EXCLUSIVE-German Economics Ministry reviews measures to curb business in China

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Germany’s economics ministry is considering a series of measures to make doing business with China less attractive as it seeks to reduce its dependence on Asia’s economic superpower, two people familiar with the matter told Reuters. affair.

Measures could include reducing or even removing investment and export guarantees for China and stopping promoting trade fairs and management training there, the sources said.

Loans from state lender KfW could be redirected to projects in other Asian countries, such as Indonesia, in line with attempts to diversify trade and increase business with democracies.

The ministry is also weighing whether to examine not only Chinese investments in Germany, but also German investments in China, one of the sources told Reuters.

In addition, Berlin is considering filing a complaint with the World Trade Organization over what it sees as China’s unfair trade practices, along with the Group of Seven wealthy democracies, another source said.

“We must show Beijing that we are willing to fight for the principles of fairness,” the source said.

An Economy Ministry spokesman declined to comment on specific measures, but said the ministry was checking specific measures “to support diversification (of trade and supply chains) and strengthening resilience.”

The Ministry had already decided to stop granting investment guarantees for projects in the Xinjiang region or to companies with business relationships there, given concerns about human rights violations in the area and a lack of reliable information.

In May, the Ministry of Economy denied Volkswagen (ETR: VOWG_p ) guarantees for new investments in China due to concerns about Xinjiang.

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The Chinese Foreign Ministry did not immediately respond to a Reuters request for comment on the matter.

The plans mark a change in Berlin policy under former Chancellor Angela Merkel, who brought large business delegations on her frequent trips to China and oversaw booming Sino-German economic ties.

China became Germany’s top trading partner in 2016, with a trade volume of more than 245 billion euros last year, helping to fuel growth in Europe’s largest export-led economy.

German automakers are particularly exposed to the Chinese market. Volkswagen makes about half of its profits, and Germany and Europe also depend on China for certain raw materials, such as rare earths.

In recent years, German politicians and businessmen have already advocated further diversification of trade with Asia in response to Beijing’s growing control over society and the economy under President Xi Jinping.

Shortly before leaving office last year, Merkel told Reuters she may have been naive at first in some areas of cooperation with China.

NEW STRATEGY FOR CHINA

The new government agreed to a tougher line with China in its coalition agreement, promising to reduce strategic dependencies on its “systemic rival” and mentioning for the first time sensitive issues for Beijing, such as Taiwan and Hong Kong. Chancellor Olaf Scholz made his first visit to Asia, unlike Merkel.

Berlin is working on a national security strategy that must mention China, and a China-specific strategy that it intends to publish next year, the sources said.

The minor coalition Greens party – in charge of the finance and foreign ministries – says it is particularly concerned about human rights abuses and the risks of being beholden to an increasingly assertive authoritarian state, as is the case From Russia.

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“We cannot … afford the luxury of behaving according to the motto of ‘business first’, without taking into account long-term risks and dependencies,” Foreign Minister Annalena Baerbock told the congress. annual ambassadorship held this week.

“Actually, we have never received cheap gas from Russia,” he said. “We pay double or triple for every cubic meter of Russian gas in our national security.”

Scholz’s Social Democrats are more reluctant to rock the boat, according to the sources. Scholz has warned of the negative consequences of any “decoupling” from China and expressed confidence that companies are already diversifying.

Businesses and business associations are increasingly making public concern about a tougher policy on China, advocating helping diversify trade rather than take confrontational action in such an important market.

“We cannot isolate China,” Hildegard Mueller, director of the German automobile association VDA, told Table Media. “That would be naive, and fatal, both politically and economically.”

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