Germany must pull away from China, top economic adviser warns – The Telegraph Feedzy

 

Germany must not be “na?ve” about the “very real” risk of China invading Taiwan, one of Berlin’s top economic advisers has warned.

Monika Schnitzer, who leads the Council of Economic Experts, said the country must reduce economic ties with the world’s second biggest economy to avoid “a real moment of conflict” if Xi Jinping sends troops onto the island.

Ms Schnitzer also told the Telegraph that the German economy must also wean itself off an over-reliance on car making as consumers shun pricey electric vehicles.

Germany risks a prolonged period of decline unless politicians are willing to “let go” of some of the country’s prized energy-intensive industries, Ms Schnitzer said, such as ammonia production.

Ms Schnitzer has led the German Council of Economic Experts since 2022.

The group is an independent body that advises policymakers, including the government. The five-member panel has previously been dubbed Germany’s Wise Men – though it currently comprises three women and two men.

Ms Schnitzer said Germany must learn lessons from the invasion of Ukraine, which triggered an economic shock from the loss of cheap Russian oil and gas.

Many companies, including the Mittelstand of small and medium-sized enterprises that dominate the economy, have been plunged into crisis as a result and the economy has only just pulled out of recession.

Ms Schnitzer said the West was entering a “phase of more tension” with Beijing as President Xi ramps up rhetoric over the invasion of Taiwan.

“The whole way Xi changed politics over the last couple of years makes me worry,” she said. The economist urged Berlin to cut ties with China in “security relevant places”.

She said: “I think that is something that we need to reckon with. You don’t want to be caught in a real moment of conflict with very sensitive technology that is controlled by a country where there may be a conflict, and I see this potential conflict coming up with Taiwan as something very real.

“That is not to say you shouldn’t co-operate. But one should be more alert and more aware and not be na?ve.”

German Chancellor Olaf Scholz has made clear Germany is not seeking to fully ‘decouple’ from Xi Jining’s China

Credit: KAY NIETFELD/AFP

Berlin outlined a plan to “de-risk” the relationship with China last month. While the government stressed it was not seeking a “decoupling”, Germany announced it would pare back its dependence on China in a number of “critical sectors,” including medicine and chipmaking.

A 64-page report published by the government warned that Germany had built “dependencies in numerous areas” including veterinary drugs, solar panels and lithium batteries.

“China has changed,” the report warned. “As a result of this and China’s political decisions, we need to change our approach to China.”

Olaf Scholz, Germany’s Chancellor, has insisted that companies must take the lead. However, doing so will be challenging. Industry has deep-running ties with the country.

Trade between Germany and China rose to a fresh record of almost EUR300bn (?256bn) in 2022, making the world’s second biggest economy Berlin’s most important trading partner for the seventh straight year.

The country’s large car making industry is dependent on China for rare earth minerals necessary for electric car battery manufacture.

China currently accounts for 85pc of all rare earth processing worldwide, and supplies about 98pc of the EU’s demand for the rare earth magnets used in electric vehicles.

Ms Schnitzer said: “It’s very tricky because there are now efforts to do more of the battery production in Europe, but you still need the rare earths and you get them from China.”

German companies have also bet on China as a major sales market. Infineon, Germany’s largest semiconductor manufacturer, relies on China for 38pc of its revenues, while around a fifth of BMW and Volkswagen’s income is from the country, according to Deutsche Bank.

More broadly, the 61-year-old academic said Germany was “too reliant on car manufacturing.”

Around 800,000 people work for car makers in Germany, many in highly-paid jobs.

The country is home to Volkswagen, Mercedes-Benz, Audi, BMW and Porsche, and produces around 25pc of all passenger cars manufactured in Europe.

However, the industry has been slow to realise the significance of the shift to electric and been left flat-footed as a result.

Elon Musk’s Tesla currently has a market cap of $700bn – more than ten times the stock market value of BMW and more than all of Germany’s top car makers combined.

Ms Schnitzer said: “Germany as a whole is very much dependent on car manufacturing, and many executives were not happy to change what they saw as a winning business model.

“It’s not good enough just to have leather seats that German CEOs like to have anymore.

“It’s a new generation of people who care about different things. It’s a bit like when Germany started making cars in the US and didn’t understand that drivers needed cup holders for large cups.”

“Unless they get their act together, there won’t be any more well-paid jobs because they will be overrun by other competitors”.

More broadly, she argued that Germany’s economy must fundamentally reorganise to reflect the political tensions between the East and West, and the fact that the era of cheap energy appears to be over.

Ms Schnitzer said: “We need to get our act together and restructure the economy. That is the big discussion we’re having right now.

“Should we do everything in our power to keep the old structures [by subsidising] energy prices for the energy intensive industry to keep them in the country? Or should we let them go? If you ask my personal opinion, I would say we should let them go.”

The country barely dragged itself out of recession in the last quarter with zero growth, while the International Monetary Fund believes Germany will be the only major country to shrink this year.

Even Russia is expected to eke out more growth.

Ms Schnitzer said the threat of a prolonged German recession is the “number one question” the council is being asked by politicians in the Bundestag.

However, she rejected the idea that Germany is again the sick man of Europe.

“The only thing I fear is resistance to change. We need to embrace change. How we get out of this crisis depends a lot on what will be done now.

“What will not help is us saying we want to keep everything as it is. Because things have changed. Energy prices have changed. We need to adjust.”