Siemens: The bellwether of globalization

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Elisabeth Braw is a senior fellow at the American Enterprise Institute and adviser at Gallos Technologies and a regular columnist for POLITICO.

Siemens is the quintessential representative of the globalized economy.

As soon as world leaders agreed on the Iran Nuclear Deal, it signed a €1.5-billion contract to modernize the country’s railways, only leaving after America’s withdrawal made it impossible for Western companies to stay. It remained in Russia after the annexation of Crimea. And it’s also stayed in China, even announcing a new large investment just this June. Weeks later, however, the engineering giant then announced a far larger investment at home in Germany.

The fact that one of the world’s most enthusiastic embracers of reforming markets seems to be getting apprehensive about China is a sign of where globalization is headed — and other companies should take note.

Siemens is a company known for its willingness to enter riskier markets. In the 1850s, founder Werner von Siemens sent his younger brother Carl to Russia, where the latter built the country’s telegraphy system. A couple of decades later, the German company entered China, where it built the country’s first tram line. And after the worst Communist years, it was among the first Western companies to reestablish operations in China and Soviet Russia.

Earlier this summer, Siemens was signaling it would be sticking with China. “We will keep on investing in China, and defending and expanding our market share,” CEO Roland Bush said after meeting with China’s Minister of Industry Jin Zhuanglong in June, announcing a €140-million investment in the industrial city Chengdu — a large investment that will help Siemens’s high-tech machinery factory in the city expand by 40 percent.

But even though the announcement looked like just one of the many that Siemens has made in recent years, it was different: It will “serve the local growth opportunities in China for China,” Busch told reporters. But there was no talk of supplying the world with goods made in China. “I avoid the word decoupling because decoupling means deciding either/or, and nobody wants to do that ,” he said.

In their meeting, Jin had made an energetic pitch for a return to business relations with China circa 2019. “The meeting showed that in addition to cooperation in the traditional manufacturing industry, China and Germany are seeking new cooperation points including green transformation and the digital economy,” Cui Hongjian of the China Institute of International Studies said.

But the same day, Busch also announced investments of another €200 million in Singapore, and it had already allocated €220 million dollars to a rail-manufacturing facility in North Carolina. Then, in July, the company unveiled a €1 billion investment in . . . Bavaria.

The globe-spanning engineering conglomerate’s decision is great news for Germany — and a sign of the times.

The Chinese government has been leaning heavily on German multinationals like Siemens — until recently some of the world’s most enthusiastic participants in the Chinese economy — to maintain their commitment to the country. Jin promised that “the ministry will comprehensively promote high-level opening-up in the manufacturing industry, create a market-oriented, rule-of-law-based and internationalized first-class business environment, support multinational enterprises to increase their investment in China in advanced manufacturing fields such as intelligent manufacturing, and promote the digital transformation of small and medium-sized enterprises (SMEs),” the Chinese Communist Party’s Global Times newspaper reported.

The industry minister is rightly worried about German (and other foreign) companies’ concerns regarding rule of law in China. Ever since first arriving in the country decades ago, many multinationals have put up with the peculiarities of Chinese capitalism — including enforced joint ventures and cross-licensing with local firms. But recently, political interference in business has accelerated too — and it hasn’t just hit foreign companies. Even China’s most illustrious homegrown giants, including Alibaba, have discovered that the government can suddenly intervene in their operations.

Multinationals have noticed this change in a tangible way: In the past year, companies had more political-risk losses in China than in any other country except Russia. As late as 2021, China wasn’t even among the top five on this list, which has traditionally been populated by the more turbulent Egypt, Russia, Argentina, India and Venezuela.

China’s Minister of Industry Jin Zhuanglong is rightly worried about German (and other foreign) companies’ concerns regarding rule of law in China | Sean Gallup/Getty Images

This is precisely why Jin has been trying to charm Western companies — as has China’s new Prime Minister Li Qiang, whose first foreign trip on the job was to France and Germany last month. Li told German business leaders that he “understood each side’s concerns about security,” but he also added that “protecting against risks does not conflict with cooperation.”

But these charm offensives seem to have been in vain.

To be sure, Siemens and others will keep doing business in China because not doing so would be folly. Their love affair with Beijing, however, is waning. It’s noteworthy, said Joachim Lang, the former Director-General of the Federation of German Industries, that Siemens is significantly expanding its facilities in Bavaria, “and at the same time, it’s establishing facilities in Singapore in order to serve the Asian market and make itself a bit more independent of China.”

And Siemens isn’t alone: A recent survey by the German Chamber of Commerce in China shows that 54.9 percent of German companies active in China plan to keep investing there — a 17.1-percentage point drop from 2020 — and 20.5 percent aren’t planning further investments, up from 12 percent in 2020. Furthermore, 42.2 percent of the companies that aren’t planning further investments state geopolitical tensions as the reason; 28.4 percent of them find China’s economic policies targeting self-reliance — like Made in China 2025, for example — to be the motivating reason; and 57.8 percent overall cite low expectations for market expansion.

“The slower-than-expected market development, as well as ongoing geopolitical tensions, have dashed hopes for a quick improvement in the business environment,” the German Chamber of Commerce in China explained. But geopolitics aside, if German companies are no longer convinced that China’s economy will continue its disarming path, no charm offensive will make a difference. And like Siemens, even the companies that keep investing are now making similar or larger investments in safer countries.

Busch clearly wants to keep one foot in China. But the fact that he’s adding weight to the company’s operations at home — and even to its presence in Singapore — is a sign that China is no longer irresistible.

Siemens is a globalization bellwether, and other companies are watching. They should start taking note of the company’s decisions too.

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