Geo-Strategic Trend - 6. page

German direct investment in China has seen a significant uptick in 2023, defying the German government’s calls for economic diversification and reduced dependence on China. According to data from the German central bank, German direct investment in China reached €7.3 billion in the first half of 2023 alone, already surpassing the €6.5 billion recorded for the entire year of 2022.

This trend stands in stark contrast to the German government’s new China strategy which, due to geopolitical concerns, advocates for reduced reliance on the Asian economic powerhouse. German media analysis reveals a complex picture of motivations for and consequences following this investment surge.

Major German companies, particularly automakers like Volkswagen, appear to be disregarding government warnings about geopolitical risks. Many are adopting an “in China, for China” strategy, focusing on localizing production and supply chains to serve the Chinese market directly.
Interestingly, the bulk of these investments stem from profits earned within China, with relatively little new capital flowing from Germany. This suggests a self-reinforcing cycle of investments and returns within the Chinese market.

Some experts have expressed concern that German businesses may have not fully internalized the lessons of the Ukraine war and Germany’s previous overdependence on Russia. They warn of potential risks should China-Taiwan tensions escalate, risks which could have devastating consequences for companies heavily invested in China.

In explaining their increased investment, German firms cite China’s importance as a growth market. They argue that investing in China doesn’t necessarily mean abandoning operations in Germany. Critics contend that this strategy might ultimately benefit job creation in China more than in Germany. Domestic factors in Germany, such as high taxes, bureaucratic hurdles, and a growing shortage of skilled workers, are also pushing companies to look eastward for investment opportunities.

Source Radio France International, August 20, 2024
https://rfi.my/AtDa

The Philippine government stated on August 25 that a Philippine Bureau of Fisheries ship was rammed and hit with a water-cannon by a Chinese coast guard vessel earlier that day while delivering food, fuel, and medical supplies to Filipino fishermen at Sabina Shoal in the South China Sea. While the Philippine supply ship sailed from Half Moon Shoal to Sabina Shoal, the Chinese vessels’ “dangerous maneuvers” caused the Philippine ship’s engine to fail, forcing it to abandon the supply mission.

In response, Gan Yu, a spokesperson for the China Coast Guard, issued a statement claiming that a Philippine vessel “illegally entered the waters near China’s Xianbin Reef in the Nansha Islands without permission from the Chinese government, and that the China Coast Guard took control measures according to the law.” The statement accused the Philippine vessel of “ignoring China’s stern warnings” and “deliberately colliding with the Chinese coast guard ship in an unprofessional and dangerous manner.” It stated that “responsibility [for the incident] lies entirely on the Philippine side.”

In April of this year, the Philippine Coast Guard accused Chinese vessels of dumping crushed coral on Sabina Shoal, a possible attempt at land reclamation. Since then, the Philippine Coast Guard has stationed one of its largest patrol ships at the shoal to monitor the area.

There have been several intense and dangerous confrontations between China and the Philippines in the South China Sea in August, including a confrontation between vessels near the Second Thomas Shoal; two Chinese military aircraft firing flares at a Philippine Air Force patrol plane over Scarborough Shoal on August 8, and a second occurrence of Chinese aircraft firing flares at a Philippine plane over the Subi Reef on August 22.

Source: VOA, August 25, 2024
https://www.voachinese.com/a/china-philippines-clash-in-south-china-sea-despite-efforts-to-rebuild-trust-20240825/7756250.html

German newspaper Deutsche Welle published an article that discussed the reason behind China’s growing interest in the Middle East.

The article takes note of the differences between the United States and China’s approaches and roles in the region. Last year, under China’s mediation, Iran and Saudi Arabia restored diplomatic relations. The analysis examines why Chinese leadership has concentrated so much diplomatic energy on the Middle East, arguing that the geostrategic interests centered on oil acquisition have undergone a shift.

Fifty years ago, the US and Saudi Arabia reached a “petrodollar agreement” which established the US dollar as the international reserve currency. With the maturation and widespread use of shale oil extraction technology in the US, however “the region’s (Middle East) oil has become less important to the US.” While the US still imports oil from Saudi Arabia, the volume has declined to less than a third of what it was 22 years ago. Notably, the US has risen from being one of the largest oil importers to the third largest oil exporter.

In contrast, China is now Riyadh’s largest crude oil customer, buying over 20% of Saudi Arabia’s total output. China’s energy security is heavily dependent on the Middle East, and it is also the largest buyer of Iranian oil, accounting for 37% of Iran’s oil exports. China has not joined Western sanctions on the Iranian regime and its state-owned firms have capitalized on the absence of Western companies in the Iranian market.

