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Germany's government is warning companies to scale back dependence on China

LEILA FADEL, HOST:

Although Chinese exports to Germany have grown this year, Germany's government has warned companies to scale back what it sees as an unhealthy dependence on China. As part of NPR's China series this week, our Berlin correspondent, Rob Schmitz, takes us to the industrial heart of Europe's largest economy.

(SOUNDBITE OF ROBOT WELDING)

ROB SCHMITZ, BYLINE: The glowing finger at the end of a mechanical arm blazes across a ribbon of aluminum welding holes in one of 2,000 ladder parts that will be constructed today at this assembly line run by the MUNK Group in southern Germany. Factories like this one dot the landscape in rural Bavaria, home to hundreds of Mittelstand companies, private, family-owned enterprises that make up the backbone of Europe's largest economy. Ferdinand Munk's family has made ladders here for 120 years, long enough to know who's worth doing business with.

FERDINAND MUNK: (Through interpreter) We started doing business with China two decades ago. The German government encouraged us to cooperate with Chinese firms. They told us it would be a win-win scenario.

SCHMITZ: Twenty years later, the German government has changed its tune on China.

(SOUNDBITE OF ARCHIVED RECORDING)

ANNALENA BAERBOCK: (Speaking German).

SCHMITZ: At a national security strategy meeting this year, Foreign Minister Annalena Baerbock warned German companies the government would not bail them out if they're too heavily invested in China. The comments signaled a new strategy towards China called de-risking. The then-foreign minister of China shot back, warning de-risking could mean de-opportunity, de-cooperation, destabilizing and de-development. For CEO Ferdinand Munk, doing business with China became depressing.

MUNK: (Through interpreter) One day, we placed a big order, paid for it upfront, and they didn't deliver it. We flew to China. And when we got to the factory, everybody was gone. The company disappeared, and we never saw our money again.

SCHMITZ: Munk now pays more for the peace of mind that comes with European suppliers that he trusts. Trust, whether it's over parts for a ladder factory or around national security, is at the heart of why CEOs and Western governments have distanced themselves or de-risked from China. But much of German industry has not bought into this.

An hour south of the ladder, factory, workers on another factory floor make steel cable. This factory is in the medieval town of Memmingen. And the company that makes these cables began making rope hundreds of years ago.

GERHARD PFEIFER: Four hundred and forty-four years.

SCHMITZ: Gerhard Pfeifer, CEO of PFEIFER, traces his family's business back to 1579.

PFEIFER: We are among the 20 oldest companies in Germany.

SCHMITZ: PFEIFER's steel cables help hold up SoFi Stadium in Inglewood, Calif. They're used to pull elevators to the top of the Burj Khalifa building in Dubai. And they're used in thousands of buildings in China, where PFEIFER began doing business in 2004. Those visits to China in the early 2000s convinced Gerhard Pfeifer the country was key to his company's future.

PFEIFER: And until today, I'm convinced that avoiding contact with China is impossible.

SCHMITZ: He says China is far too large to ignore, and he thinks most Western politicians misunderstand the country.

PFEIFER: Chinese behavior is much more linked to interests without a moral link. And this is absolutely necessary to understand.

SCHMITZ: Pfeifer sees the biggest gap in understanding during his country's official government visits to China. While the Chinese carefully lay out their interests to their German counterparts, says Pfeifer, German representatives often, in his eyes, appear more eager to voice their Western-shaped moral judgments of the Chinese.

PFEIFER: We, with our foreign minister - we are going to China, and we want to hold on a flag of morality, which is just crazy.

SCHMITZ: Pfeifer believes part of the disconnect is that, unlike the Chinese, Germany's government, made up of three parties, does not agree on the country's interests. And that's why he thinks German businesses are largely ignoring the official call to de-risk. Numbers seem to back this up. Last year, Chinese imports to Germany grew by 34%. And Germany's three largest automakers, Mercedes-Benz, BMW and Volkswagen, continue to sell more than a third of all their cars to the Chinese. At a recent event, the CEO of Mercedes-Benz said de-risking meant not reducing the company's presence in China but increasing it. And this makes many German politicians who support de-risking nervous.

NORBERT ROTTGEN: To be honest, I would say for the German car industry, they are so heavily involved in the Chinese market, I cannot see an economically feasible and viable way out for them.

SCHMITZ: Norbert Rottgen is a member of Germany's parliament and former chair of the Bundestag's Committee on Foreign Affairs. He says Germany's past reliance on Russia for energy is a fraction of the dependency his country now has on China.

ROTTGEN: If a conflict occurred and we would have to withdraw, or would - we would see countersanctions from China against Germany, the damage would be disastrous and devastating for part of the German industry.

SCHMITZ: But unlike his coalition partners, Chancellor Olaf Scholz does not seem to be placing the potential threat of China in the same bucket as that of Russia.

(SOUNDBITE OF ARCHIVED RECORDING)

CHANCELLOR OLAF SCHOLZ: (Speaking German).

SCHMITZ: A year ago, he was the first Western leader to visit Beijing after the global COVID pandemic, accompanied by a delegation of CEOs from Germany's biggest companies. De-risking was not on their agenda.

MICHAEL SCHUMANN: So there's some disconnect between the political rhetoric that you see in Europe and Germany right now and that what entrepreneurs have been doing all along.

SCHMITZ: Michael Schumann is chair of the German Federal Association for Economic Development and Foreign Trade. He blames a new political rhetoric aimed at China on the Green Party, which is hawkish on China and whose highest-ranking member, Annalena Baerbock, is Germany's foreign minister. He says the Greens' stance on China has been accepted by many in Germany's parliament.

SCHUMANN: Quite a lot of members of parliament in Germany right now - they have very little knowledge about China. They've never been there. All they know is what they read in the media.

SCHMITZ: Schumann says the real China experts in Germany can be found amongst the ranks of hundreds of German companies doing business in China on a daily basis, companies like Gerhard Pfeifer's construction business. Pfeifer says the sentiment behind de-risking is a good one, but it must come from understanding where the risks lie, something he thinks Germany's government has yet to grasp.

PFEIFER: Being sensitive to China is absolutely necessary - no doubt about that. But it does not - you know, if I start de-risking with getting less in contact, this is, from my understanding, the wrong way because then I miss opportunities to understand China.

SCHMITZ: And taking the time to understand China, says Pfeifer, will help Germany de-risk from China. Rob Schmitz, NPR News, Memmingen, Germany. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Rob Schmitz is NPR's international correspondent based in Berlin, where he covers the human stories of a vast region reckoning with its past while it tries to guide the world toward a brighter future. From his base in the heart of Europe, Schmitz has covered Germany's levelheaded management of the COVID-19 pandemic, the rise of right-wing nationalist politics in Poland and creeping Chinese government influence inside the Czech Republic.