VW, BMW and Mercedes could all come under closer scrutiny in China
BERLIN – Germany’s foreign ministry plans to tighten rules on companies, including automakers, with heavy exposure to China, forcing them to disclose more information and possibly conduct stress tests for geopolitical risks, according to a confidential draft document, Reuters said present.
The proposed measures are part of a new business strategy towards China that the government of Chancellor Olaf Scholz is preparing to reduce dependence on the economic powerhouse Asia.
“The aim is to change the incentive structure for German companies with market-based instruments in such a way that reducing export dependency becomes more attractive,” says the document with regard to the chemical and automotive industries.
China is a key market for German automobile manufacturers such as Volkswagen, BMW and Mercedes-Benz.
A spokesman for the State Department declined to comment.
Other ministries still have to approve the draft of the Federal Foreign Office, led by Annalena Baerbock from the Greens. A final decision on the China strategy is expected early next year.
Close trade ties link Asia and Europe’s largest economies, with China’s rapid expansion and demand for Germany’s cars and machines fueling its own growth over the past two decades. China has been Germany’s largest trading partner since 2016.
However, the relationship has come under scrutiny since Russia’s invasion of Ukraine in February, which ended a decade-long energy relationship with Moscow and prompted scores of companies to go out of business locally.
“We must not repeat this mistake. Politicians and companies are responsible for this, ”says the document.
Steps outlined in the 65-page paper, some of which have already been reported, include tightening rules for companies operating in China to ensure geopolitical risks are taken into account.
“We aim to oblige companies that are particularly exposed to China to specify and summarize relevant China-related developments and figures, for example in the form of a separate reporting obligation based on existing disclosure obligations,” the document says.
“On this basis, we will examine whether affected companies should regularly carry out stress tests in order to identify China-specific risks at an early stage and take countermeasures.”
Investment guarantees will be subject to more scrutiny to take into account the environmental impact, labor and social standards and avoid forced labor in the supply chain, the document said. To avoid cluster risks, investment guarantees should be capped at €3 billion ($3.07 billion) per company and country, she added.
The government also plans to tighten export credit guarantees to avoid unwanted technology transfers, particularly sensitive dual-use technologies and those that can be used for surveillance and repression, the document said.
The new strategy, which was strongly promoted by the Greens in the coalition led by the Social Democrat Scholz, but also with the involvement of the business-friendly Free Democrats, marks a departure from Berlin politics under former conservative Chancellor Angela Merkel.