Several of the biggest investments in history mean that the German giant is betting on the future of the Chinese market once and for all.
Text / Ba Jiuling (WeChat public account: Wu Xiaobo channel)
On December 7, 1970, West German Chancellor Brandt's sudden "Warsaw kneeling" shook Eastern Europe, the former Soviet Union and the world, laying the groundwork for German reunification.
What many people don't know is that behind this kneeling also means a complete shift in West German foreign policy, from ideologically-oriented one-sided to the United States, to taking the initiative to improve relations with Eastern European countries and the former Soviet Union, balancing the relationship between the United States and the Soviet bloc, known as the "New Oriental Policy".
West Germany became one of the first countries to abandon ideological foreign policy and adopt a pragmatic foreign policy. A year later, Nixon visited China, and Sino-US relations began to thaw.
After Brandt, Schmidt, Kohl, Schröder, Merkel, successive West Germany and German chancellors have always implemented this concept, adopting a policy of "economic interests above all else".
This tradition has also profoundly influenced China. China's transformation and development trajectory in recent decades is similar to that of Germany. Sino-German trade volume has accounted for about 30% of China-EU trade for more than ten years, and China has become Germany's largest trading partner for six consecutive years, which is the best footnote.
German Chancellor Scholz
But late last year, Germany's new Chancellor Scholz came to power and began to abandon the pragmatic diplomatic tradition.
The failure of killing chickens and monkeys
At the beginning of the year, less than half a year after the change of office, the Schultz government decided to change the way it deals with China. Simply put, an economically oriented pragmatic foreign policy becomes a values-oriented foreign policy.
In May, German Economy Minister and Vice Chancellor Habeck made it clear that he would keep a greater distance from China and reduce his dependence on China. German economists warn that Europe's China policy should not be misled by "grossly exaggerated economic dependence."
The authoritative media in Germany have also begun to create momentum, and the "decoupling theory" is very loud. The Frankfurter Allgemeine Zeitung wrote: "In economic life, no market and supplier are irreplaceable. Japanese car company Toyota sells less than half of Volkswagen in the Chinese market, but it does not affect Toyota to become the world's largest car manufacturer. ”
The entire German top brass rubbed their fists, and paid for blood, choosing to take the "own son" German Volkswagen to open the knife. In order to encourage German companies to invest abroad, the German government will work with German companies to guarantee the risks of overseas projects. The German government refused to continue to vouch for Volkswagen's factory in western China.
The German volkswagen has the only choice between shutting it down to maintain good relations with the Scholz government or settling with the Scholz government.
The plant, a joint venture between Volkswagen and SAIC, is Volkswagen's first production base in western China and has a history of nearly a decade. The initial investment is CNY 2 billion, with a planned production capacity of 50,000 units, mainly producing Santana models, not counting VW's core plant. In 2020, there are self-media reports that the base has a maximum of more than 700 employees
The closure of the plant may not be a particularly large commercial loss than maintaining government relations.
However, the German government's calculation was still wrong. In June, Volkswagen CEO Herbert Diess opted for the "tough" German government, saying that "Germany grossly underestimates China's contribution to Germany's prosperity." Obviously, Volkswagen understands that the plant has a higher and more significance for the Chinese market.
In the end, Volkswagen decided to keep the plant running. Of course, compromises were clearly made internally. At the end of July, Diess resigned. His term was originally planned to last until October 2025. That means three years ahead of schedule. His resignation is seen as linked to the incident.
Oliver Bloom, the new CEO who took over, also pragmatically kept the plant. Another slightly cunning reason was used: "This involves bringing our values to the world and to China." ”
Volkswagen's core market is China, where about 40% of its annual production capacity is absorbed, and nearly half of its profits come from it. Economic rationality has triumphed over political pressure.
The situation is pressing, the rapid turn of Germany
The ensuing "black swan event" intensified the pragmatic trend in German business.
