How German businesses are coping with the China dilemma

German businesses operating in China are facing a dilemma: how to balance their profits and principles in a volatile and complex business environment. China is Germany’s most important trade partner, accounting for more than 10% of its exports and providing access to a huge and growing market. However, China is also a source of political and ethical challenges, such as human rights violations, trade disputes, and security threats. German businesses are increasingly struggling to straddle the growing rift between the values of many investors in their home countries and those of the Chinese government.

German businesses are adopting different strategies to cope with the China dilemma, according to a report by Reuters. Some are pursuing a de-risking strategy, which involves reducing their dependence on China and diversifying their markets and supply chains. For example, fan and motor maker ebm-papst launched a programme called ‘Decoupling China’ to ensure its Chinese division can operate independently from the rest of the company, and is planning a new plant in India to serve the rest of Asia. Other businesses are pursuing a localization strategy, which involves becoming more self-sustainable and integrated in China, and adapting to the local regulations and preferences. For example, carmaker Volkswagen has invested heavily in electric vehicles and battery production in China, and has complied with the Chinese cybersecurity law that requires data to be stored locally.

The challenges and opportunities of tech and defense collaboration

German businesses are also facing specific challenges and opportunities in the sectors of technology and defense, which are both crucial and sensitive for the relations between Germany and China. On one hand, technology and defense offer new solutions and capabilities for the German economy and security, as well as new markets and revenues for the German businesses. On the other hand, technology and defense raise ethical, legal, and political dilemmas, as well as competitive and regulatory pressures, for the German businesses. Some of the issues that emerged at the Munich Security Conference (MSC) in February 2024, where tech and defense were among the main topics of discussion, included the following:

  • The ethical and legal implications of using autonomous weapons, such as lethal drones and robots, that can make decisions and act without human intervention or oversight.
  • The political and social backlash that tech firms may face from their employees, customers, and civil society groups, who may oppose their involvement in military projects or contracts, especially if they entail human rights violations or civilian casualties.
  • The competitive and regulatory challenges that tech firms may encounter from their rivals or governments, who may seek to limit their access or influence in the defense market, or to impose stricter rules and standards on their products and services.
  • The security and cyber risks that tech and defense sectors may face from hackers, terrorists, or hostile states, who may try to steal, sabotage, or manipulate their data, systems, or networks.

The need for dialogue and cooperation among stakeholders

German businesses are not alone in dealing with the China dilemma. They are part of a larger network of stakeholders, including the German government, the European Union, the United States, and other international and regional partners, who share common interests and challenges in relation to China. Therefore, there is a need for dialogue and cooperation among these stakeholders, in order to address the issues and seize the opportunities of doing business with China. Some of the recommendations that were made at the MSC included the following:

  • The establishment of a global code of conduct or a set of principles and norms for the responsible use and development of technology and defense, with the participation and input of tech and defense sectors, governments, international organizations, and civil society groups.
  • The creation of a platform or a forum for regular and transparent communication and consultation among tech and defense sectors, as well as other relevant actors, to exchange information, share best practices, and coordinate actions on common issues and challenges.
  • The enhancement of the cooperation and coordination between the tech and defense sectors and the international community, especially the United Nations, the European Union, and NATO, to support the implementation of the international law and the global agenda on peace and security, as well as to foster innovation and cooperation in the fields of technology and defense.

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