Constantin Eckner

Does Germany need China more than Europe?

‘Desperate times call for desperate measures’ is the expression of the moment when it comes to summing up how countries are addressing the coronavirus crunch. Germany is no exception. Even before the pandemic, the country’s economy was heading towards a mild recession, according to plenty of projections. But once the virus spread across the Hubei province, Germany’s manufacturers started to get hit in a painful spot: their supply chains. The early supply shock stemming from reduced production capacity in China again exposed Germany’s dependency on its trade relations with the economic giant in the east.

For years now, Germany has been leaning on China for cheap supply and as a market for its exports. Following the 2008 financial crisis, when most of Europe was suffering, Germany kept itself rather unscathed thanks to a strong export-orientated economy and partly thanks to China. Germany was not concerned about any geo-economic advances Beijing was making. It cared little about the 16+1 forum with Central and Eastern European countries launched in 2012 or the Belt and Road Initiative unveiled in 2013, and the ‘Made in China 2025’ strategy intended to establish Chinese dominance in emerging technologies.

However, when China’s Midea Group took over German company Kuka – a rising star among robotics manufacturers – in 2016, Angela Merkel’s government was caught off guard. Only a few months after Kuka fell in the hands of a Chinese company, the chip maker Aixtron avoided the same fate only because Germany’s economics ministry withdrew its initial approval of the takeover. These two events forced the German government to update its foreign investment regulations, with a particular focus on China. But the coronavirus economic shock has once again changed the dynamic.

Government officials in Berlin are again discussing how they can protect the country’s industrial crown jewels from hostile takeovers, given that most of them are undervalued on the stock market.

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