Fear of war over Taiwan is growing, international criticism of China is getting louder. Should companies turn their backs on China as a business location? Otherwise, does Germany make itself open to blackmail? Above all, the focus is on the German car industry, which is strongly represented in China. In an interview with ntv.de, industry expert Ferdinand Dudenhöffer urgently warns against short-sightedness. The consequences of a China conflict could “not repair the federal government’s aid packages, no matter how good”. The world would be divided and “there is no going back”.

ntv.de: Against the background of the Taiwan crisis, critics are calling for a decoupling from China – even if it costs prosperity. Is the German car industry already looking for alternative locations? And if so, where is the journey going?

Ferdinand Dudenhöffer: This journey is going nowhere. You can of course look for new locations, for example in the USA, but there are comparatively few buyers there. America is not a growth market. Europe is also difficult. In China today there are around 110 cars per thousand inhabitants, in the USA there are 750. We estimate the long-term market potential of China at 50 million new cars, today we are at 20 million. The future of the auto industry lies in Asia. And by that I don’t mean Japan, but China, and besides China, India, Vietnam, Indonesia or Thailand. China has no alternative.

Potential is one thing, but accusations of human rights violations and totalitarian tendencies are another. Shouldn’t the German car manufacturers, with their strong presence in China, have long since taken a stand and used their influence?

This is difficult in practice. China is ruled by the Communist Party. KP suggestions are implemented immediately. We have a discussion first. The Chinese often ask us whether state authorities are involved in projects. They think that everything will be easier then, because a lot is ordered from above. The German car manufacturers only have a very limited political influence in China. If we want to work together economically with China, we need politics. When a state or government official says something, it is taken seriously. That is why politicians should weigh their words very carefully.

Despite revelations of human rights violations against the Muslim Uyghur minority, Volkswagen is sticking to its plant in Xinjiang province. Doesn’t a group like Volkswagen have a moral obligation?

VW says all human rights and labor conditions that exist are respected at the Chinese plant. It is a fallacy to believe that the Chinese government can be dictated to how it treats the Uyghurs in the region. We will not change the way ethnic minorities are being patronized by VW closing the plant. That would not only have disadvantages for VW. It would have consequences beyond that, because it would expose the Chinese central government.

You mean provoke. Wouldn’t that change anything?

Leaving would have an effect similar to US Democrat Nancy Pelosi’s visit to Taiwan, but on a smaller scale. To do that, you have to understand Chinese culture. The worst thing for a Chinese is losing face. With us, a politician survives that. The Chinese are proud of what they have achieved over the past decades and are happy to show it to the outside world. Also in the form of demonstrations of power, which are not good, but which are sometimes provoked. For example, by former US President Donald Trump, who instigated the tariff war. If China sides with Russia, it shouldn’t come as a surprise. Beijing thinks differently than the West.

Then, from your point of view, the order of the day is: Close your eyes and go through with it?

I am reminded of former chancellor Helmut Schmidt, who once said: Germany should be careful not to be the moral apostle of the world. If you look at which countries are democratic, like the USA or Germany, you won’t get very far. We also have to live with those who have other systems. The Uyghur problem is difficult, but the US also had Guantanamo. Is Taiwan part of communist China? That is difficult to answer. The Chinese President says we have a strategy called “One China”. And Pelosi flies to Taiwan and ridicules Xi in front of his own people. This is tough for the Chinese, which is why they reacted harshly. Going into confrontation gets you nowhere. I’ve always believed that you can talk to the Chinese and come to an agreement.

The German plastics retailer Covestro is keeping the decision on location – China or USA – open for the construction of a rigid foam plant worth billions. Risks and opportunities are reassessed. Doesn’t engagement in China in these times mean making oneself open to blackmail?

That’s right. And we cannot 100 percent rule out a development like the one with Russia. You have to consider: What do you lose from a China embargo? And what do you gain by leaving the country early for fear of that risk? As of now, the answer is: you would lose a lot. Volkswagen pays its employees in Wolfsburg and the shareholders with money earned in China. Do we want to lose this?

Today, 75 percent of the battery cells for electric cars come from China. That’s where the companies that dominate the technology are located. Chinese battery champions such as CATL, CALB, BYD, Farasis, Gotion, SVOLT are building plants in Germany and Europe. Should we really cap that and hope for startups? We not only import technology from China for the battery. Think Huawei and 5G internet or autonomous driving. Through joint ventures and cooperation, we can solve a crisis more easily than if everyone closes their borders and one teams up with the US and the other with Russia.

Driving twice couldn’t hurt though…

Let’s take a look around: With France, Greece and Italy, we don’t have strong economies in Europe. Putin-Russia is no longer imaginable, nothing is happening in the East anymore. At the same time, at the instigation of China 2020, the world’s largest free trade agreement RCEP was concluded with 15 Asia-Pacific countries. Incidentally, Japan, South Korea and Australia are also involved in RCEP. Toyota is making great efforts to sell more cars in China. Incidentally, so do the US automakers General Motors and Ford. Isn’t a segregation doctrine a bit naïve?

But the great China wave of the 1990s is over. Growth rates are no longer in the double digits, and wage and labor costs are rising. Isn’t this stubborn adherence to one location a bit backward-looking?

No, because the potential in China is still immense. And because China will take other Asian countries and Africa with it. What was the Western strategy for Africa over the last 50 years? We have extracted oil, gold, copper and other raw materials from the continent. Point! With the new Silk Road, the Chinese are building a logistics network that will industrialize Africa. Of course China makes money with it, but Africa gets a future, like the 1.4 billion Chinese in the last 50 years.

The EU Commission passed the “Chips Act” at the beginning of February. By 2030, a fifth of global semiconductor production is expected to come from Europe. There are attempts to cut the cord from China…

Yes, it makes sense to develop your own strengths. But can we really do everything? And can we finance everything in the long term? Especially now, when we are going very clearly into a “no trust” policy and need immense defense budgets. It makes sense not to make all the semiconductors yourself, but to pick out strategically interesting ones. Chip is not chip. The EU Commission already had a lot of plans that came to nothing. Just think of the EU Google, the biotech program and fast internet.

De-globalization and more regionalization is one answer to the supply chain problem…

De-globalization is a mistake. Corona and the lockdowns were a world problem. Learning from the supply chain disaster does not mean producing everything on your doorstep at enormous cost. Toyota and BMW, for example, came through the crisis better than Mercedes or VW. The reason is the better purchasing system through multiple sourcing. And that can be expanded with data-driven processes and artificial intelligence. The task is to make the system better and not trash the system.

So swarm out and spread risks. Let’s get back to the Taiwan crisis. What happens in a worst case scenario?

For Germany, a China embargo would be the GAU. In the conflict with Russia, the lack of gas hurts, everything else is manageable. In the foreseeable future we will be out of this dependency. In the event of a conflict in China, the sales markets collapse, the Chinese may end their foreign commitments, and technology imports fall by the wayside. Even the best aid packages from the federal government could not fix that. The world is divided and there is no turning back. The risk is high that the western world will fall into the weaker position. The balance of power is lost. We must not jeopardize the cooperation, but we should protect ourselves with a no-trust strategy.

The auto industry relies on large Taiwanese semiconductor manufacturers such as TSCM. Could Beijing demand severing business ties?

Beijing does not rush blindly into adventure. We must give China a chance to save face, build diplomatic bridges and find a modus vivendi together. To do this, we must make it clear that the damage caused by an escalation will also be greater for China than the benefit. Pulling out now, as many are calling for, would merely signal Beijing that taking over Taiwan is now relatively cheap.

Diana Dittmer spoke to Ferdinand Dudenhöffer