Amid geopolitical tensions, China is increasingly interested in trading in its own currency rather than US dollars to purchase the coveted oil. Direct RMB settlement also makes sense for many countries in the region as China has surpassed the US as the largest trade partner.

The Deutsche Welle article says that “In the past decade, Beijing has cleverly expanded its influence, filling every vacuum left by Washington. But this also means increased vulnerability, as Middle East political stability aligns with China’s interests due to robust bilateral trade and energy needs. Unlike the US, China does not view Iran as an adversary, nor does it feel a special affinity towards Israel for moral or historical reasons, opening up new operational space for Beijing in the region.”

Source: Deutsche Welle, August 19, 2024
https://p.dw.com/p/4jde8

China News recently reported that the government of Thailand has ordered relevant governmental departments to strictly control the quality standards of products imported from abroad so as to reduce the impact of illegal and substandard products on Thai consumers and businesses. The orders apply to goods traded both offline and online. The Thai Ministry of Commerce and relevant agencies have discussed the implementation of standards and regulations for imported products. In addition, the Thai government has also decided to levy value-added tax on imported products purchased online with a value of less than 1,500 baht (around US$44).

For offline imported goods, the government will inspect low-cost products from abroad and check whether commercial institutions comply with Thai laws, such as whether business registration is legal, whether foreigners in Thailand apply for work permits, whether intellectual property rights are infringed, etc. For online product sales platforms, Thailand Customs will conduct quality standard inspections on products imported from overseas after being purchased online. This new government order to strictly control the quality of foreign products is intended to allow Thai people to use high-quality, standardized products while protecting the interests of domestic Thai companies.

Source: China News, August 13, 2024
https://m.chinanews.com/wap/detail/cht/zw/10267903.shtml

South Korean media and some experts believe that, after Kim Jong-un’s visit to Russia and his summit with Vladimir Putin in September 2023, there are subtle signs of changes in the relationship between China and North Korea.

Earlier, several South Korean media outlets reported that the “bronze footprints” left by Kim Jong-un during his visit to China’s Dalian city in May 2018, where he walked with Xi Jinping on the Bangchuidao beach, had disappeared by May of this year. The original location of the “bronze footprints” has been covered with asphalt and no traces are visible. Additionally, the South Korean newspaper Chungang Ilbo reported that, in early July of this year, China demanded the repatriation of all North Korean laborers within its borders. North Korea is also transferring some of its IT workers from China to Russia; these workers earn foreign currency by conducting cyberattacks. Such overseas laborers are a significant source of foreign currency for North Korea.

The Chungang Ilbo quoted sources indicating that Kim Jong-un had instructed North Korean diplomats working in China to “not be intimidated by China.” This directive was issued following Putin’s visit to Pyongyang in June of this year and his signing of a “comprehensive strategic partnership” agreement. North Korea has also tightened control over the Chinese expatriates within its borders, restricting their movement and limiting their contact with North Korean residents. On July 27, the Chinese ambassador to North Korea was notably absent at an event in Pyongyang commemorating the 71st anniversary of the Korean War armistice. Ambassadors from Russia, Vietnam, and Cuba were present at the event.

Some experts caution that apparent changes in Sino-North Korean relations should not be overinterpreted. The relationship between the countries may not grow as rapidly as the relationship between North Korea and Russia, but this does not necessarily indicate that North Korea is abandoning its ties with China.

Source: Aboluo, August 13, 2024
https://www.aboluowang.com/2024/0813/2090571.html

Honda is reducing car production capacity in China for the first time, as Japanese automakers face declining market share due to competition from local electric vehicle (EV) manufacturers. The slow adaptation to EV technology has proven costly for Japanese companies, leading to a shrinking supply chain in China.

Chinese automakers, particularly BYD, are aggressively pricing their vehicles to gain market share, even in segments traditionally dominated by foreign gasoline-powered cars. In 2023, Chinese brands held 56.2% of the passenger car market in China, while Japanese brands fell to 14.7%. Toyota’s Vice President predicts “difficult years” ahead in the Chinese market.

The Chinese government has been strategically promoting the transition from gasoline to electric vehicles, described as “changing lanes in a race” by a former minister. This includes offering subsidies and preferential policies to encourage the shift to “new energy vehicles.”

Japanese companies supplying parts and materials to automakers in China are also feeling the impact. Some, like Nippon Steel, are withdrawing from joint ventures with Chinese partners. A 2023 survey shows Japanese business expansion in China at its lowest level in a decade.

Japanese firms acknowledge the rapid technological advancement of Chinese companies and stress the need for continuous innovation and cost competitiveness. While Japanese automakers are determined to improve their EV offerings, they face significant challenges in regaining their position in the Chinese market.

Source: Kyodo News, July 26, 2024
https://china.kyodonews.net/news/2024/07/6c47f1ecf945-ev-.html