Scholz and Habeck in Asia: In search of the China alternative for German companies

Created: 2022-11-14Updated: 2022-11-14, 5:18 p.m

By: Christiane Kuehl

Incense sticks for the Chancellor: Olaf Scholz and Vietnam's Prime Minister Pham Minh Chinh on an evening stroll to a temple in Hanoi.

© Kay Nietfeld/dpa

China plus X: This is the federal government's new strategy in the Asia-Pacific region.

Chancellor Scholz and his Economics Minister Habeck are exploring alternatives to the People's Republic in Singapore

Singapore/Frankfurt - Olaf Scholz came to Southeast Asia with a clear message: "The Asia-Pacific region is much more than China," said the Chancellor at the Asia-Pacific Conference (APK) of German business on Monday in Singapore.

"Germany would like to strengthen economic relations with your region." Scholz is on the road in Asia for four days: first in Vietnam, then in Singapore and finally on Tuesday at the G20 summit on the Indonesian holiday island of Bali.

Virtually as a demonstration of how serious Germany is about intensifying relations with the region, Vice Chancellor and Economics Minister Robert Habeck also flew to Singapore, and he was already taking part in the conference on Saturday.

China remains an important economic partner, Scholz emphasized in his speech.

But the most recent party congress of the Communist Party made it clear how much the country had changed in the past five to ten years.

Head of state Xi Jinping was confirmed there for a third term and filled all top positions of the CP with loyalists.

"Our political and economic approach must take this into account," said Scholz.

Disillusionment with China is also noticeable among companies, because of the nerve-wracking zero-Covid policy as well as the politicization of business life.

"Ideology trumps business" was the motto of a position paper recently issued by the EU Chamber of Commerce in China.

And so the motto of Scholz and Habeck's trip is: "Chinese alternative wanted".

At the conference in Singapore, the formula “China plus X” made the rounds among the around 500 participants.

Scholz and Habeck: Southeast Asia instead of China

For Scholz and Habeck, the key is not decoupling from China, as they both emphasize again and again in Singapore - but diversification into other markets.

Scholz announced that reducing one-sided dependencies for certain raw materials and important technologies will play a special role in the national security strategy.

This is currently being worked out.

In order to ensure secure supply chains, trade relations would have to be broader.

Habeck generally warns against being naïve when dealing with China.

Germany may have had too much faith that everything would always go well, said the Green politician on Sunday, referring to the dependency on Russian gas supplies and the war in Ukraine.

Now, under terrible circumstances, one had to learn that this is sometimes dangerous.

Such mistakes should not be made when dealing with China, Habeck made clear.

Siemens CEO and chairman of the Asia-Pacific Committee of German Business, Roland Busch, also said the economy needed to diversify.

But this is a process that takes time.

Surrounded by journalists: Economics Minister Robert Habeck in front of the Singapore skyline at night © Britta Pedersen/dpa

Southeast Asia as the ideal alternative to China

Southeast Asia is a natural fit for such diversification.

The region with countries such as Vietnam, Singapore, Malaysia, Indonesia and the Philippines is currently growing economically faster than China, recently facilitated trade with each other through two free trade agreements, and most countries value strategic independence - both from China and the USA.

In addition, the USA is currently hardly active economically in the region.

also read

Ukraine negotiations?

Lavrov's deputy says yes - but complains about "unacceptable" conditions

Lavrov sick?

The guesswork continues – Minister meanwhile presents shorts and the smartphone of “Satan”

The small, hyper-modern city-state of Singapore is considered the gateway to the dynamic countries of Southeast Asia.

Its port is the hub for trade with the region;

The official language is English, and Singapore is also increasingly establishing itself as a financial center - and is benefiting from Hong Kong's sinking star.

Scholz was already in Vietnam at the weekend and promoted cooperation there as well.

As a result of the Ukraine war, Germany must broaden its sales markets, supply chains, sources of raw materials and production sites, the Chancellor emphasized in Hanoi.

"Cooperation with Vietnam plays a very, very central role here." The country with its almost 100 million inhabitants is one of the fastest growing economies in the world and is Germany's most important trading partner in Southeast Asia.

And it possesses numerous raw materials,

large parts of which still lie dormant in the earth.

In addition to energy resources such as oil, natural gas and coal, there are also iron, tin, copper and zinc.

China currently dominates the market for a number of industrial commodities such as aluminum and magnesium, as well as the rare earths essential for electronic products.

The mining of these raw materials is dirty and at some point was no longer competitive in Europe due to the cheaper prices in China.

Most of the polysilicon for photovoltaic cells also comes from China, along with the photovoltaic cells themselves. Today, China is the largest sales market for many German companies, especially for the automotive industry.

Volkswagen, for example, sells 40 percent of its cars in China.

Alternative to China: Companies are also looking to Southeast Asia

But in the executive floors of many German and European companies, a rethinking is gradually taking place, beyond geopolitical motivations.

According to a survey by the EU Chamber during the lockdown in the commercial metropolis of Shanghai in May, 23 percent of the companies surveyed said they were relocating current or planned investments to other countries due to China's Covid 19 measures.

The Danish toy manufacturer Lego is building a factory in North Vietnam;

to date, the company in Asia has been manufacturing exclusively in China.

Apple has also recently had iPads and Airpods headphones produced in Vietnam.

The largest iPhone factory of Taiwanese Apple licensee Foxconn in Zhengzhou, China was just hit by a sudden lockdown;

Employees were filmed fleeing the premises.

And although China's production environment with its many industrial clusters, good infrastructure and large supplier networks cannot be replaced elsewhere: alternatives in Southeast Asia have other advantages, as EU Chamber President Jörg Wuttke recently explained.

“Our board members can travel to Indonesia or other markets without any problems.

That means you can personally inspect possible new locations.” That is currently hardly possible in China.

For the Asia-Pacific region outside of China – which stretches from Central Asia to Oceania – on average around every fourth company active there (22 percent) expects stronger economic development in the region.

In China, only 14 percent of the companies operating there expect the country's economy to pick up.

This is the result of a survey published by the German Chamber of Industry and Commerce on Friday.

"Above all, the zero-Covid policy with its tough lockdowns, but also the increasingly protectionist economic policy, continue to affect German companies in China," said DIHK President Peter Adrian in Singapore.

Scholz and Habeck: Diversity of sales markets

Chancellor Scholz in Singapore called on companies to continue on the path of diversification: "Diversification makes your companies less vulnerable - and our economies more stable and secure." The government will create favorable framework conditions for this.

"This also means that we are stepping up our political engagement in the Indo-Pacific region," said Scholz.

The motto is: more favorable conditions for Asia, higher hurdles for China.

Berlin wants to introduce a cap for state investment guarantees for China projects.

Habeck said on Sunday in Singapore that it was about balancing markets.

The way of thinking has to be changed.

In an interview with

he admitted that he was not entirely happy about the compromise on the entry of the Chinese state shipping company Cosco into a container terminal in the port of Hamburg: "I would have preferred it if there had been no investment." was the only way to reach agreement in the cabinet.

Chancellor Scholz wanted the deal and largely prevailed.

But despite all the disappointment, Habeck clearly sees a paradigm shift.

For the last 30 years it has been said that China is the future, that China is our market and that all investments must go there, the minister said.

"And now we're changing that. It's a phase and we have to learn." The phase has only just begun.