Germany's new economic pivot to Asia

Berlin, Nov 20: The German government's new mantra is that Asia is more than just China. That may be obvious to many, but after 16 years of a one-sided focus on China under Angela Merkel, it represents another turning point, this time in terms of economic policy. As with Russian gas, Merkel had maneuvered Germany into an unhealthy and unwise dependency.

Under her leadership, China became Germany's largest trading partner and the most important sales market for many companies. With every major contract concluded by German industrial groups, dependence on China grew. These days, the German government views China as a systemic rival.

One-sided focus on China

Merkel's travel statistics speak for themselves: She visited China 12 times, always accompanied by a large business delegation. But what about Singapore or Vietnam? Or the recent G20 host country Indonesia? The former German chancellor visited each of these them just once. These are countries, which — each in its own way — are the economic heavyweights of the Southeast Asian association ASEAN with its roughly 650 million inhabitants.

Indonesia boasted by far the largest gross domestic product (GDP) in 2021 at around $1.19 trillion (€1.8 trillion). Singapore admittedly has a much smaller economy. However, the highly developed island state, roughly the size of Hamburg, has a higher GDP per capita than the United States or Germany. It also operates the world's second-largest container port and is a key financial center in Asia.

When it comes to democracy and human rights, Vietnam is hardly less repressive and authoritarian than China. China's southern neighbor is in the process of doubling its economic output in less than 10 years and will soon overtake the more developed Malaysia.

A rapid German turnaround is unrealistic

And yet a look at China's economic power is sobering. The People's Republic is by far Germany's most important trading partner in the region. Germany and China exchange goods worth around €250 billion ($258 billion) per year. By comparison, trade volume with Vietnam and Singapore is just €14.5 billion and just over €11 billion respectively.

A rapid turnaround is therefore unrealistic; the path to greater foreign trade diversification is likely to be a marathon.

The same applies to the supply of key raw materials. New energy suppliers aside, new suppliers of scarce raw materials are also vital to support the energy transition. Copper, lithium and rare earths are the buzzwords here.

Germany must urgently address its failures in this regard. Why did German partners lose out to competitors in the extraction of lithium in Bolivia? What happened to the raw materials initiative in Mongolia, where rare earths are waiting to be mined alongside copper? Both materials are essential for the energy transition. Whether it's copper for electric motors or rare earth metals processed in the production of permanent magnets used in wind turbines.

A long overdue new China strategy

To make matters worse, the German coalition government is not due to unveil its new China strategy until the middle of next year. An economic strategy adapted to the new realities is long overdue — not just vis-à-vis China. The government must find answers and define a course of action together with the business community. Business, for its part, has long since begun to diversify its supply chains in the wake of the coronavirus pandemic.

Where does Germany see its economy five, 10 or 20 years down the line? Alas, answers are in short supply. China, on the other hand, has long since defined its roadmap for economic advancement. Beijing has set out exactly the type and timing of its goals. In Germany, these targets are limited to announcing which energy sources should be shut down and when.

It would be unfair to expect the government to correct 16 years of a one-sided orientation toward China under Angela Merkel in record time. However, there is no more time to waste.

Source: DW