. As the chemical giant celebrated the start of production at its ten-billion-euro Verbund site in Zhanjiang, Han dropped by for an event in Beijing. The high-profile visit was meant to send a signal: China welcomes foreign investors.
Actually, the People’s Republic does not even have to woo German companies. Apart from BASF, the automotive industry continues to be one of the biggest investors in the country. In 2020, Volkswagen announced plans to invest €15 billion in electric mobility with its Chinese joint venture partners by 2024.
After European countries and the United States, China is the biggest target market for German companies. They have made a total of over 90 billion in investments there – more than a third of which came from the automotive industry.
Economists believe, however, that major investments by the German industry in China are no longer as low-risk as they were a few years ago. The People’s Republic remains a growth market. But for how much longer? The government in Beijing is pursuing a clear medium-term strategy: Catching up technologically and turning its own champions into market leaders. “German producers have to brace themselves for being replaced by domestic companies. They are in the hands of the government,” says Rolf Langhammer of the Kiel Institute for the World Economy (IfW). The trade expert warns, “Anyone who runs a business in China knows that these investments are only temporary.”
But is China growing so fast that even investments in the billions will yield quick profits with correspondingly low business risk? According to Langhammer, there are definitely risks: “It may well be that large German companies will have to adjust their forecasts for the Chinese market again in the future and revise them downward“.
Moreover, China’s growth is cooling noticeably. Zero-Covid and geopolitical tensions are further added to the mix. “China is likely to become a more difficult market for all foreign companies in the coming years,” says Noah Barkin of the analysis firm Rhodium Group. The cost-benefit ratio “is tipping in an unfavorable direction,” he estimates. According to Barkin, it cannot be ruled out that European companies will be forced to accept large financial losses on their investments in China.
Deutsche Bank’s CEO also voiced concern about dependencies. “The country’s increasing isolation and growing tensions, especially with the US, pose a significant risk for Germany,” Christian Sewing said. Some economists demand a fundamental rethinking. After all, shareholders and creditors of companies with a strong China focus could also be affected by increasing China risks, said Juergen Matthes of the German Economic Institute (IW) in Cologne. Because of geopolitical tensions, “it’s about looking at risk exposure and making sure the company can survive in case of escalation.” The head of the Global and Regional Markets cluster at the IW assumes that “the financial market will also demand greater transparency about China risks.”
The German Federal Ministry for Economic Affairs and Climate Action also considered exercising more control. Investments by German companies in China should be subject to greater scrutiny. But after fierce criticism from the business community, the ministry appears to abandon these plans, as Reuters reports.
However, there are also economists who are more positive about the situation. “The investment opportunities in China are still great,” says Horst Loechel, head of the Sino-German Center at the Frankfurt School of Finance & Management. “If you compare the opportunities to the potential risks – geopolitical and otherwise – it is still reasonable to be invested in China.” He remains optimistic that bridges between the People’s Republic and the West will not be burned. “The peak of geopolitical tensions is very likely already behind us.”
Yet, the number of companies that continue to show unlimited enthusiasm for China is steadily declining. While investments in the People’s Republic are growing in volume, the majority of the money comes from fewer and larger companies. The top ten European investors in China have accounted for an average of nearly 80 percent of all investments over the past four years, according to a new analysis by Rhodium Group. German conglomerates rank among the top investors.
Volkswagen, BMW, Daimler and BASF alone accounted for about 34 percent of all European investments in China between 2018 and 2021, according to Rhodium. “Our findings point to a widening gap in how European firms perceive the balance of risks and opportunities in the Chinese market,” the authors conclude.
BASF, for example, points out the opportunities. When asked about potential investment risks, a company spokeswoman commented that China remains an important growth market. “By 2030, China will account for more than two-thirds of global chemical production growth. China will then account for 50 percent of the global market.” Developing additional markets in the People’s Republic would be “of high strategic and economic value,” the spokeswoman said. The company monitors geopolitical developments and takes measures to safeguard investments, she added.
Some companies pursue a rather surprising strategy to cope with the risks. They are “investing even more in China, but to make their local business more independent of their global operations,” Mikko Huotari, director of the Merics research institute, told Reuters. China, he said, is considered a separate business entity. Workforce, supply chains and data flows are becoming increasingly localized, the Rhodium research also notes. That would reduce risks, the report says. In the event of any sanctions against the People’s Republic, there would then be fewer exchanges with company units in other countries.
Huotari believes companies act “logically” in the short term. “Many are trying to do good business in China for at least another 10, 15, maybe 20 years.” The important question here is whether companies will be able to find the right time to jump ship. The situation with Russia, for example, has shown that escalation can happen fairly abruptly. Huotari warns, “Some companies underestimate not only the downward pressure of the Chinese economy, but above all geopolitical risks of the location.”
So how can the risks of major investments in China be reduced? Matthes of the IW suggests that companies “should be obligated in their financial statement to report on geopolitical cluster risks and on potential operating losses in the realization of these risks.” This would make the risks of doing business in China more transparent. Company leaders would then possibly calculate differently.
Politics should also scale back existing incentives for doing business in China, Matthes said. The German Ministry of Economics is already considering scaling back government investment and export guarantees and China loans granted by the German development bank KfW. In addition, trade relations are to be diversified and agreements signed with other countries in the region.
“I was told that I once was the youngest professor in Germany for a time,” says Michael Zürn about his meteoric entry into the academic world. In 1993, he became professor of international and transnational relations, including peace and conflict research, at the University of Bremen – just two years after he earned his Ph.D. In his mid-thirties, he benefited from the reunification of Germany, he says with a sly smile: “The appointments in the new federal states brought an incredible amount of dynamism into play.”
Michael Zürn is still a professor; he has been teaching at the Free University of Berlin since 2004. Since then, he has also headed the Global Governance Department at the Berlin Social Science Center (WZB). Together with 25 colleagues, he conducts research on the question of how politics can be organized on the global stage – or rather, where it fails. “Institutionalism has taken a few blows lately,” Zürn says, for example, about the school of thought that has accompanied him since his doctoral thesis.
Because one of their basic assumptions is that governments have an interest in cooperation and establishing international institutions due to mutual dependencies. But these institutions have faced a double challenge for some years, Zürn analyzes: “On the one hand, they have too little influence, and on the other, too much.” Too little, in the sense that they are too weak to effectively regulate climate change or financial markets. “And too much, in the sense that significant parts of society reject these institutions.”
In a globalized world, where important decisions are often made in EU, NATO or IMF bodies, many people have the feeling that they no longer have a voice. Populists of all stripes and governments of some countries would exploit this feeling and demand the abolition of these organizations. “This is one of the core issues of the dispute along this new line of conflict between cosmopolitans and communitarians,” Zürn explains.
As a spokesperson for the Cluster of Excellence “Contestations of the Liberal Script,” the 63-year-old focuses extensively on the challenges liberal democracies have to face. And with possible solutions: Zürn believes international institutions like the EU need to become more democratic. But it is a dilemma to have to reach consensus on EU reforms with EU opponents, he says. “In the meantime, even former advocates of this system like Germany or France are realizing: it’s a problem if there’s someone who always says no.”
Yet, constitutional reform is particularly necessary at present. But Zürn can also imagine scenarios in which changes become possible: “I don’t want to rule out at all that we will end up in situations where the pressure becomes so great that even people like Orbán and Kaczyński realize: We have to build our own European defense capability.” And that capability, he says, is now really hard to imagine with the Unanimity Rule. Paul Meerkamp
