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Merkel means business in Beijing with heavy-hitting delegation

Chancellor's heavy-hitting team kicks off visit with a dozen deals - now all she has to do is convince China of Europe's promise

PUBLISHED : Friday, 31 August, 2012, 12:00am
UPDATED : Friday, 31 August, 2012, 9:03am

German Chancellor Dr Angela Merkel has brought Germany's largest ever business delegation with her to China, but experts say the fast-changing global economy could cast a shadow over her mission.

The chancellor arrived in Beijing yesterday accompanied by seven cabinet ministers and two dozen leading German businessmen.

A separate delegation led by Foreign Minister Guido Westerwelle arrives in Hong Kong today. This is the second visit in five years by Westerwelle, who will give a luncheon speech on the debt crisis in Europe.

The unprecedented high-level visits by German officials underline the country's eagerness to foster stronger ties with China.

"Both our governments are working hard to further deepen and broaden our strategic partnership," Westerwelle told the South China Morning Post ahead of his visit. "An important pillar of our comprehensive partnership is our dynamic economic relations."

Merkel's two-day visit to China got off to an auspicious start. The two governments announced a dozen major deals at a press conference by the chancellor and Premier Wen Jiabao - including ICBC Leasing's US$3.5 billion order for 50 Airbus jets.

But Mark Williams, the chief Asia economist for Capital Economics, said it was hard to judge if her visit was successful based only on the deals announced.

"Governments always come under pressure to demonstrate visible gains from a high-profile visit - usually in the form of orders for products which probably would have happened anyway," the London-based economist said. "But the successes of a visit lies in incremental progress."

Still, the growing economic links between China and Germany - the world's second- and fourth-largest economies - are undeniable.

While German manufacturers still sell more of their products to other European nations, China is expected to soon overtake the US as its largest trading partner outside the continent, according to the Association of German Chambers of Industry and Commerce. German exports to China have almost tripled in the past five years.

Westerwelle said the trip's goal was to develop a deep and wide-ranging relationship.

A key mission for Merkel and Westerwelle is to convince Chinese leaders that Europe can keep its debt crisis under control. Beijing sees Berlin as the de facto decision-maker in Europe and is eager to hear from the chancellor on the region's prospects.

"Chancellor Merkel has a difficult sales job," Williams said. "To policymakers in Beijing, Europe must look divided, its leaders bickering among themselves, unable to get on top of a crisis that seems to be dragging on interminably."

The German foreign minister admitted the euro-zone crisis had shaken faith in the region.

"It is true: the debt crisis has morphed into a crisis of trust in the project of European integration," he said. But Germany remained "deeply committed to the European Union and Euro currency" and he was confident the region would emerge from the crisis "stronger than ever".

Westerwelle said the measures Europe took would rest on three legs: budget consolidation, structural reforms to restore competitiveness and "solidarity with weaker partners".

The minister noted "encouraging signs" in Ireland, Italy, Portugal and Spain. Curiously he did not mention Greece, whose debt troubles have propelled the crisis.

But even if Merkel can make a convincing case to her Chinese audience about Europe's promise, it remains unclear whether China is in a position to help as its own growth slows.

Williams pointed out that Chinese investments in Europe were far below the level needed to make a meaningful difference, and the situation was not going to change soon.

"Now that the People's Bank [of China] is no longer accumulating huge quantities of foreign exchange reserves, it has less to invest abroad," Williams said. "In any case, risks to the euro are skewed to the downside, making any sizeable investment in the single currency a bold call for a manager of the state's foreign exchange reserves."

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