Iran likely to be high on agenda for China, Germany during Angela Merkel visit

Beijing will also be hoping Berlin can help ease European concerns over its trade and industrial policies, observers say

PUBLISHED : Sunday, 20 May, 2018, 2:40pm
UPDATED : Sunday, 20 May, 2018, 11:09pm

China will try to maximise cooperation with Germany to form a united front against the United States on Iran when German Chancellor Angela Merkel goes to Beijing this week, observers said.

Merkel will visit China for talks on Thursday and Friday at the invitation of Premier Li Keqiang, her 11th trip to the country, the Chinese foreign ministry announced on Friday.

Berlin and Beijing have differences over trade, cybersecurity, human rights and China’s investment in Germany and across Europe, but Merkel’s trip comes after the US announced it would withdraw from the 2015 Iran nuclear deal and vowed to impose sanctions on Tehran.

China and European nations have called for the deal – under which Iran agreed to open its nuclear facilities to international inspectors in exchange for the lifting of economic sanctions – to be kept, and Merkel has been at the forefront of calls within Europe to remain united around the pact.

Jan Weidenfeld, a China policy researcher at the Mercator Institute for China Studies, said Merkel would try to learn more about Beijing’s position in order to better deal with Washington.

“She will be sure to sound out what the US administration might have been saying to the Chinese about future Iran policy,” he said.

Beijing would meanwhile emphasise the importance of multilateralism on the Iran issue and Europe countering the US, said Chen Tao, from Tongji University’s German research centre in Shanghai.

Business entities with commercial ties to Iran could be targeted if Washington imposes sanctions. German lender DZ Bank has already said it will suspend financial transactions with Iran in July.

European businesses had been subject to US penalties before the 2015 deal. For example, Commerzbank paid US$1.45 billion to the US in 2014 for violating Washington’s sanctions. But lifting the sanctions led to an increase in trade between Germany and Iran from 2.7 billion (US$3.2 billion) in 2014 to 3.5 billion last year.

Chinese businesses involved in Iranian developments were worth at least US$33 billion as of June 2017, according to China’s commerce ministry.

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Tytti Erasto, a researcher at the Stockholm International Peace Research Institute, said China and the European Union were major economic players with a shared interest in countering the US sanctions.

“The more countries oppose the sanctions, the less appealing it becomes to the US Treasury to impose penalties and the less effect sanctions will have on Iran,” she said.

“In the short term the EU and China could share ‘best practices’ and cooperate on protecting their banks and companies from US sanctions – for example through non-US-based dollar-clearing facilities and legal measures.”

Merkel will meet President Xi Jinping on Thursday, followed by a stop in Shenzhen where she will visit a Siemens facility and other sites. On Saturday, Merkel said China and Germany would talk about reciprocal access in trade and multilateralism.

Li Lezeng, also from Tongji University’s German research centre, said Beijing would also be hoping Berlin can help ease concerns from the EU over China’s trade and industrial policies.

The EU, like the US, is concerned about Beijing’s “Made in China 2025” strategy to support its domestic tech sector and alleged intellectual property theft, but it opposed Washington’s move to impose punitive tariffs.

Some member states also worry that Beijing’s activities in central and eastern European countries, including an annual summit with 16 countries in the region, could become “a Trojan horse for China to shatter the bloc’s unity” in areas from the single market to foreign investment vetting, the Financial Times reported over the weekend. Bulgaria will host this year’s summit in July.

“China will emphasise that it has started to open more in market access for cars, medical products and other areas,” Tongji researcher Chen said. “Germany, Europe and the Western world should push for free trade and oppose protectionism by doing things like relaxing limitations on Chinese investment in Germany and Europe.”

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Jiang Shixue, an international relations professor at Shanghai University, said China was fully aware of its growing negative image in Europe and that its infrastructure investments in smaller European nations were creating division.

“In recent years, the [perception of a] ‘China threat’ has been spreading in Germany,” he said. “Some Germans even want to increase reviews of Chinese enterprises in Germany. This is not good for Chinese investment in Germany.”

EU presents (nearly) united front against China’s ‘unfair’ Belt and Road Initiative

Germany is considering stepping up investment screening mechanisms to tighten controls on foreign takeovers because of increasing concerns about Chinese investment in Germany and across Europe.

Merkel advocated for investment screening at a European level, a proposal that was floated last year at the EU and triggered a protest from China, which insisted its investments in Europe – including through the “Belt and Road Initiative” – benefited all parties.

The sprawling initiative to boost trade and infrastructure links across Asia, Africa and Europe has led to a backlash over a lack of transparency and debate over Beijing’s motives, and it is expected to come up when Chinese officials meet Merkel.

“The German side has no intention to sign any [belt and road] MoU the Chinese side might present them with,” Weidenfeld said. “The only [belt and road] memorandum of understanding Berlin would at least vaguely consider signing would be one between China and all EU member states.”

Merkel’s stance on the trade initiative has emphasised the lack of reciprocity between Germany and China, with German firms saying China has not opened its markets enough.

Friedolin Strack, managing director of the Asia-Pacific Committee of German Business at the Federation of German Industries, said that while business opportunities in China were “very positive” for German firms, there were still “asymmetries in market access”. Strack cited China’s lack of openness in digital trade, adding “we are worried that the situation for foreign business might not improve in the years ahead”.