The rapid recovery in the Far East has saved the bottom line for many corporate CEOs. But the growing dependence entails considerable risks. Why this is so – and what supervisory boards need to do now.
BASF had a “strong final spurt” in 2020, cheered CEO Martin Brudermüller at the beginning of March. This was due in particular to the company’s business in China, where it recorded “double-digit volume growth” in the fourth quarter.
Brudermüller is likely to see this confirmed. At the last annual general meeting, he had replied to skeptical shareholders: We are convinced that it is right and important to strengthen our footprint in China.”
The CEO is by no means alone in this stance: Germany’s managers across the board have sought and seized growth opportunities in the Far East. As a result, however, many companies are now hooked on the China drip – most notably Infineon with CEO Reinhard Ploss: the semiconductor manufacturer makes 39 percent of its sales there, according to Handelsblatt. The market is similarly important for VW, BMW and Daimler.
“China First!” instead of “change through trade”
But the autocrats in the Far East have been acting more and more aggressively for some time – be it towards the Uyghur minority, in Hong Kong or in geostrategic expansion. The concept of “change through trade” has thus manifestly failed, and soon European corporations could also be targeted by the Big Data dictatorship.
For President Xi Jinping has proclaimed the goal of strengthening domestic companies – and with the new scoring system has created the perfect instrument for targeted reprisals. Because of the growing risks, the strategy of German companies must be “not to collapse even without China”, warns IW economist Jürgen Matthes.
Since this message has not yet reached the boardrooms, it is now up to the supervisory boards: They must make it clear that expansion in China not only raises ethical questions, but also entails business and strategic risks. And they must press for alternatives to be examined – above all, investments in emerging growth markets, such as Africa.
This is particularly important for the companies mentioned above with a high dependence on China. The Siemens supervisory board can afford to be a little more relaxed – the company generates 14 percent of its sales in China. That’s comparatively little, but far too much to put the problem on the back burner. So here, too, the new CEO Roland Busch has his work cut out for him.