The German Ministry of Foreign Affairs is planning to tighten rules for companies deeply exposed to China, making them disclose more information and possibly conduct stress tests for geopolitical risks, a confidential draft document seen by Reuters said.
The proposed measures are part of a new business strategy toward China being drawn up by the administration of German Chancellor Olaf Scholz as it seeks to reduce the country’s dependency on Asia’s economic superpower.
“The aim is to change the incentive structure for German companies with market economy instruments so that reducing export dependency is more attractive,” the document said, singling out the chemicals and vehicle industries.
Photo: EPA-EFE
A ministry spokesperson declined to comment.
The draft, written by staff under German Minister of Foreign Affairs Annalena Baerbock of the Alliance 90/The Greens party, has still to be agreed upon by other ministries. A final decision on the China strategy is expected early next year.
Deep trade ties bind Asia and Europe’s largest economies, with rapid Chinese expansion and demand for German vehicles and machinery fueling the country’s GDP growth over the past two decades. China became Germany’s largest trade partner in 2016.
However, the relationship has come under close scrutiny since Russia’s invasion of Ukraine in February, which led to the end of a decade-long energy relationship with Moscow and caused numerous international companies to close their businesses in Russia.
“We must not make this mistake again. This is the responsibility of politicians and companies,” the document said.
Among the steps outlined in the 65-page paper, some of which have already been reported, are tighter rules for firms active in China to ensure that geopolitical risks are accounted for.
“We aim to oblige companies particularly exposed to China to specify and summarize relevant China-related developments and figures, for example in the form of a separate notification obligation, on the basis of existing disclosure requirements,” the document said.
“On this basis, we will assess whether affected companies should conduct regular stress tests in order to identify China-specific risks at an early stage and take corrective measures,” it said.
Investment guarantees are to face greater scrutiny to take account of the environmental impact, work and social standards, and to avoid forced labor in the supply chain, the document said.
To avoid cluster risks, investment guarantees should be limited to 3 billion euros (US$3.1 billion) per company per country, it added.
The government also plans to tighten export credit guarantees to avoid unwanted technology transfer, in particular sensitive dual-use technologies and those that can be used for surveillance and repression, the document said.
The new strategy, pushed hard by the Greens in the coalition government, led by Social Democrat Scholz, but also including the pro-business Free Democrats, marks a departure from Berlin’s policies under Scholz’s conservative predecessor, Angela Merkel.
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