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Globalization: Where China could hurt the Germans

2023-02-15T07:47:01.926Z


For decades, German corporations have been driving the integration with China, the trade volume is gigantic. So does Beijing have the Federal Republic in its hands for a long time? No, argue Kiel researchers.


Enlarge image

Ship of the Chinese shipping company Cosco in the port of Hamburg

Photo: Axel Heimken / AFP

It is the horror scenario for many German companies that have done well with globalization for decades: a sharp conflict between the USA and Europe on the one hand and China on the other.

The People's Republic seems to have become too important for many companies, both as a sales market and as a supplier.

Trade between the German economy and China rose to a record high in 2022, despite all the political warnings about over-dependence.

Goods worth around 298 billion euros were traded between the two countries.

This is growth of around 21 percent compared to 2021. German exports of around 107 billion euros are offset by imports from China of 191 billion euros.

In the bilateral trade balance, Germany is showing a deficit of around 84 billion euros.

Federal Finance Minister Christian Linder has criticized this.

"Dangerous development: The German trade deficit with #China has more than doubled in 2022," tweeted the FDP politician last week.

»We should learn from the experience with Russia.

Instead of getting too dependent, we urgently need to rethink – and rely on more free trade with value partners.«

Hardly any long-term damage

So, in the event of a dispute, would Beijing have a grip on Germany?

Economists at the Kiel Institute for the World Economy (IfW) have looked into this question - and give the cautious all-clear.

The actual dependency of the German economy on imports from China is "significantly lower than is suggested by classic trade statistics".

In fact, only a small part of German production depends directly or indirectly on Chinese inputs.

By far the largest part comes from German contributions.

Nevertheless, China dominates with individual raw materials and products, especially in the electronics sector.

That's why Germany "urgently needs a strategy for more diversification," according to study author Alexander Sandkamp.

China's share is currently particularly high for laptops (80 percent) and mobile phones (68 percent).

In addition, 85 percent or more of some of the rare earths and raw materials that are important for the production of special technology and classified as critical by the EU, such as scandium or antimony, come from China.

They are used, for example, in battery production or surface coating.

Apart from the critical preliminary work mentioned, China's importance for the German economy as a whole is apparently rather low.

According to the calculations, only about 0.6 percent of the direct primary products required for German production come from China.

In other words: A failure to deliver from China would be painful, but would not shut down large parts of production in Germany.

Both the USA (0.8 percent) and France (0.7 percent) are more important.

Classic trade figures are deceptive

Also in the area of ​​end products consumed in Germany, China is only of secondary importance.

1.4 percent of the services consumed in Germany come directly from China; if indirect connections are taken into account, the proportion rises to 2.7 percent.

The importance of China for end consumption is therefore almost twice as high as for German production.

The figures contrast with current trade statistics, according to which China is the most important country of origin for all German imports with almost 12 percent.

A good 6 percent come from the USA and a good 5 percent from France.

Over 50 percent of German imports come from the European Union (EU) as a whole.

»These classic trade flows are only suitable to a limited extent for classifying China's economic importance for Germany.

After all, Germany itself also produces intermediate and end products for domestic production and domestic consumption,” says researcher Sandkamp.

According to model calculations, decoupling the EU from China, which would reduce trade by 97 percent, would mean that German economic output would be 1 percent lower in the long term – i.e. once new supply structures have been found and established.

Measured against the gross domestic product in 2021, this corresponds to a lost value added of 36 billion euros per year.

beb

Source: spiegel

All business articles on 2023-02-15

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