Will trade conditions between Germany and China tighten?

Germany has long benefited significantly from trade with China. In 2016, China even became Germany’s largest trading partner and has maintained this status ever since. In 2021, trade between Europe’s largest economy and Asia’s largest economy reached a staggering $246 billion.

Now it looks like Germany wants to reduce its dependence on China a little and tighten the rules for companies trading with China. The proposal would force German companies to disclose more information about trade and conduct geopolitical risk stress tests when trading with China.

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The document seen by Reuters said.

“The aim is to change the incentive structure for German companies with market economy instruments so that reducing export dependency is more attractive.”

For which sectors does this apply?

Primarily companies in the chemical and automotive industries. It will therefore affect, for example, the Volkswagen car company, which we recently informed you about, that it wants to strengthen its position in the Chinese market.

“We aim to oblige companies particularly exposed to China to specify and summarise relevant China-related developments and figures, for example in the form of a separate notification obligation, based on existing disclosure requirements. 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.”

Investments will also be affected

Investment guarantees should be limited to €3 billion per company and country from the introduction of the new conditions. They should also be subject to greater scrutiny of their impact on the environment, social and labour standards.

Furthermore, export credit guarantees should reportedly be tightened to prevent unwanted technology transfer.

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In this way, Germany is slightly deviating from its current trade policy. It therefore depends on the extent to which this step passes final approval and how much it will eventually affect the operations of German companies in China.