In mid-June, the supply of Nord Stream-1, a Russian gas pipeline to Germany and other European countries, was reduced by almost 60% to no more than 67 million cubic meters per day. In July, pipeline gas supply was cut in half to 33 million cubic meters. At the end of August, it was closed indefinitely. At the end of September, Nord Stream-1 was bombed, and both pipelines were blown through.
"Nord Stream-1" gas pipeline
Europe is extremely dependent on Russian gas, especially Germany. EIA data shows that Germany accounts for 19.19% of Russian gas exports, the largest share among European countries. This situation was made possible by former German Chancellor Angela Merkel. She has recently stated that she has no regrets. "It's cheaper than sourcing LNG from other parts of the world like the United States, Saudi Arabia or Qatar." She said. Germany's pragmatic tradition can be found everywhere.
However, Germany under the gas crisis is not just as simple as people starting to buy firewood and electric blankets, industry is the biggest victim. For example, German scientists warn that Germany's basic industries, especially the chemical industry, will come to an end due to the energy crisis.
"I fear that the German economy will gradually deindustrialize." A German manufacturing entrepreneur told the media. Production cuts, layoffs, closures, and contractions have become the consensus of German industry. According to a survey of nearly 600 German medium-sized companies by the Federation of German Industry in September, one in 10 medium-sized companies has reduced or stopped production due to natural gas prices.
In this regard, Schultz often pretended to be calm. In one debate, he said: "Don't underestimate our country, don't underestimate the citizens of this country. However, because he still maintained the habit of bathing every day, he caused dissatisfaction among the Germans, and his approval rating hit a new low.
He also plans to spend up to 200 billion euros by 2024 – Europe's largest single energy aid package to subsidize damaged businesses and citizens, but it has caused discontent among "poor countries" within the EU, believing that it will increase the gap between the rich and the poor in Europe and "cannibalism".
Finally, Schultz, who had nowhere to go, had a low and arrogant head towards China, and seemed to use this as a breakthrough point for political performance and support rating.
In October, he made it clear at a meeting of the German Machinery and Equipment Manufacturing Federation that "'decoupling' from China is not an option for our company," and even bluntly said that "decoupling from China in the field of trade is a wrong path" and planned to visit China in November.
German companies have long been voting with their feet. Schultz went from passively accepting this trend to actively catering to it. The German tradition of pragmatism beckoned him again.
Since the beginning of this year, German enterprises have increased their investment in China significantly. According to the German central bank, German direct investment in the Chinese market amounted to 10.1 billion euros (about 71.5 billion yuan) in the first half of this year, compared with 6.2 billion euros in the same period last year.
Among them, the largest is BMW's increase of BMW Brilliance's stake to 75% for 3.6 billion euros. Since June, giant projects have continued to shake China's industry.
BMW Brilliance Rieda plant
In June this year, BMW's new Shenyang plant "Lida Plant" opened with an investment of 15 billion yuan, which is BMW's largest single investment in the Chinese market. BMW also expects to transfer production of the MINI electric model from the UK to China next year.
In September, BASF and China Chemical signed a cooperation agreement to bring the 10 billion euros (approximately 70.9 billion yuan) BASF Zhanjiang Verbund site project to Guangdong soon. This is BASF's largest outbound investment project in its history.
Two days ago, Volkswagen announced an additional investment of about 2.4 billion euros (about 17 billion yuan) in China. Its software company, CARIAD, will establish a joint venture with Horizon, a Chinese autonomous driving chip company, to develop technologies in the field of autonomous driving. This is also the largest single investment in China by Volkswagen in 40 years.
According to a report by New York-based research firm Rhodium, the four German giants Mercedes-Benz, Volkswagen, BMW and BASF together accounted for 1/3 of Europe's total investment in China between 2018 and 2021. And these largest investment projects in history mean that the German giant is completely betting on the future of the Chinese market.
The natural gas crisis only plays a catalytic role, and German car companies increase investment in China, which is the inevitable result of the rise of the status of China's automobile industry.
