Germany Debates Naming Businesses With Large China Exposure

Companies with large stakes in China that are of systemic relevance to the German economy could be made to disclose details of their involvement and potentially undergo stress tests for risks related to their activities there, according to a draft government paper setting out a new strategy for dealing with China.

While the proposed mechanism wouldn’t force companies to reduce their China exposure, it is designed to name and shame businesses facing potentially critical geopolitical risks, German officials said. By creating transparency, the measure would act as an incentive for companies to diversify their investments.

The West’s economic war with Russia has dealt a powerful shock to the German economy and sent energy prices rocketing for companies and consumers. Over half of German households rely on natural gas for heating.

Berlin recently nationalized

Uniper SE,

Germany’s biggest gas trader, and has poured billions into relief packages to support consumers and forestall a wave of insolvencies.

While Germany’s dependence on Russia was largely limited to energy imports, it has a much deeper economic relationship with China, its largest trading partner and the biggest single market for German companies across a range of sectors.

Growing animosity between Beijing and Washington, China’s worsening authoritarianism and geopolitical tensions over Taiwan have forced the German government—and many German companies—to reconsider their approach to the country.

The naming-and-shaming proposal is part of a new China strategy being drafted by the Foreign Office with input from other ministries. The paper is expected to be adopted by the coalition government of Chancellor

Olaf Scholz

early next year, several officials said.

The new strategy isn’t meant to decouple Germany from China, they said, adding that it was designed to preserve the economic relationship while securing the national interests of Germany and Europe.

“The idea is to identify systemic risks that some companies and industries could be facing, which could also jeopardize the broader economy,” a senior government official said.

The exposure-disclosure rules, which aren’t guaranteed to be part of the final strategy paper, focus on sectors such as the automotive and the chemicals industries that are currently increasing their presence in China. Companies such as

BASF SE,

the world’s largest chemicals firm, and car makers

Volkswagen AG

and

BMW AG

are dependent on the Chinese market for growth and have recently allocated tens of billions of dollars in investments into new factories there. Volkswagen, the world’s second largest car maker, makes about 40% of its sales in China.

Germany has also decided to roll back state investment guarantees for companies venturing overseas. More than a third of investment guarantees issued by Berlin have gone to companies investing in China in recent years. Under the new rules, such guarantees will be capped to 3 billion euros, equivalent to around $3.07 billion, per company and country of destination.

After decades of fostering closer economic exchanges with China, Berlin has sought to rebalance the relationship, influenced by the election last year of a more skeptical government toward Beijing and by the experience of Russia’s attack on Ukraine.

Under a more restrictive vetting of the sale of critical infrastructure and technology businesses to Chinese investors, Berlin vetoed the takeover of two chip manufacturers by China-owned companies earlier this month.

“An open market economy is not a naive market economy…China is and should stay a trading partner…but we must protect our own interests,”

Robert Habeck,

Germany’s economy minister, said after blocking the two acquisitions.

Last month, the government allowed for part of a terminal in the port of Hamburg, Germany’s largest, to be leased to a Chinese company, but capped the participation to 24.9%, lower than the deal originally stipulated.

Write to Bojan Pancevski at [email protected]

Companies with large stakes in China that are of systemic relevance to the German economy could be made to disclose details of their involvement and potentially undergo stress tests for risks related to their activities there, according to a draft government paper setting out a new strategy for dealing with China.

While the proposed mechanism wouldn’t force companies to reduce their China exposure, it is designed to name and shame businesses facing potentially critical geopolitical risks, German officials said. By creating transparency, the measure would act as an incentive for companies to diversify their investments.

The West’s economic war with Russia has dealt a powerful shock to the German economy and sent energy prices rocketing for companies and consumers. Over half of German households rely on natural gas for heating.

Berlin recently nationalized

Uniper SE,

Germany’s biggest gas trader, and has poured billions into relief packages to support consumers and forestall a wave of insolvencies.

While Germany’s dependence on Russia was largely limited to energy imports, it has a much deeper economic relationship with China, its largest trading partner and the biggest single market for German companies across a range of sectors.

Growing animosity between Beijing and Washington, China’s worsening authoritarianism and geopolitical tensions over Taiwan have forced the German government—and many German companies—to reconsider their approach to the country.

The naming-and-shaming proposal is part of a new China strategy being drafted by the Foreign Office with input from other ministries. The paper is expected to be adopted by the coalition government of Chancellor

Olaf Scholz

early next year, several officials said.

The new strategy isn’t meant to decouple Germany from China, they said, adding that it was designed to preserve the economic relationship while securing the national interests of Germany and Europe.

“The idea is to identify systemic risks that some companies and industries could be facing, which could also jeopardize the broader economy,” a senior government official said.

The exposure-disclosure rules, which aren’t guaranteed to be part of the final strategy paper, focus on sectors such as the automotive and the chemicals industries that are currently increasing their presence in China. Companies such as

BASF SE,

the world’s largest chemicals firm, and car makers

Volkswagen AG

and

BMW AG

are dependent on the Chinese market for growth and have recently allocated tens of billions of dollars in investments into new factories there. Volkswagen, the world’s second largest car maker, makes about 40% of its sales in China.

Germany has also decided to roll back state investment guarantees for companies venturing overseas. More than a third of investment guarantees issued by Berlin have gone to companies investing in China in recent years. Under the new rules, such guarantees will be capped to 3 billion euros, equivalent to around $3.07 billion, per company and country of destination.

After decades of fostering closer economic exchanges with China, Berlin has sought to rebalance the relationship, influenced by the election last year of a more skeptical government toward Beijing and by the experience of Russia’s attack on Ukraine.

Under a more restrictive vetting of the sale of critical infrastructure and technology businesses to Chinese investors, Berlin vetoed the takeover of two chip manufacturers by China-owned companies earlier this month.

“An open market economy is not a naive market economy…China is and should stay a trading partner…but we must protect our own interests,”

Robert Habeck,

Germany’s economy minister, said after blocking the two acquisitions.

Last month, the government allowed for part of a terminal in the port of Hamburg, Germany’s largest, to be leased to a Chinese company, but capped the participation to 24.9%, lower than the deal originally stipulated.

Write to Bojan Pancevski at [email protected]