Geopolitical tensions are influencing business in China - new laws also pose a dilemma for German companies.
Beijing / Munich - Many German companies do good business in China.
But in the face of growing global political tensions, politics is pushing its way more and more into business.
In a survey by the European Chamber of Commerce in China (EUCCC), 41 percent of those questioned recently complained about the increasing politicization of business life.
In fact, political conflicts have shaped everyday life for years - and the list of problems is getting longer and longer: the trade dispute between the USA and China, the USA's black lists for certain technology exports to the People's Republic, the sanctions dispute in connection with forced labor in Xinjiang.
And now there is a threat of new adversity due to new laws that were passed practically at the same time in East and West: The German supply chain law as well as China's anti-sanctions law and new rules on data security present companies with difficult decisions.
China: New anti-sanctions law hit companies like a shock
On June 11, an anti-sanctions law hastily pushed through by China's National People's Congress hit the corporate community like a blow. It came into force immediately and prohibits organizations and companies in China from implementing certain foreign measures that Beijing considers discriminatory - such as sanctions and tech sales bans in the USA or Europe. "European companies in China are shocked by the lack of transparency and the speed of this process," said EUCCC President Jörg Wuttke to Merkur.de.
That doesn't exactly help to encourage investment or reassure companies that “already have the feeling that they are serving as pawns in a political chess game,” warns Wuttke.
The companies are concerned that the law will “further destabilize EU-China relations”.
The Federation of German Industries (BDI) also emphasizes that the law comes "at an inopportune time."
An example illustrates the consequences of the law: The USA prohibits the export of certain technologies to the People's Republic.
But if US companies stop their exports to China because of this, they face prosecution in China.
If the companies do not implement the sanctions of their own government and export the products anyway, they face fines at home in the USA.
It is an irresolvable dilemma.
China: disruption unwelcome in Europe's largest market
Actually, nobody can use these glitches.
China is currently the largest market for Europe.
In 2020, the People's Republic overtook the USA as the EU's most important trading partner for the first time.
According to data from the EU authority Eurostat, its trade volume with China was 586 billion euros - with the USA it was 555 billion euros.
Conversely, Germany is by far China's largest trading partner in the EU, followed by France.
In 2020, Germany exported goods worth 96.4 billion euros to China - despite Corona that was 200 million euros more than in 2019. And then China is the only market that is growing properly.
The VW brand Audi, for example, sold 45 percent of its cars (207,000 of 463,000 cars worldwide) in China from January to March.
Siemens received 29 percent more orders from China between October 2020 and March 2021.
New supply chain law: very difficult to implement in China
But not only Beijing's laws, but also the supply chain law passed by the Bundestag on June 11, poses major problems for companies in China. The aims of the law are honorable; the crux is the implementation on site. According to the draft law, companies should in future have an eye on their entire supply chain and end abuses such as child labor, forced labor or environmental pollution. For companies with 3,000 or more employees, the law is to apply from 2023. Smaller companies with 1000 or more employees will follow in 2024. In China, the main focus is on the subject of forced labor, which, according to serious reports, many members of the Uyghur minority in Xinjiang are forced to do. A European supply chain law is also being planned.
It is even more difficult in China than anywhere else to see through the dense network of sub-suppliers. “And who is supposed to audit that verifiably? Audit firms no longer go to Xinjiang, ”a company representative in Beijing, who does not want to be named, told Merkur.de. According to him, the biggest problem is not suppliers in Xinjiang, but rather posting programs that are said to have been used to distribute Uyghurs for forced labor all over China. Nobody really knows to what extent. Not many German companies have suppliers in Xinjiang, and only BASF and VW produce there. The anti-sanctions law now also applies here: some companies will have to decide whether to follow German or Chinese rules - or leave the market.
In addition to the anti-sanctions law, China's Ministry of Commerce introduced a list of "unreliable entities" based on the US model in September 2020.
Foreign firms or other organizations can end up on this list if, among other things, they disrupt “normal transactions” with Chinese companies and take “discriminatory measures” against them.
A shopping stop in Xinjiang, for example by clothing companies, could well be included - but so far no foreign company has been on this list.
China's new data security law: companies must store important data domestically
In addition, China passed a law on data security, the detailed regulations of which are currently in the works.
Certain data will therefore no longer be able to be transferred abroad in the future, but will have to be stored on servers in China.
What kind of data this is is still unclear.
Company data could no longer easily be sent from China to the headquarters in Germany - there is a risk of a digital spin-off of the China business of many companies.
In the worst case, companies in China have to set up a sinfully expensive island solution: A kind of tech ecosystem only for the People's Republic.
“Multinationals may still be able to manage that, but smaller companies cannot,” says Wuttke.
He estimates that it would cost $ 60-80 million per company to set up such an isolated solution.
It's not worth it for everyone.
China: Difficult to find a solution
It is difficult to find the right approach in dealing with China today, said Wolfgang Niedermark from the BDI's Executive Board recently in a webinar by the Mercator Institute for Chinese Studies (MERICS): “Where are our red lines, when do we have to stand up for our values ?
What degree of dependency on a single market is still healthy? "
What is happening in Xinjiang is so problematic that "we have to get up and raise our voices," said Niedermark.
In order to deal with all of these things correctly, the EU needs a real trade strategy and has to clarify its priorities, said the Swiss economics professor Stefan Legge recently in an interview with Merkur.de.
China business: companies want to stay despite all the problems
Despite all the problems, it does not yet look like many companies will abandon their tents in China. According to a survey by the German Chamber of Commerce (AHK) in China at the beginning of the year, 96% of those questioned had no plans to leave the country; 72% were even planning further investments there. Despite everything, there is a general optimism among European companies. 68 percent of those questioned in the EUCCC survey expect positive developments in their industry in the future - after only 45 percent in the pre-Corona year 2019. Whether the new laws change anything will depend on how they are implemented.
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