After finishing his trip to Shanghai, German Chancellor Olaf Scholz arrived in Beijing by special plane on April 15. It has been learned that this is Scholz's second visit to China since he took office as chancellor, and he is also the first leader of a major Western country to visit China this year.
Regarding Scholz's visit to China, German media pointed out: "As chancellor, he has never visited a country for such a long time. The list shows that both the management and the government believe that 'it will not work without China.'"
It is reported that Scholz was accompanied by three cabinet ministers of environment, agriculture and transportation, as well as a delegation of German companies composed of heads of heavyweight enterprises such as Siemens, BMW and Mercedes-Benz. The Global Times directly used the "luxury lineup" to describe the German "political and business" coordinated visit to China.
Obviously, in the context of tightening international relations, Scholz's two visits to China during his term of office are of great significance. Both Germany and China are looking forward to this exchange, and the enthusiasm of public opinion is self-evident.
Why "no China"?
Since 2016, China has been Germany's largest trading partner for eight consecutive years, and Germany has been China's largest trading partner in the EU.
According to data released by the German Federal Statistical Office, in 2021, the bilateral trade volume between Germany and China reached 245.4 billion euros, an increase of 15.1% over 2020. Even due to the coronavirus pandemic, Germany's trade with China increased by 3.5% in 2020, not as negative as Germany's trade with other countries did in 2020.
Until 2023, the bilateral trade volume between China and Germany will be 253.1 billion euros, a decrease of 15.5% compared to 2022. Specifically, in 2023, Germany's imports from China will be 155.7 billion euros, down 19.2% year-on-year, and Germany's exports to China will be 97.3 billion euros, down 8.8% year-on-year.
It was also in this year that Germany fell into a substantial recession. However, German investment in China still rose from 11.5 billion euros to 11.9 billion euros. As a result, German investment in China will account for 10.3% of Germany's total overseas investment in 2023, the highest level since 2014.
Some economists have summarized the four main reasons why Germany can become the "economic engine of the European Union", namely: Russia's cheap energy, Germany's industrial system, excellent talent training system, and the market of emerging countries represented by China.
Nowadays, with the tightening of geopolitics, international relations and global trade, three of the above-mentioned "four key factors" in Germany are in a relatively unstable state, which shows the importance of the Chinese market to the German economic development. And now it seems that whether it is the market, technology, energy or labor, China has become an indispensable part of Germany's economic development (and even the promotion of German Industry 4.0) in different dimensions.
For example, BASF, a giant in China's chemical industry, who visited China with Scholz, is benefiting from this.
An industry analyst said: "In the past, BASF made a lot of money in Europe, using Russian natural gas to sell products to China. In the past two years, China and Russia have cooperated frequently on the Power of Siberia gas pipeline, the largest pipeline that transports natural gas to eastern Russia. Now BASF invests in China, still uses Russian natural gas, and sells its products to China to save a lot of transportation costs, which is much lower. ”
Source: BASF
At the beginning of April, BASF signed a 15-year natural gas purchase contract with ENN Energy to supply natural gas to its new Verbund site in Zhanjiang, Guangdong Province.
BASF's investment in the Chinese market is a microcosm of many German companies. According to the 2023/24 Business Confidence Survey released by the German Chamber of Commerce in China at the beginning of this year, 91 percent of German companies surveyed said they would continue to take root in the Chinese market, 54 percent planned to increase their investments, and 79 percent of them considered it necessary to remain competitive in China.
In addition, 51% of the companies surveyed believe that Chinese companies are innovation leaders in their industries today, or expect to become leaders in the next five years. In the automotive industry, 69% of respondents say the same.
Why are attitudes polarized?
However, it is still impossible to ignore the fact that there are various restrictive policies issued by the European Union for Chinese industries between Chinese and German companies. Among them, the automobile industry is the first to bear the brunt.
On September 13, 2023, the European Union announced that it would launch an investigation into China's electric vehicle subsidies due to concerns about the competitiveness of the European electric vehicle industry.
Although at the time, the EU stressed that the move was to protect itself from "unfair practices", not to decouple from China's electric vehicle supply chain. However, after the news was released, it still had varying degrees of impact on China's new energy electric vehicle companies.
BYD's share price fell 2% in the Hong Kong stock market, while Xpeng Motors fell 2.8% and Li Auto also fell 0.5% in an intraday low, according to a report by Gasgoo at the time. In contrast, the Euro Stoxx 600 Auto & Parts Index rose 2.2%, its biggest one-day gain since July 27, 2023, with Renault shares up 4.9% and Volkswagen shares up 2.6%.
It is worth noting that the EU's member states have taken different attitudes towards the above decision.
For France, the EU's investigation into Chinese electric vehicles is undoubtedly a victory. It is reported that the French government has long warned that the influx of Chinese cars into the European market has weakened the competitiveness of European cars.
