The Limited Times

Now you can see non-English news...

Dependence on China: diversify and learn from mistakes

2023-02-19T07:55:10.102Z


Germany's dependence on China is growing. This is dangerous, as a look at allegedly cheap Russian gas supplies over the years shows. But what lessons should the German economy draw from this with a view to increasing Chinese imports and how should the federal government react? Prof. Michael Hüther from the Institute of German Economics (IW) in Cologne advises caution - and more trade.


Germany's dependence on China is growing.

This is dangerous, as a look at allegedly cheap Russian gas supplies over the years shows.

But what lessons should the German economy draw from this with a view to increasing Chinese imports and how should the federal government react?

Prof. Michael Hüther from the Institute of German Economics (IW) in Cologne advises caution - and more trade.

Cologne – The trade deficit of the German economy with China was 84 billion euros last year – it has more than doubled compared to 2021.

With full force, our country is heading in the wrong direction in foreign trade with China, and the dependence on the import side is increasing every year.

The increased trade deficit is, among other things, an expression of the current energy crisis in Europe and especially in Germany.

If prices for primary products rise in this country due to expensive energy, more cheap primary products from Chinese production will be bought.

However, there is also much to suggest that China brought about the development politically through subsidies and import restrictions and planned it for the long term.

The Russian war of aggression against Ukraine for almost a year has shown us that such a development can lead to problems.

voice of economists

Climate change, corona pandemic, Ukraine war: Rarely before has interest in the economy been as great as it is now.

This applies to current news, but also to very fundamental questions: How do the billions in corona aid and the debt brake go together?

What can we do about the climate crisis without jeopardizing our competitiveness?

How do we secure our pension?

And how do we generate the prosperity of tomorrow?

In our new series, 

Voice of the Economists,

 Germany's leading economists provide guest contributions with assessments, insights and study results on the most important economic issues - profound, competent and opinionated.

The dilemma of German companies in China

Companies in China are faced with a dilemma: on the one hand, it is their job to make profits and secure them in a sustainable manner, i.e. in a way that protects capital, on the other hand they have a moral responsibility for order.

This becomes clear, for example, in relation to labor rights in China.

This conflict can be expressed much more drastically in acts of war.

Companies must therefore ask themselves how they would act in the event of a Chinese invasion of Taiwan, for example.

Will business continue as usual, scaled back or put on hold altogether?

Such considerations must play a role in companies' risk management and must be answered honestly.

The following applies: You have to be prepared for everything, even the worst imaginable.

But how should one react to problematic dependencies and moral dilemmas?

Many quickly call for decoupling – an irrational skip action.

Ending all cooperation in anticipation of a potentially difficult future relationship with China would not be a particularly intelligent strategy.

Even if the phrase “change through trade” does not seem to apply in the case of Russia, it is not fundamentally wrong.

Also, the Chinese economy is far too big to simply ignore.

On the other hand, diversification is a tried and tested means because it reduces one's own dependency and facilitates decision-making in moral dilemmas.

Federal Chancellor Olaf Scholz has also recognized this and repeatedly emphasizes that new trading partners are needed for more resilient supply chains.

also read

Location ranking: Germany's decline is worrying

Location ranking: Germany's decline is worrying

Why new EU debt is irresponsible

Why new EU debt is irresponsible

Energy crisis: Were the warnings about the consequences of stopping Russian gas supplies exaggerated?

Energy crisis: Were the warnings about the consequences of stopping Russian gas supplies exaggerated?

Dependence on China: The German state must take action

The government must not only hold companies accountable.

In addition to companies, the state in particular must become active at the macro level, in particular by shaping the framework conditions, and make its contribution.

Due to the logic of the market economy alone, companies cannot be expected to assume responsibility.

The fact that the credit protection of German companies in China has been dismantled is an important step.

Incentives are thus shifted, in particular investment decisions by German companies.

At the same time, politicians must ensure, for example through trade agreements, that the alternatives that are essential for diversification become more attractive.

Examples include the transatlantic free trade agreement (TTIP), the Mercosur agreement with the South American countries and the agreement with the ASEAN countries.

In the case of Russia, we have paid the price for our dependence.

In China we can learn from our mistakes and do better - even when time is of the essence.  

About the person: Prof. Michael Hüther (born in 1962) holds a doctorate in economics and has been the director of the employer-related Institute of German Economics (IW) in Cologne since 2004.

Source: merkur

All news articles on 2023-02-19

You may like

Trends 24h

News/Politics 2024-03-28T06:04:53.137Z

Latest

© Communities 2019 - Privacy

The information on this site is from external sources that are not under our control.
The inclusion of any links does not necessarily imply a recommendation or endorse the views expressed within them.