As China's investments in Germany grow, so do the ethical pitfalls

On paper, the German city of Duisburg, population 500,000, seems like a perfect stop on the roadmap of China’s global ambitions.

Situated at the confluence of the Rhine and Ruhr rivers, Duisburg had become the poster child for industrial decline, a heady fall for a city long counted among the wealthiest in Germany. Duisburg fortunes were made via tobacco and textiles in the 19th century and coal, chemicals, and steel during the 20th. As a major industrial center, it was often targeted by Allied bombers during World War II. Though, as industry dwindled over the last few decades, high unemployment and low levels of education settled into the area’s DNA.

“Duisburg is a rather poor city,” says Susanne Löhr, managing director of the city’s Confucius Institute, a Chinese state educational organization tasked with overseeing cultural and educational exchanges. “But the city’s geography is very favorable as a logistical hub for Western Europe. That's a lucky coincidence.”

Indeed, as industry melted away, Duisburg’s key assets remained: the largest inland port in the world, with waterways, highways, and railways that connected to the rest of Europe.

So “favorable” is that geography that Chinese President Xi Jinping himself came to this gritty city for a look-see in 2014. Flanked by local leaders as a loaded freight train rolled in from Chongqing, Mr. Xi ceremoniously called for Germany and China to strengthen their economic ties. Duisburg is now an important terminus on China’s sprawling “Belt and Road” development program, and welcomes 35-40 trains from China each week. The city’s mayor has courted Chinese investors, and at least 60 Chinese companies have opened shop there.

Yet this raises questions whether Duisburg – dubbed by local media as “Germany’s Chinese city” – is opening itself up to ethical compromises or reputational risk by so openly welcoming Chinese investment. The pressure Beijing exerts on foreign entities is increasing, at a time surveys show the German public is increasingly negative on Chinese investment. What price is paid to engage with China?

“There is a red line”

That reputational risk is one the NBA knows all too well. This fall, the manager of the Houston Rockets tweeted support of the Hong Kong pro-democracy protests, which led to a massive public backlash by consumers in China.

A handful of German companies have faced similar situations. Two years ago, Audi used maps of China at a press conference that left off Taiwan and Tibet. Last year, Daimler was compelled to apologize to China after subsidiary Mercedes-Benz posted a Dalai Lama quotation on Instagram. Just this April, camera maker Leica distanced itself from the world-famous image of the Tiananmen “tank man,” after an affiliate used it in a tribute to photographers.

City governments aren’t immune to the wrath of Beijing or the Chinese public. Prague recently drew Beijing’s ire when its mayor moved to excise mention of Beijing’s “One China” principle from the two cities’ sister-city agreement. Beijing abruptly canceled that agreement, then retaliated further by canceling the Prague Philharmonic Orchestra’s long-planned 14-city tour of China.

Governments and businesses must walk a tightrope, for they face not only Chinese public backlash for the original offense, but also Western criticism should they apologize for that offense. Both can cost customers and reputation. Daimler’s apology to the Chinese public “angered Western media, and as a result further fanned the crisis,” according to the report “China’s Public Diplomacy.”

“There is a red line and you have to be aware of it,” says Kerstin Lohse-Friedrich, an analyst at the Mercator Institute for China Studies. “It’s not only about Taiwan, Tibet, or the Dalai Lama anymore, but about the geostrategic goals set out by the Chinese government. All parties must follow it or risk falling from grace.”

For that reason, Ms. Lohse-Friedrich says, if you're invested in China, or dependent on Chinese customers, it will “always come with a price [in Western circles]. You’ll always be asked, ‘Are you paid by the Chinese to say what you say?’”

Christian Rusche of the German Economic Institute says that German companies operating in Xinjiang – China’s northwestern region, where an estimated million ethnic Uyghurs and Kazakhs have been placed in camps – “have not shared or expressed their political opinion for fear of repercussions. If you’re against the Chinese Communist Party, then you automatically have the party against you.”

The benefits for Germans

Another issue is whether Chinese investment engenders the kind of prosperity that benefits the locals. In other words, does the economic promise President Xi represents, when he stands at the Duisburg port, ever materialize for his German partners?

Not always. German analysts who track foreign investment point to the Chinese appliance maker Midea’s purchase of German robotics maker Kuka. It was a hostile takeover and the German CEO soon announced his departure. References to failed Chinese investments in Frankfurt-Hahn Airport followed closely behind.

There’s also Parchim International Airport in the northern region of Mecklenburg. A Chinese company purchased that airport more than a decade ago, with locals expecting 1,000 new jobs, import-export activity from Belt and Road, and Chinese tourists with bulging wallets. Yet today the airport enjoys only traffic from training flights, very few tourists, and a handful of missed construction deadlines. “No takeoffs, no landings,” barked a recent news media report.

In Germany’s southwest, the town of Lahr saw Chinese investment become an issue in the last mayoral campaign. Lahr has built up school exchanges with three Chinese cities, and Chinese economic interests followed, especially as Lahr’s airport is fortuitously situated at the triangular border of Germany, France, and Switzerland.

Yet, a Chinese bid to manage the airport was portrayed negatively in the press, and the community became hesitant to invite Chinese investment. “All the mayoral candidates were critical,” says Wolfgang Müller, Lahr’s outgoing mayor. “It was a matter of principle. We don’t need the money.”

Ultimately, Mr. Müller says, Germany and China “need each other. We can’t be naïve. We can’t just fold our arms and say ‘no.’”

Back in Duisburg, Andree Haack, the city’s deputy minister for economic affairs, says development decisions will be made appropriate to the behavior of its partners. Ultimately, Haack says, when something happens that is “not compatible with our values … the international collective normally finds an answer.”

Burkhard Landers, head of the region’s chamber of commerce, offers more specific thoughts. “Sure, the public image of Chinese money isn’t always positive and we are, of course, reluctant to sell out on Germany,” Mr. Landers says. “But Duisburg isn’t for sale, and if a business from China is looking for a strategic partnership, the economy should be open to it.”