German firms close as US tries to isolate China

Berlin – As Washington seeks to suppress economic ties with Beijing, Volkswagen and chemical company BASF, two powerful engines of the German economy, are increasing their huge investments in China.

Volkswagen, which has more than 40 factories in China, has announced a new effort to tailor its models to the wishes of its Chinese customers with features such as in-dash karaoke machines, investing billions in local partnerships and production sites. invest dollars

This is “In China for China”, part of the theme the German automaker announced last year.

BASF, which has 30 production facilities in China, has invested €10 billion (SGD 14.63 billion) in a new chemicals production facility, comparable in size to its headquarters in Ludwigshafen, covering approximately 4 square miles (1,036 hectares). We are planning to spend ).

Executives across Germany see such investments as running counter to U.S. efforts to isolate China economically. They counter that revenues from China are essential for their business to thrive and grow in Europe.

BASF Chief Executive Martin Brudermüller said the revenue from China has enabled the company to effectively offset losses from Europe’s high energy costs and stringent environmental regulations.

“Without the business in China, the necessary restructuring would not have been possible,” Brudermüller told reporters at the company’s annual earnings conference in February. “Name just one investment in Europe from which we can make money.”

Volkswagen management has privately admitted that the automaker is in a similar predicament. Due to high energy and labor costs, the company relies heavily on sales from China to underwrite business in Europe.

Closer business ties than ever are now under scrutiny in Berlin.

For months, at the urging of Chancellor Olaf Scholz, policy proposals aimed at rebuilding relations with China, the country’s biggest trading partner, have been circling German ministries.

The aim is to strike a balance between recognizing the importance of doing business with China and diversifying Germany’s relations across Asia to avoid dependence on Chinese imports.

The Biden administration promised to make the US more competitive with China by expanding US infrastructure and manufacturing rather than negotiating new trade deals.

German lawmakers and business leaders have made it clear that relations with China are more nuanced.While trying to diversify into other Asian markets, the country is open to brisk trade.

It was a policy formulated after a troubled year when Russia stopped shipping natural gas to Germany and reminded lawmakers of the costs of relying on authoritarian states for vital materials for Russia’s industrial base.

For China, the big problem is Germany’s dependence on imports.