The Dialectics of the China Business
In the runup to Scholz’s visit to China, the dispute over Chinese investments in Germany persists. With continued growth, China’s industry could outpace its German competitors.
HAMBURG/BEIJING (Own report) – In the runup to German Chancellor Scholz’s visit to China this week, the dispute over Chinese investments in Germany persists. The Chinese shipping company COSCO’s acquisition of a stake in a terminal in the port of Hamburg, agreed upon last year, was approved last week only with certain restrictions. Federal ministers from the FDP and Greens had done their best to prevent it. The dispute must be seen in the context of the contradictions in Germany’s economic development. While numerous German companies, and even entire industrial branches, continue to profit massively from their close cooperation with the People’s Republic, the intense cooperation is, in turn, also strengthening Chinese industry – at the expense of their German competitors. COSCO, for example, with a global market share of eleven percent of container shipping, has already bypassed Hamburg’s Hapag-Lloyd shipping company and threatens to outpace it in the long run. A recent study by the Berlin-based MERICS think tank illustrates similar developments pertaining to German automotive companies’ involvement with China.
Dispute over Tollerort
The heated dispute over China’s COSCO shipping company’s acquisition of a stake in a port terminal in Hamburg has, over the past few days, exposed the conflicting interests involved in the German government’s China policy. In September 2021, COSCO had reached an agreement with the Hamburger Hafen und Logistik AG (HHLA) to buy a 35 percent minority share in the Tollerort container terminal. Tollerort is the smallest terminal in the Port of Hamburg. The deal seemed unproblematic, because Tollerort is not part of a critical infrastructure, which begins at an annual throughput of 17 million tons, with Tollerort recently having recorded a throughput of only 12.1 million tons. Even Germany’s ministry of the economy had to admit this, as well as the fact that with its terminal stake, COSCO would not have obtained any influence over Hamburg’s Port Authority, which controls land at the port.[1] Acquiring a stake in terminals is common in the branch, because it is usually coupled with an option to obtain preferential docking rights, thus avoiding long, expensive waiting periods at congested terminals. The Hamburg Hapag-Lloyd shipping company is currently on tour to acquire stakes in European, North and South American ports.[2]
Mutually Beneficial
While COSCO’s acquisition of a stake in the Tollerort container terminal has only minor consequences – the costs are estimated at 65 million euros, while Hapag-Lloyd currently is investing a billion – it will be of considerable benefit to the Port of Hamburg. COSCO pledged to make the port a preferential logistics hub for China’s trade in the North Sea, should the stake in Tollerort, coupled with favorable docking rights, materialize. Chinese companies are already the port’s most important customers and are using a large portion particularly of Tollerort’s handling capacity.[3] This had been considered beneficial for Hamburg. On the one hand, COSCO also has stakes in the rival ports in Rotterdam and Antwerp. On the other hand, the port is afflicted with technical problems, such as the silting of the shipping channel and having to deal with corresponding difficulties. The prospect of gaining reliable customers on a long-term basis resulting from the deal with COSCO was therefore particularly attractive. In addition, HHLA and COSCO planned expanded joint activities, such as a joint stake in Poland.
Restrictions for Competition
The strong resistance to COSCO’s buying a stake, put up mainly by the FDP and the Greens and echoed extensively in the leading media, has two causes. On the one hand, the United States, Germany’s major military ally and – still – German industry’s most important foreign site, is massively intensifying its power struggle against China, and demanding staunch allegiance from its allies. (german-foreign-policy.com reported.[4]) On the other hand, German industry also has a long-term interest in clearly restricting Chinese competition. Already today, COSCO has a global market share of around eleven percent of container shipping, making it number four world-wide – even ahead of Hapag-Lloyd, and “only 6 points” behind the world’s number one, Geneva-based MSC.[5] If China continues to emerge, COSCO can expect further growth. If the People’s Republic succeeds in generating a per capita prosperity for its 1.4 billion inhabitants, comparable to that of the 450 million inhabitants in the EU or even that of the 80 million in Germany, the company could outpace its German-European competitors.
The Hamburg Compromise
The prospect of losing the German industry’s habitually strong and often leading position on world markets to China is increasingly pushing the German government to take a tougher stance against the People’s Republic – even at the expense of German companies, which are still profiting from their business with China. This has led to a compromise with COSCOS purchasing a stake in the Tollerort container terminal. The Chinese company can acquire only 24.9 percent. Thus, it will have no voting rights, no say in management or strategic decisions.
The Most Innovative Market
Last week, the Berlin-based Mercator Institute for China Studies (MERICS) presented an exceptional analysis of the conflicting interests in Germany’s China policy. According to the institute, the Chinese market is still growing in importance for the German automotive industry. It has long been the major sales market for German carmakers and particularly important for the shift to electric vehicles (EV). On the one hand, it is by far the world’s largest market and on the other, technologically, the Chinese EV branch is clearly out front, especially in regards to batteries and software. Because German carmakers have relied too long on the internal combustion engine, they lost ground to the Chinese innovative EV producers, which, now are even preparing to use their strength on their home market to conquer a leading position on the world market – ultimately at the expense their German competitors. They, in turn, see their best chance in using the Chinese industry’s highly innovative capacities to regain their competitiveness. They are therefore investing vigorously in research and development in the People’s Republic.[6]
Economic Collateral Damage
They are thus creating problems for the overall economy on the German home market. On the one hand, strategically, important research and development activities are being outsourced from Germany to China.[7] On the other hand, German carmakers are increasingly using their production plants in China to export – including for the export to Germany or Europe. This weakens Germany’s industrial base, which, so far, has served the home market. Thirdly, the tendency is becoming apparent that German car makers are paving the way for their EV suppliers in the People’s Republic to enter onto the global market. This has already the case in battery production. The Chinese global market leader CATL, for example, is investing in Germany – at the expense of German suppliers, and thus, of German industry. The author of the MERICS Analysis is urging the German government not to simply continue to support the German carmakers’ business with China – as it has been doing until now. For the German industry’s long-term interest, it would now be imperative to discipline the industry and prevent disadvantages for Germany’s industrial base with skillful intervention. Selective interventions into German companies’ business with China could not be avoided but they would be in the long-term overall interests of German industry.
[1] Julia Löhr: Hafen in Chinas Händen. Frankfurter Allgemeine Zeitung 25.10.2022.
[2] Jonas Jansen, Susanne Preuß: Wo China in Europa schon ankert. Frankfurter Allgemeine Zeitung 25.10.2022.
[3] Julia Löhr, Jochen Stahnke, Susanne Preuß: Ein Hafen wird zum Politikum. Frankfurter Allgemeine Zeitung 21.10.2022.
[4] See also „China niederkonkurrieren“ and Playing with Fire (III).
[5] Wie Peking mit Cosco die Welt erobern will. Frankfurter Allgemeine Zeitung 27.10.2022.
[6], [7] Gregor Sebastian: The bumpy road ahead in China for Germany’s carmakers. merics.org 27.10.2022.
