From October 24 to 26, 2024, during his visit to India, German Chancellor Scholz not only offered 90,000 technical talent visas to Indian Prime Minister Modi, but also actively promoted German businesses to establish a presence in the emerging Indian market.
One of the key focuses of this visit was to strengthen economic cooperation between Germany and India, especially in the context of the current global economic uncertainty, with Scholz seeking to open new markets for German manufacturing.
However, despite Scholz’s enthusiastic promotion, senior executives from German companies have shown a cautious attitude.
This raises a question: what strategic purpose does Scholz’s visit serve, and can Germany truly rely on India to resolve its current economic difficulties?
Scholz’s visit to India, on the surface, aims to promote economic cooperation between Germany and India, but in reality, it reflects a profound crisis in Germany’s current economic situation.
According to the economic forecast report released by the German government in early October, the dual impact of shrinking global demand and trade wars has led to a 0.2% contraction in Germany’s GDP, signaling that Germany may face two consecutive years of economic decline.
It is especially noteworthy that on October 29, 2024, the European Union officially approved a bill imposing tariffs on Chinese electric vehicles, which means that for the next five years, the automotive industries in Germany and other EU countries will face tariffs of up to 45.3% on the Chinese market.
The passing of this bill undoubtedly worsens the trade relationship between Germany and China, and it also prompts Germany to seek new markets to reduce its dependence on China.
Although India cannot rival China in many aspects, its large population and emerging consumer market have become a new hope for the German economy.
Scholz stated that Germany is confident in expanding trade cooperation with India, as the total trade between Germany and India has already surpassed 30 billion USD.
However, senior German executives are not as optimistic about these expectations.
If the purpose of Scholz’s visit was merely to sell some industrial products to India, perhaps German companies would have no reason to refuse this business opportunity.
However, Scholz encourages German companies to view India as a key market for future development, which has made many German companies very uneasy.
Siemens CEO Roland Busch bluntly stated that although the Indian market has some growth potential, the per capita income in India is much lower than that in China, meaning that India could never replace China’s significant position in the global market.
In Busch’s view, Scholz should not force German companies to choose between China, India, or Southeast Asia, as it is only by freely selecting markets based on each industry’s characteristics that greater economic benefits can be achieved.
Vice President of the German Chamber of Commerce Volker Treier was even more direct, pointing out that India can never become a global economic powerhouse like China.
Since Scholz is so optimistic about India’s economic prospects, why do German companies generally feel cautious about entering the Indian market?
First, there are significant policy risks in the Indian market.
India’s regulatory system is complex and constantly changing, and foreign companies in India often face an unstable policy environment.
Scholz’s mentioned “decoupling” strategy is actually intended to help German companies avoid the risks of the Chinese market.
However, the investment environment in India is not as safe as he describes. The Indian government’s regulation of foreign investment is often sudden, and India’s relatively weak contract enforcement makes it difficult for companies to ensure long-term returns on their investments.
Second, India’s manufacturing weaknesses are another major issue. India’s greatest advantage is cheap labor, but low wages do not equate to high productivity.
India’s infrastructure deficiencies, especially the instability of logistics and power supply, severely restrict the growth of its manufacturing industry.
Furthermore, the lack of a comprehensive supply chain for components means that Indian manufacturing is unlikely to handle the production of high-end products.
For a country that cannot even precisely manufacture iPhone cases, whether India can become an ideal production base for Germany’s high-end manufacturing remains an open question.
Germany’s economic ties with China have always been very close, with China’s low-cost and efficient production model benefiting Germany immensely over the past few decades.
However, with changes in the global trade landscape, Germany is facing severe "decoupling" pressures.
Before his visit to India, Scholz attended the BRICS summit in Kazan, Russia, where discussions on cooperation between BRICS countries also indicated that Western nations are accelerating their "decoupling" from China.
In the past, Germany was one of the major export markets for Chinese-made products, and many German companies have production bases in China, providing numerous employment opportunities for the Chinese market.
If economic relations between Germany and China continue to deteriorate, it will have a huge impact on German manufacturing.
Therefore, the challenges posed by Chinese manufacturing in the global economy, especially the "decoupling" pressure from countries like Germany, have become an undeniable reality.
1. Expanding foreign trade markets: In today’s complex global economic situation, China must accelerate its trade cooperation with other countries and regions, especially BRICS nations.
The "South-South Cooperation" discussed at the BRICS summit in Russia is an opportunity for China to strengthen its cooperation with developing countries, and in the future, China should further expand economic cooperation with BRICS countries to reduce dependence on European and American markets.
2. Expanding the scope of foreign investment attraction: With the upgrading and opening of China’s manufacturing industry, China is gradually easing market access for foreign investment.
Especially in core sectors like finance and healthcare, foreign investments are gradually gaining more opportunities.
In the future, China can attract more foreign enterprises by offering a more relaxed business environment, further strengthening the competitiveness of global manufacturing.
3. Increasing domestic demand investment: With the withdrawal of foreign capital and increased tariffs, unemployment and income reductions in the livelihood sector may occur.
Therefore, developing the domestic market and enhancing domestic consumption, especially improving income levels among low-income groups, will be key to alleviating economic pressure.
Through increased public spending and livelihood subsidies, China can promote consumption and service sector growth, driving the expansion of the domestic market.
Scholz’s visit to India hides a deep economic crisis that Germany is facing and the transformation of its external economic dependence.
Although the German government hopes to seek new economic growth points by deepening cooperation with India, the actual concerns of German companies remind us that the Indian market is not an easy substitute for China.
In the context of increasingly fierce global economic competition, China must not only steadily push forward foreign trade development but also strengthen the construction of the domestic market to ensure sustained and stable economic growth.
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