De-risking instead of de-coupling – How German companies should adapt their China strategy

The latest developments in German-Chinese economic relations raise important questions for German companies. The German government has announced a new China strategy aimed at making German companies more aware when doing business in China. But does this really mean that German companies should permanently disengage from the Chinese market? Here are the key points and recommendations of the German Association of Materials Management, Purchasing and Logistics (BME) on the current situation.

De-coupling or de-risking: what is the best strategy?

Riccardo Kurto, Head of the BME China Office, emphasizes that while the German government’s new China strategy is intended to sharpen German companies’ awareness of their business activities in the People’s Republic, this is not synonymous with a permanent decoupling from the Chinese market. The key message is that it is time to reduce risks rather than decouple completely from China.

Why is de-coupling unrealistic?

A comprehensive analysis by the BME Expert Group China in March 2023 came to the conclusion that the idea of de-coupling is not a realistic option. It is unlikely that alternative and stable supplier options can be realized through this strategy. Instead, German companies should focus more on de-risking and diversifying their supply chains.

“China plus one” and Multiple Sourcing

One way to reduce the risk is to pursue the concept of “China plus one”. This means that German companies should consider alternative procurement markets in addition to their business activities in China. Southeast Asia and Eastern Europe in particular are cited as promising regions.

The importance of global supply and value chains

Germany’s economic prosperity depends heavily on functioning global supply and value chains. In view of the numerous international challenges, the BME advises companies to reassess economic dependencies in their supplier portfolio in light of geopolitical conflicts. Every company should carry out this analysis independently based on available alternatives and its position in the supply chain.

Conclusion: a balanced strategy is crucial

The German government’s China strategy should encourage German companies to critically review their business activities in China and minimize risks. However, the motto is not to permanently decouple from China, but to pursue a balanced strategy based on de-risking, diversification and “China plus one”. Ultimately, it is up to each company to choose the most suitable strategy for its individual situation.