Germany’s coalition government, long divided among its parties on how far Berlin should go to insulate itself from its biggest trading partner, has finally published its firston the People’s Republic. Europe’s largest economy made it clear it’s now aligning more with Brussels and Washington on everything from supply chain risks and technology export controls to human rights concerns, after years of viewing China primarily as a lucrative market.
The final document does not shy away from what used to be viewed as taboo topics such as positions on self-governed Taiwan, which China claims as its own. Yet it has been shortened and watered down from a confidential draft in November drawn up by the foreign ministry led by the Greens' Annalena Baerbock. Back then one idea was to aggressively push for companies to disclose details of their China business, and even to stress-test their exposure, according to a draft seen by Reuters.
The compromise likely stems from the realisation that China is simply too strategic to quit quickly without inflicting significant pain. It is the world's top chemical market, for example, prompting Brudermüller to stress in the 2022 annual report that “not having a presence in large growth markets, such as China, would be a major risk for BASF”. The People’s Republic is also Volkswagen's largest market, accounting for around 40% of Volkswagen's global unit sales in 2022.
The likes of VW and BASF still face tricky times. If the EU sought to introduce tariffs on Chinese electric vehicles, for example, German carmakers might still be caught in the middle. Even so, executives will be relieved they can for the most part undertake China de-risking at their own pace.