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China’s rise prompts German lawmakers to rethink

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A student holds flags of China and Germany in Beijing. Reuters

BERLIN (Reuters) – As a golden era for its exporters fades, Germany is scrambling to secure its interests in Beijing, but China’s transformation from customer to competitor is forcing Europe’s largest economy to make changes at home.

China has been crucial to Germany’s recent expansion, sucking in German cars and industrial goods to create the infrastructure that has allowed it to grow into the world’s second-largest economy.

But the great export boom, turbocharged by the euro replacing the stronger deutschmark, is fading as China moves up the value chain and innovates faster than many German firms, which are also caught in the crossfire of US President Donald Trump’s ‘America First’ trade policies.

Foreign trade acted as a drag as imports grew faster than exports in 2018 and the German economy posted its weakest growth in five years, official figures showed on Tuesday.

While German exports to China still grew by nearly 10 percent year-on-year from January to November, Chinese demand for ‘Made in Germany’ goods is waning.

“The business outlook for German companies in China is getting clouded,” said Volker Treier of Germany’s DIHK Chambers of Industry and Commerce. In November alone, German exports to China grew only by 1.4 percent, Mr Treier said.

A general cooling of the Chinese economy and the uncertainty caused by the US tariff dispute are hurting Sino-German trade.

With German industry pressing for a more robust approach to China, Finance Minister Olaf Scholz heads to Beijing this week to seek better access for his country’s businesses, especially banks and insurance companies.

German policymakers and business executives say China’s state-driven economic model leaves them at a disadvantage.

With its “Made in China 2025” plan, Beijing is pushing domestic development of technologies such as electric cars. Abroad, it is buying know-how through acquisitions of firms such as German robotics maker Kuka.

Berlin stresses its “close and advantageous trade relations” with China, whose rise has demoted Germany from third biggest economy in the world to fourth.

“At the same time, we are increasingly looking to better protect and strengthen sensitive German and European business sectors from state-run strategic overseas acquisitions,” an Economy Ministry spokeswoman said.

In an unusual move, Germany’s influential BDI industry association last week called for tougher European Union policies towards China and urged companies to rely less on the Chinese market.

Chancellor Angela Merkel prefers to resolve differences with China through dialogue, rather than adopting Mr Trump’s approach of threatening trade tariffs.

In this spirit, Mr Scholz will seek to persuade Vice Premier Liu He that Beijing should be more open to foreign firms.

In November, Beijing let Germany’s Allianz Group establish China’s first foreign insurance holding company.

Mr Scholz is expected to use the talks to tell China that it is in its own interests to further open up its economy and create mutually fair conditions for trade and competition, and to ease tensions with the United States.

The question is whether Beijing shares this view.

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