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As the United States tries to economically isolate China, German companies such as BASF and Volkswagen are trying to take advantage of it.

Geopolitical tensions between the United States and China continue to mount. Amid an ongoing trade war, the U.S. is hoping European countries will jump on . Despite pronouncements by top European politicians not to become too dependent on China and to aim for strategic autonomy, it appears that German companies are just becoming more integrated into the Chinese economy.

The bottom line: German companies remain focused on a growing Chinese market. A whopping 71 percent of companies plan to expand their investments in China.

  • Volkswagen, with more than 40 factories in China, announced additional efforts to satisfy the Chinese consumer market. So writes .
    • The company plans billions in investments in local partnerships and production sites. This falls within the theme the automaker announced last year, "In China for China.
  • Another German giant, chemical giant BASF, with 30 plants in China, is taking flight ahead. BASF will invest some $10.9 billion by 2030 in a new chemical production complex that will be the same size as its Ludwigshafen headquarters (about 25.74 km² in area). This is the chemical giant's largest investment in China to date.

Continuing to invest

Underlying: German business leaders are aware that their plans run directly counter to U.S. wishes. However, they believe China remains essential to growing their businesses in Europe. Indeed, with U.S. investment at a low ebb - even though the U.S. and China reached last year - German companies may just benefit.

  • BASF CEO Martin Brudermüller defends choosing China because it compensates for Europe's high energy costs and strict environmental regulations. "Without China, the necessary restructuring in Europe would not be possible," he explained.
  • Just last year, German companies pumped record amounts of investment into China in the first half of 2022. Tens of billions of euros were awarded to projects all over China in various fields.

Scholz's new China policy

Notable: After a difficult year in 2020 during the lockdowns of the corona pandemic, German companies in China were already recording growth in 2021. From this, companies infer that China remains a very interesting market.

  • However, German Chancellor Olaf Scholz announced a change of course toward China. Just he Chinese President Xi Jinping and also discussed further bilateral economic cooperation there. Scholz is now much more critical of trade ties.
  • Germany still remembers how dependent it was on Russia during the energy crisis. China is currently Germany's most important trading partner for seven years in a row and the latter does not want to experience the same scenario again where it becomes too dependent on trade with one country.
    • Certain key products such as smartphones, LEDs and rare raw materials such as lithium are essential for German industry and for climate goals. For that, Germany still leans too much on China.
    • Scholz therefore wants companies to strategically diversify trade ties in Asia.
  • Research showed that as many as 96 percent of German companies in China plan to maintain a presence there and plan expansions over the next two years.

(fjc)

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