German companies’ dependence on China will last decades, warns Siemens

German Chancellor Olaf Scholz learns about a Sino-German cooperative scientific research project on water monitoring in southwest China's Chongqing Municipality on Sunday. Photo / Huang Wei, Xinhua via AP

It will take “decades” for Germany’s manufacturers to reduce their dependence on China, according to the chief financial officer of software technology group Siemens, highlighting the quandary facing western companies and their reliance on the country as a market as well as a supplier.

“Global value chains have been building up over the last 50 years. How naive do you need to be to believe that this can be changed within six or 12 months?” Ralf Thomas said in an interview with the Financial Times. “This is about decades.”

His comments follow a report from the German Economic Institute that found that the country’s corporations had made little progress in “de-risking” their China exposure and reducing their critical import dependencies since 2022.

China is Germany’s single largest trading partner, with goods worth €254 billion (NZ$454b) traded between the two countries in 2023, according to the German statistics agency.

The relationship, which spans Germany’s largest groups including Volkswagen and BASF to small and medium-sized companies of the country’s Mittelstand, was long seen as a pillar of the country’s economic power and a model of globalisation.

That relationship is now considered a liability by many investors and politicians.

The Bundesbank warned last year that an excessive dependence on China is why Germany’s “business model is in danger”. Last July, foreign minister Annalena Baerbock called on German companies to reduce their dependence on China.

The latest intervention by Siemens, which has previously defended its operations in China and declared its intention to expand its market share there, comes as Chancellor Olaf Scholz arrived in China on Sunday with a high-profile business delegation including the chief executive of Siemens and the incoming boss of BASF.

“It would be a gross misunderstanding to think that it was the intention of this government [to want to reduce trade with China]. We want to further expand trade with China, taking into account the need for de-risking and diversification,” said a German government official.

“Regarding critical dependencies, we have to tackle those. We don’t want to close ourselves off, but we want to have balanced partnerships.”

A separate report released this week by the Kiel Institute estimated that Beijing’s subsidies of its domestic industries including companies like BYD ranged between 3 and 9 times other OECD countries.

Thomas at Siemens said that the company had determined that it “cannot afford not to be [in China]”. He added that the rise of aggressive local competitors was a “challenge”, noting that “if you can stand the heat of the Chinese kitchen, you are successful in other places as well”.

An editorial last week from the state-owned Global Times on the visit by the German delegation accepted that the relationship between the two countries “faces some challenges, such as market access and fair competition”.

“However, these challenges should not be an excuse to derail bilateral collaboration from its positive trajectory,” it said.

Written by: Arjun Neil Alim in Munich and Sam Jones in Berlin

© Financial Times