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Friday, 05/26/2023 6:27:59 PM

Friday, May 26, 2023 6:27:59 PM

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>>> Business dangers loom as the U.S. and EU converge on ‘de-risking’ from China


Fortune

by Peter Vanham, Chloe Taylor

May 26, 2023


https://finance.yahoo.com/news/business-dangers-loom-u-eu-101911864.html


Good morning, Peter Vanham here in Geneva, filling in for Alan.

It’s the chronicle of a death foretold: Germany, Europe’s largest economy, entered a recession yesterday. The recession was widely expected, but beneath its surface lies a major dilemma for the German economy: to “de-risk” or depend on China, that’s the question.

The question became acute because Germany’s engine sputtered partially due to faltering exports to China. German companies saw an 11.3% drop in their exports to the world’s second-largest economy so far, whereas most other European economies exported more. What happened?

Part of it can be brought back to conventional factors. Cars typically represent a large share of German exports, but Chinese consumers are increasingly buying Chinese brands, and government subsidies which pushed German car sales higher last year, ended.

Since a few months, though, there is another major factor, and it is one that represents a seismic shift: German politicians are steering their companies away from China.

The country’s political leaders won’t go as far as some in the U.S. have, pursuing a policy of “decoupling”. But Europe’s largest economy is increasingly aligning with the U.S., anyway.

“The U.S. and the European Union have converged on using the term 'de-risking' [from China], and Germany’s chancellor Olaf Scholz emphasized the term in his [G7] speech as well,” Costanze Stelzenmueller, director of the Center on the United States and Europe at Brookings told me.

A few months ago, leaked documents also indicated “Germany’s foreign ministry wants to take a tougher line on China and push companies to reduce their dependency on Beijing”, Politico reported.

It means German executives still depending on China, and wanting to expand their market share there, such as Siemens, are facing an uphill battle. “I will defend my market share, and if I can, I will expand it,” Siemens CEO Roland Busch told the Financial Times this week.

Back in the U.S., Nvidia chief Jensen Huang also warned about the consequences of the G7’s desire to de-risk from China. “There is no other China, there is only one China,” he said this week, warning of “enormous damage to American companies” if the trade in chips stopped.

But if exports falter, and the notion of “economic dependency” becomes a political problem on both sides of the Atlantic, it’s hard to see how this wouldn’t have any long-term effects.

CEO Daily is off on Monday for Memorial Day. We'll see you back here Tuesday. More news below.

Peter Vanham
Executive Editor
peter.vanham@fortune.com
@petervanham

This story was originally featured on Fortune.com

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