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Germany

China urged to give foreign companies a fair chance to compete with domestic firms

Outgoing German ambassador calls time on stint in China by urging authorities to finally come good on promises to open markets

PUBLISHED : Saturday, 30 June, 2018, 11:03pm
UPDATED : Saturday, 30 June, 2018, 11:02pm

China should take concrete steps to ensure foreign companies enjoy a level playing field, especially in key hi-tech sectors, the outgoing German ambassador to Beijing has said.

In a farewell interview with the South China Morning Post, Michael Clauss warned there were concerns that Beijing’s current policies favouring domestic firms over their foreign competitors might prove the blueprint for the future. He also expressed hope that pledges to improve market access would finally lead to action.

China is aiming to move on from being the workshop of the world by boosting its hi-tech sector, with the Made in China 2025 plan – which is designed to bolster areas such as robotics and new energy vehicles – forming a key plank of its economic policy.

But the strategy, which promotes selected domestic companies, has fostered concerns that foreign businesses will be excluded from the country’s markets.

The ambassador said the industries promoted under the strategy were “almost identical” to those at the heart of German’s own technological development.

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“German companies are concerned that China’s industrial policy might foster ‘indigenous’ industry champions at their expense,” he said.

Clauss highlighted the example of China’s high-speed railways, where he said German suppliers were either being excluded because Chinese firms had managed to reproduce their products or were being pushed into minority status in joint ventures.

“Some fear that this could be the blueprint for future bilateral economic relations,” he said.

Clauss has been his country’s ambassador to China since 2013, during which time the two countries have developed closer economic ties.

China regards Germany as an important economic partner and its advanced manufacturing strength remains a big attraction for Beijing.

China has been Germany’s biggest trade partner over the past two years, overtaking the United States, with the volume of trade surpassing US$200 billion for the first time last year.

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The two countries also agree on the need to tackle climate change and preserve the Iran nuclear deal, and share concerns over US President Donald Trump’s administration and its trade policies which threaten to undermine the multilateral system based on the World Trade Organisation (WTO).

“Although there is some disagreement on issues like market access, we both share the conviction that trade conflicts should be handled within the framework of the WTO system and by observing WTO rules,” the ambassador said.

Clauss, who will become the German ambassador to the European Union , said both sides should seek to push ahead with the China-EU Comprehensive Agreement of Investment, which would pave the way for negotiations for a free-trade agreement.

Beijing and Brussels are expected to exchange offers on market access during next month’s EU-China summit in Beijing.

“We appreciate that China seems to be willing to show more flexibility on market access issues. We expect that this will be finally followed by concrete measures,” Clauss said.

“China usually justifies the delays in opening its market with its developing status. It seems to be legitimate to ask whether this status is still appropriate for China, given that it is the biggest economy in the world in terms of purchasing power parity.”

He also argued that a transparent public tendering process was necessary if China wanted European firms to engage with its key global instructure project, the “Belt and Road Initiative”.

“From a political perspective, aspects like debt sustainability and the commitment to social and environmental standards remain essential,” he said, highlighting some of the concerns raised about the project.

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Here is the full transcript of the interview:

Q: How do you assess the development of bilateral relations between Germany and China since you were appointed as German ambassador to China five years ago?

Michael Clauss: Since I assumed office as German ambassador in 2013, relations between Germany and China have intensified considerably in almost all aspects. Trade, in particular, has grown, with the volume of exchanged goods soaring from US$160 billion in 2013 to more than US$200 billion last year. I am very pleased to see that in other fields such as politics, culture, or people-to-people exchanges, our two countries are also moving closer together. For example, since 2013 the number of Chinese citizens living in Germany has increased by almost 40 per cent, forming an important bridge between our two countries and peoples.

When it comes to international politics, we can see that our leaders share similar views, be they on international climate policy or the Iran nuclear agreement, to mention just two major topics. But as our relations grow closer, there is also more friction, for example regarding German concerns about the “Made in China 2025” strategy, about involuntary technology transfer – an issue German companies raised during Chancellor Merkel’s recent visit to Beijing, and about Chinese concerns regarding investment screening in Germany and Europe.

