Siemens Plans Domestic Investments as Germany Sours on China

The Lede: Following Germany’s release of a new ‘Strategy on China’ in mid-July, Siemens announced €1 billion ($1.1 billion) in domestic investments in conjunction with a foreign investment approach that will pursue ‘de-risking’ from China.

What We Know:

• Recently, the German engineering company Siemens has announced major investments within Germany with sights on €500 million for new factories and facilities for electronic components and machine tool controls in Erlangen, Bavaria. The venture has a completion date in 2029 and will increase production capacity by 60%. The site already employs 3,500 people and more jobs are projected for this expansion. Total investments are expected to reach €1 billion.
• The company has also announced investments at foreign sites such as €200 million for a plant in its industrial automation division in Singapore and €220 million for a rail-manufacturing facility in North Carolina.

The Background: Germany announced a new “Strategy on China” in mid-July that sets forth the path toward ‘de-risking’ from Beijing. It included warnings about security risks of investing in the country and future goods that will be subject to export controls. Already, multinationals have experienced more political-risk losses in China due to government intervention than in any other country except Russia. Last month, Siemens announced investments in factories in China including a €140 million to expand a plant in Chengdu that makes robot control software and other industrial machines as well as a new research and development center in Shenzhen for motion control systems.

Likely Outcomes:

• The announcement of these new plans follow announcements of Siemens’ investments in China from the previous month. Although Siemens aims to continue seeking opportunities in China, these new plans still constitute a diversification away from heavier projections of the company’s ties to the country’s market. While the company works on maintaining its China presence and boosting investments elsewhere, the shifting sentiment for Siemens is significant given its track record of getting involved in riskier markets. Other German and Western companies may view this as a litmus test for the way that global markets are blowing.
• Given the sentiment among German businesses after the country’s adoption of a China strategy, German companies will likely continue to sour on China’s economy and move more into the ‘de-risking’ path by pulling back on investments there and making similar or even greater investments in countries that are safer for business. Firms in other European countries that fall in line with this approach will see increasing global diversification moving forward.
• The quick risk assessment and pivot on the part of Siemens here reflects the capacity for firms to change plans as geopolitical conditions change. Germany’s China strategy may signal some risk ahead for business in that market, but there is some lack of clarity on the part of the German government. This may lead some to question the state’s willingness to enforce such a vision for relations with China. In that case, businesses will seek to profit from loopholes and gaps in policy.

Quotables:

“I avoid the word decoupling, because decoupling means deciding either/or and nobody wants to do that . . . the difference is diversification, which is looking at how you can serve more markets . . . which makes you at the same time more resilient.” – Roland Busch, Chief Executive Officer of Siemens

Good Reads:

Siemens: The bellwether of globalization (Politico)

Siemens to spend 1 billion euros in Germany as Berlin warns about China (Reuters)

Siemens to spend $2.2 bln to ramp up global production (Reuters)

Siemens unveils big investments in China and Singapore factories (Financial Times)