Call for diversification in bolstering supply chains

Germany looks to Asia-pacific to strengthen economy

“Reducing risky, one-sided dependencies when it comes to certain raw materials or critical technologies will play an important role in our National Security Strategy.”

Olaf Scholz

SINGAPORE: Germany is keen on strengthening its economic ties with the Asia-pacific region, said German chancellor Olaf Scholz in his opening address at the 17th edition of the Asia-pacific Conference of German Business (APK) held here on Monday.

Scholz noted that the consequences of the Russia-ukraine war – hunger, energy shortages and inflation – were global despite the fact that the conflict might be far away geographically.

“Reducing risky, one-sided dependencies when it comes to certain raw materials or critical technologies will play an important role in the National Security Strategy that we are currently working on.

“Our view on the matter is clear: the best way to achieve more resilient supply chains is to diversify our trade relations,” he said.

The German chancellor is making his rounds in the Asia-pacific region. Having visited China on Nov 4, Scholz also touched base with Vietnam and Singapore last weekend, before proceeding to the G20 summit hosted by Indonesia.

The APK is jointly organised by the Asiapacific Committee of German Business, the German Federal Economics and Climate Action Ministry, and the German Chambers of Commerce Abroad in Asia-pacific.

“The Asia-pacific region is much more than China. The Asia-pacific Conference has been looking at the entire region for over 30 years now, and that is precisely why my government has decided to strengthen our support for this conference,” said Scholz.

Earlier this year, Scholz also met with prime minister Fumio Kishida in Tokyo, Japan. Moreover, Indian prime minister Narendra Modi paid the chancellor a visit in May.

Condemning Russia’s war aggression while stressing on the need to intensify partnerships with Asia, Scholz’s approach to these visits is to prepare Germany to be more shockproof in dealing with crises.

According to current forecasts, Asia will contribute around half of global gross domestic product (GDP) by 2050.

German Asia-pacific Business Association regional manager of Asean, Daniel Mueller, stated it was a well-known and accepted fact in Germany that Asia will be the heart of the new world order both politically and economically.

“Germany does not want to stand back and try to increase its engagement in the region. The signal is that we have understood the importance of the region and are willing to defend our interests.

“It is also a subtle signal to China that there are many opportunities beyond the People’s Republic,” he told Starbiz.

Mueller also stated that Asia-pacific countries should also, like Germany, actively diversify their markets in order to strengthen economic capabilities.

“Asia-pacific countries should also take into account the imperative of risk mitigation in an uncertain geopolitical environment and consider ‘economic security’ and likewise further diversify their external economic relations.”

In regards to Malaysia’s progress in building resilience across supply chains, Mueller opined that it was well on track.

“Malaysia is already relatively well positioned in this regard, both in terms of the various sources of economic growth and the various export markets,” he said.

Russia has been a reliable natural gas supplier to Germany for decades. When the war broke out, Germany found itself in a quandary as it struggled to either be weaned from Russia or seek an alternative source.

Konrad-adenauer-stiftung, Director of Media Programme Asia, Ansgar Graw concurred this and told Starbiz, “Following the energy crisis, Germany is now trying to avoid becoming entirely dependent on China for the manufacturing and production of goods.

“While Germany does not intend to decouple from China, it sees the need to seek for alternative markets in other countries.”

Scholz added that diversification did not mean decoupling, which he warned could be protectionism in disguise.

Among the German delegation, it could also be heard that German business leaders would resist heavily if Germany attempts to decouple from China.

“As long as China is not doing something like attacking Taiwan, the government cannot stop German businesses from investing in China. The government may only be able to resort to decline providing investment guarantees for German businesses.

“This was the case with carmaker Volkswagen AG when credit insurances to invest in Xinjiang, China were denied due to allegations of human rights violation in the Chinese province.”

Meanwhile, vice-chancellor and federal minister for economic affairs and climate action Robert Habeck noted that leaving China out of the equation would only backfire, as it will lose out on the opportunities the second-largest global economy brings.

“In the past, Germany invested a lot of money to build up the battery industry in Germany. We thought that by doing so, we would be able to be independent from China in the sector.

“The truth is we are not, as the raw materials that we use for that development are from China,” he said.

He further elaborated that the exchange of goods between Germany and this region was

550bil (RM2.6 trillion). Out of which, more than half of the goods exchanged are with China.

“China’s exchange of goods with the European Union is decreasing, or at least not increasing. This means that while China is orientated to the whole world, Europe is orientated to China.

“Hence, we need to continue to find ways to trade and do business with China,” he said.