GUNZBURG, Germany — A glowing finger at the end of a robotic arm illuminates an aluminum ribbon as it welds a hole into one of the 2,000 ladder parts being assembled on an assembly line operated by the Munk Group in southern Germany.
Hundreds of such factories dot the rural landscape of Bavaria. mittel stand Businesses: Private, family-run businesses that form the backbone of Europe's largest economy. Ferdinand Munch's family has been building ladders here for his 120 years. This is enough time to understand who is worth doing business with.
“We started doing business with China 20 years ago,” Munk said. “The German government encouraged us to cooperate with Chinese companies. They said it would be a win-win scenario.”
Twenty years later, the German government has changed its attitude towards China.
“The German government is not in a position to rescue German companies investing in China,” Foreign Minister Annalena Verbock warned at the National Security Strategy Council in June. This reflected new language adopted by the European Union, which labels China an “economic competitor and systemic rival.”
Burbock's comments signaled a new strategy toward China that the government calls “risk aversion.”
At the time, China's foreign minister immediately hit back, saying that “risk aversion” could mean “loss of opportunity,” “loss of cooperation,” “destabilization,” and “loss of development.” I warned the minister.
But for CEO Munch, business with China has become important. depressing.
“One day, I placed a large order, paid for it in advance, and it wasn't delivered,” Munk said. “I called them, but they didn't answer. I flew to China and when I got to the factory, no one was there. There was only one security guard at the gate. The company was gone, the money was gone. It was never seen again.”
Munch is now paying more for the peace of mind he gets from his trusted European suppliers.
Trust is at the heart of why CEOs and Western governments distance themselves from China, or “de-risk,” whether it's for ladder factory parts or national security.
Many in German industry remain reluctant to leave the world's largest market
An hour's drive south of the ladder factory, on another factory floor, workers are making steel cables. This factory is located in the medieval town of Memmingen, and the company that makes these cables started making ropes hundreds of years ago.
“For the first time in 444 years,” says Gerhard Pfeiffer, CEO of the Pfeiffer Group. “We are one of the oldest companies in Germany.”
Pfeiffer's family's business dates back to 1579, when his ancestors manufactured rope. After World War II, the company switched to steel cables. Today, Pfeiffer's cables help maintain his SoFi Stadium in Inglewood, California. It is used to pull the elevator to the top floor of the Burj Khalifa building in Dubai. And they are among thousands of buildings in China, where Pfeiffer started operations in 2004.
A visit to China in the early 2000s convinced Pfeiffer that the country was key to the company's future.
“And to this day, I am convinced that it is impossible to avoid contact with China,” he says.
Pfeiffer believes China is too big to ignore and believes most Western politicians have the wrong idea about China. He learned that China has a different approach to the world than many Western countries.
“Chinese behavior is much more tied to profit than moral ties,” he says. “And we need to understand this. When we talk to the Chinese, we need to clearly understand our interests.”
Pfeiffer said the lack of mutual understanding was most evident when German officials visited China. According to Pfeiffer, the Chinese are careful to explain their interests to the German side, but in his eyes, German representatives are more willing to express Western-style moral judgments about the Chinese. It is said that it often appears that
“We want to go to China with the foreign minister and raise the Chinese flag. [Western] “Morality is just crazy,” Pfeiffer says. “Because they don't have this kind of sense of morality, because it's not part of their culture.”
Pfeiffer says it's understandable that, unlike China, Germany's three-party government doesn't agree internally on its own interests. That's why he believes German companies have largely ignored official calls to avoid risk.
The numbers seem to back up Pfeiffer. In 2022, Germany's imports from China will increase by 34%, with Germany's three largest car manufacturers – Mercedes-Benz, BMW and Volkswagen – continuing to sell more than a third of all cars to Chinese nationals.
Mercedes-Benz's CEO said at a recent event that de-risking means increasing the company's presence in China, not reducing it.
Risk-averse politicians watch nervously as German business expands in China
“To be honest, the German car industry is so involved in the Chinese market that we don't see an economically viable and viable solution,” says Norbert Rötgen, member of the German parliament and former speaker. . Parliamentary Foreign Affairs Committee.
He said Germany's past dependence on Russia for energy, now widely seen as a strategic failure, was only a small part of the country's dependence on China.
“If there is a conflict and we have to withdraw, or China imposes counter-sanctions against Germany, the damage will be dire and devastating for some of Germany's industries,” he said. Warning.
But unlike his coalition partners, Prime Minister Olaf Scholz does not appear to be putting the potential threat from China in the same bucket as the Russian threat.
In November 2022, he became the first Western leader to visit Beijing during the coronavirus pandemic, accompanied by a delegation of CEOs from Germany's largest companies. Risk aversion was not on their agenda.
“There is a certain disconnect between the political rhetoric that we see now in Europe and Germany and what entrepreneurs have been doing all along,” says Michael Schumann, president of the German Federal Association for Economic Development and Foreign Trade. . “If you're an entrepreneur, you've always had to deal with risk, and you've always had to deal with what's now being touted as 'de-risking.'
Schumann blamed the new political rhetoric targeting China on the Green Party, which is hawkish on China and whose most senior member, Annalena Verbock, is Germany's foreign minister. He said the Green Party's position on China was accepted by many in the German parliament.
“Currently, many German parliamentarians have very little knowledge about China,” Schumann said. “They've never been there. All they know is what they read in the media. And, of course, it's quite polarizing.”
Schumann says that if Berlin politicians, their advisers and the German media had more expertise on China, “the discussion probably wouldn't have gone in this direction.”
He said true China experts in Germany can be found among the hundreds of German companies doing business in China every day, including companies like Pfeiffer's construction business.
Pfeiffer said the sentiment behind risk aversion is good, but it should come from understanding where the risks lie, which he believes the German government doesn't fully understand yet. Stated.
“It's absolutely necessary to be sensitive to China, that's for sure,” Pfeiffer said. “But if we start to 'risk-averse' by reducing contact, my understanding is that this is the wrong approach, because then we will miss the opportunity to understand China.”
And taking the time to understand China is the best thing Germany can do to avoid risks from China, Pfeiffer said.
Esme Nicholson contributed to this report from Berlin.