The pandemic has made German corporations even more dependent on China

Without the People’s Republic, Volkswagen and other large companies would not be nearly as successful. China is the most important market for many German corporations.

FAW-Volkswagen employees at the Foshan factory – (photo by VW)

No other western industrial country has made itself as dependent on China as Germany. This is especially true for its key industries. Cars and auto parts account for more than a quarter and machines for around a fifth of total German exports to China. Electrical engineering and optics products also play a much larger role in trade with China than in the German export structure as a whole.

When it comes to imports from China, data processing equipment, electronic and optical products made up the majority again last year, with over a third of imports. This also includes electronic components, which are important preliminary products for German industry – and which would threaten the supply chain in the event of a longer failure.

Almost no large corporation can afford not to be active in China in 2020. With a turnover share of 15 percent, that is almost 200 billion euros annually, according to calculations by the Handelsblatt, China is the second most important foreign market for the 30 largest German listed companies, after the USA. The DAX companies have almost 700 subsidiaries in China.
Just over two decades ago, China hardly played a role for Germany. That changed after the fall of the Iron Curtain and the end of communism, when China opened up economically to the West. In 2007 exports already totaled 30 billion euros – just before the turn of the millennium it was five billion – only to triple last year to more than 90 billion euros.

There is a lot at stake for German companies in the Far East. On average, the more than three million German companies generate around seven percent of their sales in China. BMW, Daimler and VW as well as the semiconductor manufacturer Infineon and the sporting goods company Adidas turn over more than every fifth euro in China. For them, the country is the largest sales and thus individual market – even ahead of the home market of Germany.

Most important market for Infineon

China-dependency is probably the most advanced among car manufacturers. Daimler generates exactly one third of its sales in China and has tripled its sales there in just five years. At Volkswagen, the share of sales is even over 40 percent, in 2019 that was almost eleven million units. Without China, the group would be inconceivable today.

Infineon Wuxi, China – (photo by Infineon)

The People’s Republic is by far the most important market for Germany’s largest chip manufacturer Infineon. Infineon generates more than every third euro in China, which most recently corresponded to almost three billion euros. Germany only accounts for 15 percent of Infineon’s revenues.

That was different once. Five years ago Germany and China were still on par at 20 percent. From Infineon’s point of view, the development is not surprising. More than a third of all chips worldwide are installed in the People’s Republic. German companies experienced in late winter the extent to which lower demand from China has an impact. In view of the high loss of income as a result of the corona pandemic, the Dax companies lost almost five percent of their sales and even more than 15 percent of their operating profit in the first three months.

Responsible was the halt in China. The sporting goods manufacturers Adidas and Puma reported that their sales in China plummeted by up to 85 percent in the first few months. For Adidas, the People’s Republic is the world’s largest single market with a 22 percent share of sales.

The automotive industry association VDA therefore cut its annual forecast for the important sales market to a minus of seven percent at an early stage. In January, sales in China fell by 20 percent to 1.6 million vehicles. In the meantime, the recovery in the Far East is furthest advanced, so that the three large German carmakers are likely to be in the black for 2020 as a whole after losing profits in the first half of the year, in some cases billions.

Companies are now making up for losses in America and Europe, where the pandemic is still paralyzing parts of public life. “The latest Chinese economic data are further evidence that the upswing in China is on a broader footing and that growth is far from over after the recovery process,” says Deutsche Bank’s chief investment strategist, Ulrich Stephan.

BASF Verbund site

Accordingly, Germany’s companies are steadfastly relying on the country. Like BASF. Another large Verbund site is to be built in Guangdong for ten billion dollars by the middle of the decade, which Europe’s largest chemical manufacturer intends to operate independently. In addition, BASF and its partner Sinopec are planning to build a cracker in Nanjing.

Mr. Dai Hou-Liang (left), Chairman of the Board and the President of SINOPEC Corporation, and Dr. Martin Brudermueller, Chairman of the Executive Board of Directors, BASF SE, have signed a Memorandum of Understanding to expand the two companies’ cooperation in China.

This is a large-scale plant with which oil or natural gas is broken down into basic chemical components such as ethylene, propylene and butadiene. Such basic chemicals are the basis for chemical by-products.

In the opinion of CEO Martin Brudermüller, these are systems that are expected to be in operation for 40 or 50 years: “We will not change the strategy just because the times are just a little rough,” said Brudermüller more than one person Year.

At that time, the trade conflict between the US and China reached its preliminary climax. Such disruptions have no influence on the investment intentions of German companies. The insurance company Ergo is also expanding its China business.

The subsidiary of the reinsurer Munich Re took over almost 25 percent of the shares in the state property and casualty insurer Taishan Insurance. Ergo is already active in life and health insurance. “China plays a central role in our global portfolio,” said Ergo boss Markus Rieß.

Volkswagen wants to become a leader in electromobility in the world’s largest car market with equity investments. CEO Herbert Diess never misses an opportunity to emphasize how important the country is: “In the next few decades the power center of the automotive industry will be in China,” he told journalists in Beijing. “The future of Volkswagen will be decided on the Chinese market.”

In April 2020, the group in China had almost reached the delivery figures of the previous year – i.e. at a time when the market in Europe and the USA was just bottoming out.

Author: Nabeel K

Inline Feedbacks
View all comments