German VC cuts investment in China by US$5.5bn

Germany’s Vice Chancellor and Minister of Economics, Robert Habeck, has significantly reduced the liability for German companies’ investments in China since assuming office, with a total reduction of around €5 billion (US$5.48 billion), according to a report by German news magazine Der Spiegel. Habeck’s officials have rejected new investment applications from German companies in China four times, amounting to €101 million. Additionally, four extension applications worth €554 million were not permitted, and new applications totalling €4 billion were not even considered for decision.

The Ministry of Economics also postponed applications for extensions worth €282 million for companies that had potential business ties in Xinjiang, the Uyghur province. Consequently, the number of newly approved applications for state guarantees in China transactions dropped from 37 in 2013 to just nine last year. The report reveals that only five permits have been granted in the current year.

Since Habeck assumed office in December 2021 under Chancellor Olaf Scholz, the total approved guarantees amount to nearly €780 million, along with extended approvals for investment guarantees totalling €1.1 billion. Habeck, a member of the Green Party, shifted Germany’s economic policy towards China last November, adopting a “risk reduction approach.”

This reduction in liability for German companies investing in China reflects a more cautious approach by the German government, particularly in light of concerns over human rights abuses in Xinjiang. Habeck’s efforts have led to a significant decrease in approved guarantees and stricter scrutiny of investment applications, signalling a shift in the German-Chinese economic relationship.

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