Robert Habeck quietly breaks away from China

It is one of those moments for Robert Habeck on Sunday morning at the Asia-Pacific Conference of German Business in Singapore: the German Economics Minister is to open the summit together with Singapore's Trade Minister S. Iswaran. But the Asian ministerial colleague's clip-on microphone is on strike.

Habeck wants to hand him the microphone that was attached to his tie, but the cord and tie have become completely tangled. By the time everything is unraveled, the Singapore minister will have had a spare microphone in hand: "It's a good example of the benefits of diversification," says Iswaran and smiles.

It is the big theme of this conference: diversification. It's about always having an alternative if something goes wrong. What is meant is not microphone breakdowns, but what Habeck and Iswaran call "geopolitical turbulence" this morning: Russia's attack on Ukraine and the resulting energy crisis, for example. Or the threatening gestures of the Chinese against their small neighbor Taiwan, on which virtually the entire global chip industry depends.

"Maybe crises are our new normal," says Habeck. An assessment that Deutsche Bank boss Christian Sewing shares. "I've been in banking for 33 years and have never seen more risk and uncertainty," he says in Singapore. Politics and business can only solve this together.

Habeck is convinced that politics today can no longer be about stabilizing the status quo. Instead of complaining about how difficult it is to deal with all these crises, you have to change your own way of thinking and attitude: "We have to love the fight, let's do our work."

The work in this case is to reduce dependence on China. On the fringes of the summit, Habeck held numerous talks with ministers from other countries in the region: the Philippines, Pakistan and Singapore. The German Economics Minister reported afterwards that the problem here is the same as in Europe.

One always has to take account of both trade poles in the world: China and the USA. "One-sidedness would tear this region apart," says Habeck in Singapore. All countries in the region would therefore be looking for a “multipolar trade option” – i.e. without having to position themselves for or against one of the two major economic powers.

During Habeck's first visit to the region, many things remain vague. The minister concluded a “framework agreement on sustainability and innovation” with Singapore, and they also wanted to check whether they could help out with the production capacities for computer chips if necessary.

"We have a very large dependence on China in certain sectors that can prove to be critical," says Habeck. "Especially in the areas of digital technology and semiconductor production, but I would also add production of technology for renewable energies, here the dependency is too one-sided and too great." The federal government therefore wants to create incentives with new rules for investment guarantees, among other things, that companies invest less in China in the future and instead in other countries.

However, this shift in strategy in the economy is not only met with approval. “Some Dax companies point out that they have long-term investment plans and that China is an important market. And that's completely indisputable," says Habeck. "No one in their right mind is saying we need to completely isolate markets now."

The federal government is not planning a complete decoupling from China. But you shouldn't be naive either. "If China forces companies to relocate their development departments to China if they want to sell goods or cars there in order to siphon off knowledge, then a robust response should be given," says Habeck.

The decisions of the last few days and weeks have been quite robust: takeovers of German chip companies by Chinese investors have been prohibited, the entry of a Chinese co-owner in the Port of Hamburg has at least been slowed down, and the prices for investment guarantees in the People's Republic have increased. In addition, further free trade agreements are to be negotiated or ratified with other countries.

For example, talks with India on such an agreement are to be resumed. "We have to reorganize our trade policy, we need other countries, other partners," says Habeck. You have to get faster. "The world is not waiting for Europe or Germany to get into trouble," says the minister. You have to make sure “that things get faster and smoother.”

In order for this to be possible at all, the traffic light coalition first had to unblock such free trade agreements within its own ranks. There were many opponents, especially in the Greens faction. Habeck believes that the breakthrough has been made. "Germany has found its trading voice again," he says.

But there will be a long way to go before dependence on China is reduced. The minister and German company representatives agree on this. "Companies are under constraints, some of them self-made constraints," says Habeck. You won't be able to change that within a year. "For 30 years we made this apolitical view of China the principle of our trade policy, now there is an extremely political view of China." It will take a few years to get out of it. "There is no such thing as apolitical trade today," he says.

Siemens boss Roland Busch admits that something has to be done. "Covid and the Ukraine war have shown us how difficult and painful it is when you are too dependent on a partner," he says in Singapore. In the course of globalization, the supply chains in the German economy were sometimes "over-optimized", which has now led to massive dependencies.

Siemens is therefore examining how supply chains and sales markets can be diversified. "It's not a matter for three, four, five years," says Busch. "It's something you start now, you have to work hard at it, and it's 10 or 20 years from now to see the full impact."

But Busch also emphasizes that it is by no means a question of turning one's back on China. "We made it very clear during the Chancellor's visit to Beijing that it's not about leaving China or stopping doing business there," he says. "We will continue to be active there."

The relationship with China is not about cooperation or competition. "It's cooperation and competition," says the Siemens boss. At this point, Habeck contradicts: "I would emphasize the competition a bit," he says. "To put it bluntly, maybe we didn't look carefully enough at the critical sectors in the past."

In Germany, for example, a lot of money is currently being invested in setting up your own battery production. "We tell ourselves the story that if we had a battery factory in Germany, we would be independent of China," says Habeck. "The truth is, we're not. The raw materials for the battery factory still come from China.” He will probably have to travel to many conferences to tackle this problem.

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