The reason for this is that, on the one hand, Stellantis and Renault-Nissan have little interest in China and are not worried about being countered by the Chinese market, and on the other hand, France's electrification transition is slow, and its products and technologies are not mature enough to compete head-on with China's electric vehicle industry.
In contrast to France, Germany has long been opposed to the EU's "countervailing investigations".
Source: Mercedes-Benz
On April 14, German Press TV reported that the European Union is currently reviewing whether China is subsidizing individual industries in a number of areas, with a focus on the automotive industry. The German Association of the Automotive Industry (VDA), which represents 650 automotive and parts companies, has spoken out against the EU's imposition of punitive tariffs on Chinese electric vehicles.
On April 15, Scholz even made it clear that the German market welcomes Chinese cars. Scholz stressed that the European market must compete openly and fairly with Chinese automobiles. He also said that when Japanese and Korean cars entered the European market, there were fears that Japanese and Korean cars would conquer the European market, but "that did not happen."
This is mainly because the automobile industry is an important economic pillar industry. Although the development speed of the German new energy vehicle industry is far less than that of China, and the relevant traditional car companies are gradually losing the Chinese auto market, they have to admit that China is still an important and vast market that the German auto industry cannot give up.
For many years, German brands such as Volkswagen, BMW, and Mercedes-Benz have been deeply involved in the Chinese market, and with the rapid development of electric vehicles, the sales of German electric vehicles in China have also increased considerably, increasing by nearly 50% year-on-year in 2023. German automotive expert Thomas Kaifu said frankly: the primary goal of enterprises must be profitable, the Chinese market contributes two-thirds of the global electric vehicle sales, and the Chinese market is indispensable for German car companies.
Who is most nervous?
Take the three German automakers that accompanied Scholz to China this time - BMW Group, Mercedes-Benz and Volkswagen - as examples.
It is reported that China is Volkswagen's largest market, with about 40% of Volkswagen cars delivered to China every year. Relevant data shows that in 2023, the Volkswagen Group will deliver a total of 3.236 million vehicles in Chinese mainland and Hong Kong markets; BMW will rank first in the luxury car market in Chinese mainland; Mercedes-Benz's sales in China will account for more than 35% of its total global sales in 2023.
However, it is worth noting that BMW, Mercedes-Benz and Volkswagen still have different levels of importance to the Chinese auto market. The reason for this is probably due to the difference in the "intensity" of the "attack" of the above three car companies from China's new energy electric vehicles, among which Volkswagen is the most profound.
It is reported that as of 2023, Volkswagen's overall market share in China has slipped to 14% from 18% in 2018, as local Chinese pure electric vehicle manufacturers have won a higher market share amid the decline in internal combustion engine vehicle sales.
In January, according to Bloomberg, BYD surpassed Volkswagen to become the best-selling car brand in China in 2023. Data from the China Automotive Technology and Research Center also shows that in 2023, BYD's number of vehicles in China will reach 2.4 million, with a market share of 11%, an increase of 3.2 percentage points. Volkswagen's market share in China slipped to 10.1%.
According to Gasgoo's observation, in 2023, the Volkswagen brand and its Jetta sub-brands will deliver more than 2,398,600 new vehicles in Chinese mainland and Hong Kong in 2023, an increase of only 0.1% year-on-year, of which the delivery of new energy vehicles will exceed 190,100, a year-on-year increase of 5.2%. In contrast, during the same period, the Volkswagen brand delivered about 4.87 million and 394,000 vehicles and electric vehicles worldwide, respectively, an increase of 6.7% and 21.1% year-on-year.
Source: Volkswagen
As a result, Volkswagen's investment in China and cooperation with companies related to China's auto industry have become more frequent and urgent among German car companies.
At present, Volkswagen has cooperated with a number of enterprises related to the automotive industry chain, including Xpeng Motors, FAW, Horizon, Guoxuan Hi-Tech, and Thunderda.
And it is worth mentioning that under this trend, Anhui, as an important province in China's new energy vehicle industry, is enjoying the unlimited benefits of Volkswagen's increased investment in the electric vehicle industry.
On April 11, Volkswagen China's official Weibo said it planned to invest 2.5 billion euros, or about 19 billion yuan, to expand its production and innovation center in Hefei, its manufacturing plant and R&D center. At the same time, Volkswagen will also produce two Volkswagen-branded models jointly developed with Xpeng Motors in Hefei, the first of which is a mid-size SUV, which is scheduled to start production in 2026.
In addition to the above two companies, Volkswagen Software Company Cariad, Volkswagen (Anhui) Parts Company, Volkswagen (Anhui) Marketing Service Company, etc. have also landed in Hefei.
It is reported that Volkswagen has also set up a production base in Hefei, a new energy vehicle R&D, innovation and parts procurement center, and holds a 25% stake in the local battery company Gotion Hi-Tech.