Ich bin ein Beijinger

German GDP growth is becoming increasingly dependent on China

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10 Feb 2012
Week in China

Kudos where it's due. WiC sometimes chuckles at the heavy-handedness of the editorial opinion in the Global Times, a spiky observer at the best of times.

Relations between China and the wider world often come in for some of the most voluble treatment. But a cartoon in the newspaper timed to coincide with the visit of German Chancellor Angela Merkel this month captured the scene rather perfectly.

A picture really can be better than a thousand words, after all.

The scene shows a frustrated Merkel hand-in-hand with a bedraggled-looking character which turns out to be a figurine of the Euro currency. She is tapping hopefully on the Chinese imperial gate (which looks resolutely secure), imploring to be allowed inside.

China has been the single largest source of German export growth in recent years.

The observation of a deepening relationship between the world's two biggest exporters was well-made, as Merkel travelled to Beijing and Guangzhou on a three-day visit,
her fifth since becoming Chancellor in 2005. What did the Chinese have to discuss with their anxious visitor?

A huge trading opportunity?

As a trading relationship the two countries are increasingly important to one another, Jian Junbo, an assistant professor at the Institute of International Studies at Shanghai's Fudan University, told Asia Times Online.

China has been the single largest source of German export growth in recent years, with bilateral trade expected to reach $169 billion this year, up from last year's $142 billion. China is also expected to overtake France as Germany biggest trading partner in 2012, according to Wolfgang Münchau, writing in the Financial Times. Surely, that's symbolic?

But how wilkommen is China in Germany?

Just before Merkel's trip, news emerged that Sany Heavy Industry, the Changsha-based machinery company owned by China's richest man, Liang Wengen (worth $9.3 billion last year, according to Forbes magazine) had bought Putzmeister, based in Aichtal near Stuttgart. The family-owned company makes pumps and piping for concrete and other industrial materials, and the deal was valued at $476 million.

Putzmeister said its Aichtal headquarters will become Sany's new global headquarters for concrete-related machinery, with Germany to serve as Sany's bridgehead into the wider world.

Over in China, German companies are also eyeing growth, nowhere more so than in Taicang, a town near Shanghai, where more than 160 German companies have set up shop in the city's economic development area.

"We are thinking of nothing but expanding and expanding," Erik Breslein, general manager of Zollner Electronic (Taicang), told the China Daily this week, claiming demand for Zollner's products was high, in areas like railway and subway systems.

Da Wenmin, director of Taicang's business development bureau, said the town aims to increase the number of German companies in the area to 200 by the end of the year.

Investor ties?

On the Guangzhou leg of Merkel's trip, Premier Wen Jiabao, who had accompanied the Chancellor in an unusual gesture of respect, noted that Germany had invested $18.3 billion in China's market since it opened to the world in 1978, while China had invested just a fraction of that in Germany, the Frankfurter Allegemeine Zeitung reported.

German companies are also eyeing growth, nowhere more so than in Taicang, where more than 160 German companies have set up.

In fact, China wanted to invest much more, and saw plenty of opportunity in areas like energy and environmental protection, Wen said. The problem was German policies on technology transfer, which stymied the potential flow of Chinese capital into the German economy.

There followed an enjoyable exchange between the two delegations on the technology transfer issue, as Wen sought to emphasise his point with a little flattery.

"We can learn from you there," he assured his German visitors.

But Merkel refused to entirely fall for his charms. "You already know almost everything that we know," she shot back, presumably more in reference to concerns about China's (lack of) protection of intellectual property rights rather than in praise of its domestic record for innovation.

German innovation needed to be safeguarded, Merkel went on, and she seems to have been rewarded with a verbal nod from Wen, who said that he understood that these were part of Germany's "core interests", FAZ reported.

But Wen had a carrot to dangle...

Getting concrete help for the eurozone's debt crisis would have been Merkel's main goal for the trip, Spiegel Online thought.

Obviously, China is concerned about economic weakness in the eurozone, both in terms of its impact on demand for its exports, as well as the risk to the value of its euro-denominated debt holdings. As such key to the dialogue with Merkel and her government was the subject of Europe. Beijing expects Germany to take the lead in sorting out the current financial mess.

But part of that effort, the Germans hope, is that China will help out with what Merkel called the the eurozone's "debt and competitiveness crisis" – as she phrased it in a speech to the Chinese Academy of Social Sciences.

So far, the Europeans have been disappointed, with China behaving as something of a 'bailout tease'. Despite frequent talk of assistance, there has been little sign of more substantive action.

And sure enough, Wen was soon fluttering his eyelashes at Merkel once again, as part of a joint briefing conducted during her visit.


In truth, Germany has a complex relationship with China.

"China is considering increasing its participation in the solution of the European debt crisis through the channels
of the EFSF and ESM, "Wen promised, referring to the
€500 billion European Stability Mechanism fund due to come on stream in July.

True to form, little extra detail was on offer. So far, around 40% of the rescue fund's bonds have been purchased by Asian investors, Spiegel Online noted. China is still to sign off on any formal commitment.

Not just about das kapital...

Despite her caricature in the Global Times cartoon, it would be unfair to cast Merkel purely as Europe's supplicant-in-chief. In fact, she has been quite pushy in other facets of her dialogue with China. On the current trip, for instance, the German delegation handed over a list of 20 cases of alleged persecution of civil rights activists. And Merkel, who grew up in East Germany, has made a point of meeting with civil rights lawyers and dissident thinkers during previous visits. German sources say her interest is a deep and personal one, and she called bluntly for China to improve its political freedoms in 2009 when Xi Jinping, the heir apparent to President Hu Jintao, was guest of honour at the Frankfurt Book Fair.

The message hasn't necessarily got across. In Beijing last week police stopped the lawyer Mo Shaoping from attending a dinner at the German Embassy in Merkel's honour, provoking criticism from the Chancellor. Likewise editors at a Guangdong newspaper known for its more independent line also cancelled a meeting with her at short notice, allegedly under pressure from the central government. Merkel then urged that China be confident enough to allow divergent voices to be heard from civil society. Notably the remarks were carried widely by German media but not by the Chinese press.

In truth, Germany has a complex relationship with China. German engineers came in the late seventies and helped kickstart a Chinese manufacturing base that had been a byword for inefficiency. Meanwhile its big companies – such as Volkswagen – were among the first to see the potential of the China market and make extremely long term investments (see Focus issue, The Magnificent Seven).

But as China grows in importance and clout, the Germans back home are not always comfortable with the consequences. Last week 700 of Putzmeister's employees demonstrated against the firm's sale to Sany. Making high quality exports for China suits Germans; being owned by Chinese less so.

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