According to statistics from the General Administration of Customs of China, China's automobile exports reached 1.91 million units in the first eight months of this year, surpassing Germany and ranking second in the world, second only to Japan, achieving a historic breakthrough. On the smart new energy vehicle track, Volkswagen and Horizon established a joint venture - further demonstrating the recognition of China's autonomous driving chip strength.
Jack, a senior automotive engineer and the manager of the vehicle public account, told the minibus: "German car companies produce in Europe, and they cannot interoperate with Chinese software, which is a real problem." ”
In October, SIXT, Germany's largest car rental company, will purchase 100,000 electric vehicles from BYD. The German weekly "Focus" commented: "SIXT's large orders to Chinese companies are a slap in the face to the German automobile manufacturing industry. The German media Bild also said: "Doing business with China is like selling the country." "It seems that the mentality has also begun to hate the smell of iron not steel.
BASF's One Verbund project
BASF is one of the world's largest chemical companies and Greater China is its second largest market. On the other hand, China's chemical products account for about 40% of the world, which can also give a glimpse of the influence of China's chemical industry.
European investment in China has gradually become the investment of German giants in China
Since 2003, Germany has firmly become the main European investment country in China, with its share approaching or exceeding 50% many times. This year's heavy investment by German giants in China will increase the share of German investment in China and strengthen the position of German giants in Sino-German economic and trade relations.
In sharp contrast, European investment in China tends to weaken overall.
In terms of general trends, the EU's share of China's FDI fell from a high of 11.1% in 1999 to 3.8% in 2020.
In 2019 and 2020, the total amount of EU investment in China was US$7.31 billion and US$5.69 billion respectively, and began to be caught up and surpassed by ASEAN, with the latter's total investment being US$7.88 billion and US$7.95 billion respectively. The other main investment came from countries along the Belt and Road, with an investment of US$8.12 billion in 2019 and 2020.
This year there is a trend of further expansion.
A survey by the European Union Chamber of Commerce in China and Roland Berger on April 21-27 showed that 23 percent of European companies wanted to shift investment, more than double the survey of 11 percent two months ago and the highest value in a decade.
Another EU Business in China Recommendation, published in August by the European Union Chamber of Commerce in China, said: "Europeans in China may not be able to sit in the 80,000-capacity Beijing Bird's Nest Stadium. ”
European Union Chamber of Commerce in China President Woodke also told The New York Times in September: "They [European-owned companies] don't even want to think about China." "Think European businesses are more inclined to Southeast Asia, India and the rest of the world.
The demands behind these pressures focus on the challenges of the pandemic faced by European companies.
Zhao Ke, director of the China European Society, told Minibus that Germany is an export-oriented economy, a country with a population of more than 80 million, but it is often the largest country with a trade surplus, and foreign economic ties are very important. And China's market is large enough, the economic growth is good, and it is profitable for German companies to invest in China.
The European Union Chamber of Commerce in China also admitted: "40% of the surveyed (European-owned) companies believe that China's R&D and innovation environment is better than the world average. The primary advantage is a large number and variety of cooperative enterprises, including market size, rapid commercial application of research and development, market demand, etc. ”
Although the overall situation of European investment in China has weakened, China's foreign investment has remained the second largest in the world since 2017, and increased investment by German companies will help strengthen the relationship between China and European economies and reduce the risk of structural imbalance in foreign capital sources.
The Schultz government's turn was, in the final analysis, the triumph of pragmatic diplomatic tradition over ideology. Facts have proved that the ballast stone of Sino-German economic and trade relations lies in the pragmatic traditions of the two countries.
As long as we continue to consolidate our pragmatic development concept and expand our competitiveness foundation, the future is still bright.
The author of this article | Limbo | Li Mengqing | Edit the | on duty Yang Shuai
Responsible Editor | He Mengfei | Editor-in-Chief | Zheng Yuan's eyebrows | Image source | VCG