Q: Why is the Made in China 2025 strategy a cause of concern for Germany and German companies?

Clauss: The Made in China 2025 strategy focuses on 10 strategic industries that are almost identical with the core of Germany’s technological basis. German companies are concerned that China’s industrial policy might foster “indigenous” industry champions at their expense. For example: for the new Fuxing platform for high-speed trains, most German suppliers are either excluded because Chinese suppliers have managed to reproduce their products or they are being pushed into minority joint ventures. Some fear that this could be the blueprint for future bilateral economic relations.

Q: How do you react to complaints that Germany is becoming more and more restrictive vis-à-vis Chinese direct investments?

Clauss: Germany remains one of the most open markets for foreign investment. Chancellor Merkel made it clear during her recent visit that Chinese investment continues to be welcome. However, such an exceptionally high degree of openness requires a greater degree of reciprocity from the Chinese side in order to be sustainable.

Q: Could you outline the common interests that Germany and China share with regard to the current developments in international trade relations?

Clauss: Although there is some disagreement on issues like market access, we both share the conviction that trade conflicts should be dealt with within the framework of the WTO system and by observing WTO rules. Germany and China both profit from a rule-based, transparent and open international trade system. In order to give our shared convictions more substance, we should intensify our endeavours to conclude an EU-China Comprehensive Investment Treaty and a Free Trade Agreement.

Q: What role could an EU China FTA play in easing tensions in the international trade system?

Clauss: In 2013, the same year I assumed office, the EU and China started negotiations on a comprehensive investment treaty (CIT), the conclusion of which would pave the way for negotiations on a free-trade agreement. So far, progress in the negotiations has been limited. However, we have recently received more encouraging signals: we appreciate that China seems to be willing to show more flexibility on market access issues.

We expect that this will be finally followed by concrete measures. China usually justifies the delays in opening its market with its developing country status. It seems to be legitimate to ask whether this status is still appropriate for China, given that it is the biggest economy in the world in terms of purchase power parity.

Q: To what extent was China’s “Belt and Road Initiative” an issue during Chancellor Merkel’s recent visit to China?

Clauss: The Belt and Road Initiative was not really an issue during Chancellor Merkel’s recent visit to Beijing. Germany seeks a common EU position on B&R. From a political perspective, aspects like debt sustainability and the commitment to social and environmental standards remain essential.

In general, European companies are still somewhat hesitant regarding B&R. European companies need transparent public tender processes based on international rules in order for them to be inclined to engage in the Belt and Road Initiative.

Q: Some EU member states, like those participating in the 16+1 format, are more ready to engage with China. What is your assessment of this?

Clauss: China has indeed become more transparent. Nevertheless, we would prefer for China to deal directly with Brussels. What definitely should be avoided is that issues under the exclusive competence of the EU, like trade or customs, get dealt with in the framework of the 16+1 format. It is also important that 16+1 will not be used to circumvent EU procurement rules.

Q: Speaking of closer cooperation, what is the current state of affairs with regard to the football exchange programme between China and Germany?

Clauss: We are pleased to see that football cooperation between Germany and China is back on track. Germany has a lot to offer: we have some of the best youth academies in the world and a very effective system of coaching and refereeing education. These are precisely the tools China needs now to become more competitive in football. Our clubs and our national football association are well-positioned to provide technical expertise in these fields.

Q: Could you share some personal thoughts with our readers at the end of your five-year term as German ambassador to China?

Clauss: From the first day onward, my family and I have very much enjoyed our stay in Beijing. We feel fortunate to have been granted the possibility to immerse ourselves in China’s tremendously rich culture and to become familiar with its people and customs during our many travels. Staying in China has greatly enriched our lives. We will leave behind many friends, who will keep us attached to China on a personal level for a long time to come.

I wholeheartedly wish China and its people a successful, prosperous future.