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Article from German Securities Times on July 29, original title: It is not easy for companies to "de-risk" China. Subtitle: It has proven to be very challenging to reduce key dependence on China, and Western companies still need to obtain cost-effective procurement and sales revenue from the Chinese market. On July 13, 2023, the German government released the "China Strategy". The 64-page document emphasizes the urgent need to reduce dependence in key areas. But it has proven to be very challenging to implement the "de-risking" strategy more broadly.

Siemens Energy's wind power division has experienced this firsthand. The division is particularly dependent on Chinese materials. After the outbreak of the Russian-Ukrainian conflict, Siemens Energy CEO Bruch warned that 60% of the materials currently critical to energy transformation come from China, and almost 100% of the rare earth permanent magnets used in wind turbines are supplied by Chinese companies. Although Siemens Energy has established alternative supplies, Bruch admitted that purchasing from elsewhere will lead to higher costs. The results a year later are not optimistic. The company stressed that while establishing a diversified supply chain remains a top priority, "the fact is that cost remains the main concern of the wind energy industry, and alternatives are not yet competitive."

Bertram Brossaert, general manager of the Bavarian Business Federation, said: "In times of economic downturn, corporate efficiency takes priority." The research report "De-risking the Import Side with China in 2023" by the German Institute for Economic Research (IW) pointed out that although there will be some adjustments in 2023, the dependence on imports from China will remain basically unchanged compared with the previous year.

China remains a vital market. Deutsche Bank's "Made in Germany" research report shows that the Chinese market is particularly important to German companies. Deka Investment Company representative Spech said at this year's annual shareholders' meeting that Siemens is highly dependent on China in the field of digital industry.

Efficiency and cost are important factors when deciding where to produce. For example, Einhell, which sells building and gardening tools to DIY enthusiasts, has been making most of its products in China. In addition to production in Kunshan, the company this year began producing batteries in Eastern Europe. Some other German companies take similar approaches but avoid drawing attention to themselves. After all, it is important not to alienate the Chinese.

Expanding internationally inevitably involves China. For example, beverage filling and packaging system manufacturer Krones currently only generates 7% of its revenue in China. The company's CEO recently announced plans to double the company's production capacity in China.

It is a challenge to "decouple" from China or reduce dependence on key imports. Companies in the Asia-Pacific region are increasingly competing outside their home markets. For example, the automotive industry faces competition from Chinese companies such as BYD. Krones also anticipated this situation and concluded that we must take a step ahead in China in order to cope with the competition from Chinese companies. (Author Michael Flemich, translated by Chen Junan)▲