UPDATE 4-German strategy paper targets China trade dependence

German ministry suggests limits on business with China

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Proposal is part of ongoing strategy plans

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Coalition partners yet to approve, firms have pushed back

(Adds further details, Chinese Foreign Ministry not immediately
available for comment)

By Andreas Rinke and Sarah Marsh

BERLIN, Dec 2 (Reuters) – Germany’s Economy Ministry
recommends excluding using components from providers from
authoritarian states in critical infrastructure and imposing
stricter requirements for firms dealing with China, a strategy
paper seen by Reuters shows.

Those German firms particularly exposed to China should
share details on that business with the government and undergo
regular stress tests, according to the ministry’s “Internal
Guidelines on China”, marked confidential.

Reuters had previously reported on some of the measures the
economy ministry was considering to curb German reliance on
China as the new government refines its relationship with Asia’s
rising superpower and on reaction from German business leaders.

Executives from firms including chemicals giant BASF
, Deutsche Bank and industrial group
Siemens pushed back on the government’s plans in a
call with Economy Minister Robert Habeck in September, Reuters
reported, citing sources. The companies declined to comment at
the time. Any new plan would have to be approved by other
parties in Germany’s ruling coalition.

Deep trade ties bind Asia and Europe’s biggest economy, with
rapid Chinese expansion and demand for Germany’s cars and
machinery fuelling German growth over the past two decades.
China became Germany’s single biggest trade partner in 2016.

However, the relationship has come under close scrutiny
since Russia’s invasion of Ukraine in February, which led to the
curtailment of a decade-long energy relationship with Moscow and
caused numerous companies to ditch their local businesses.

The paper seen by Reuters, which totals 104 pages and is
dated Nov. 24, appears to detail the latest standpoint and would
likely feed into the government’s broader China strategy which
it intends to publish next year.

It could extend scrutiny of IT component suppliers from some
countries to firms making components for critical infrastructure
such as transportation, healthcare or water and food supply.

Berlin should consider checking outbound German investments
in Chinese companies if these operated in security-relevant
sectors or were suspected of human rights violations, it said.
German development financing for China should be phased out by
next year and political support by high-ranking officials for
projects there questioned.

The Chinese Foreign Ministry did not immediately respond to
a Reuters request for comment outside of business hours.

‘VULNERABLE TO BLACKMAIL’

Germany did not aim to decouple from its top trade partner,
China, said the paper, first reported on by the online portal
The Pioneer. But Russia’s invasion of Ukraine had shown the high
risks of close economic relations with autocratic states seeking
alternative world orders.

“The importance of China as an export market for many German
industrial sectors as well as critical dependencies in certain
… areas could make Germany vulnerable to blackmail and
restrict its political capacity to act,” the paper read.

German companies should receive more aid to diversify their
trade, for example via state export credits for other markets,
the paper read.

The European Union should consider excluding companies from
third countries for tenders for especially important projects
like in the semiconductor sector.

China’s development is described in the paper as very
problematic and further in the direction of systemic rivalry,
away from partnership. This was “evidenced not least by the
pro-Russian attitude of China towards the attack on Ukraine”.

The paper underscored the fact the year 2027 was repeatedly
mentioned as the year China could invade Taiwan.

The economy ministry is led by Robert Habeck of the Greens
who have long warned of the risks of being overreliant on China.
The paper still has to be approved by Chancellor Olaf Scholz’s
Social Democrats and the liberal FDP, which are the Greens’
coalition partners.
(Additional reporting by Christian Kraemer and Ryan Woo;
Writing by Sarah Marsh, Paul Carrel and Maria Sheahan; Editing
by Raissa Kasolowsky, Mark Potter, Sandra Maler, Philippa
Fletcher)