BASF is leaving its home in Ludwigshafen and putting down new roots in China. A decision that could shake not only the German labor market but also the geopolitical balance.

The Ludwigshafen-based chemical giant BASF is giving up its German site in favor of its activities in the People’s Republic of China. This is at least what the company’s most recent investment decisions suggest. A new composite plant is to be built in Zhangjian, China, for a total of ten billion euros.

Conveniently located by the sea, the new hub will be able to deliver BASF goods into China and out of Asia. At the same time, nine plants will be closed at the main site in Ludwigshafen and around 700 jobs will be cut. As for other German companies, the Chinese market is vital for BASF’s survival. 40 percent of sales come from the Middle Kingdom.

Germany, on the other hand, says the highest levels of the group, no longer contributes anything to the company’s results. The reasons for this are overregulation, bureaucracy and increased energy prices due to the war in Ukraine.

Anyone who argues like this overlooks the fact that dependence on Russian oil will sooner or later lead to total dependence on the Chinese market. The dictatorships of Moscow and Beijing are close allies, and their declared common enemy is the Western world, which includes Germany.

This fact is brushed aside in favor of corporate arithmetic, which rarely thinks beyond the quarterly result and beyond distributions for shareholders and bonuses for management.

For the moment, it seems that the company is prepared to play along with Beijing in order to achieve its goals. BASF was only able to bring itself to withdraw from Xi Jinping’s terror province of Xinjiang, where the ethnic Uighur minority has been badly mistreated by Beijing for a decade and even forced into labor, after loud, public protests. Moreover, the fact that cooperation with Chinese actors means having to reveal company secrets and possibly being robbed of intellectual property does not seem to have a negative impact on the bottom line.

Alexander Görlach is Honorary Professor of Ethics at Leuphana University in Lüneburg and Senior Fellow at the Carnegie Council for Ethics in International Affairs in New York. After a stay in Taiwan and Hong Kong, he focused on the rise of China and what this means for the democracies in East Asia in particular. From 2009 to 2015, Alexander Görlach was also the publisher and editor-in-chief of the debate magazine The European, which he founded. Today he is a columnist and author for various media outlets. He lives in New York and Berlin.

There is no doubt that Germany, now the country with the lowest growth rate among all OECD countries, has fallen behind in international competition. However, it was German companies themselves that defended the status quo against politicians for too long and reacted too slowly to the challenges of digitalisation.

In addition, the production conditions in the People’s Republic were unbeatable, especially because of the cheap labor. China now has a high unemployment rate, over 20 percent among the younger generation, so Beijing welcomed the announcement that new jobs would be created in Zhangjian.

In addition, environmental protection is not a priority in Xi Jinping’s dark empire. The chemical industry is not subject to the same regulations as in Europe. This will account for at least part of the “bureaucratic burden” that BASF is complaining about. The decision has been made to hold the reins of an industrial and environmental policy from the 1980s and not just to accept the overexploitation of nature as a byproduct with a heavy heart, but to actively pursue it.

The new plant in Zhangjian will produce, among other things, 46,000 tonnes of brake fluid annually, which will probably go primarily to the heavily state-subsidised Chinese car industry. Europe and the USA are at odds with Beijing over its subsidy policy, which allows electric cars to be sold well below market price.

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Xi Jinping’s aim is to force a tough competitor, the German car manufacturers, out of the market in this way. It therefore seems entirely short-sighted that Ludwigshafen did not take into account that the commitment in the People’s Republic would cost jobs at BASF in Germany.

In March, ruler Xi visited a BASF production facility in Hunan province, where parts for the batteries of Chinese electric vehicles are manufactured, and reiterated his goal of making China a location for high-quality industrial production.

This is also a thinly veiled declaration of war on Germany, which would be legitimate if German and Chinese companies were actually fighting to improve their products for the benefit of their customers. However, Xi wants to use economic policy to create political dependencies that he and his nomenklatura can exploit at any time.

The fact that BASF, like other companies, is trying to grab crumbs from the cake that fall from Xi’s table is nothing new in the history of capitalism. But giving up its headquarters in the heart of the democratic, prosperous continent of Europe to serve a dictatorship, believing that it will retain the upper hand and perhaps even win in this arrangement, makes no economic sense in the long term.