European Union

German president heads to China as Beijing courts European economic ties

  • Frank-Walter Steinmeier’s trip comes as trade between two countries on track for all-time high
PUBLISHED : Monday, 03 December, 2018, 9:03am
UPDATED : Monday, 03 December, 2018, 10:19pm

China will host a state visit by German President Frank-Walter Steinmeier this week as Beijing seeks to lock up economic ties with major European powers amid a trade war with the United States.

Steinmeier’s six-day visit from Wednesday, his first to China since becoming Germany’s president in March 2017, will include meetings with Chinese leaders and a trip to the provinces of Guangdong and Sichuan in the country’s south.

Steinmeier was German Chancellor Angela Merkel’s foreign minister from 2005-09 and 2013-17, and advocated greater engagement with China.

But he attracted criticism in the West in 2007 when he refused to meet the Dalai Lama, leading to accusations that he was putting business interests ahead of human rights.

Beijing views the exiled Tibetan spiritual leader as a dangerous separatist and has lobbied foreign leaders against meeting him. Ties between China and Germany were strained for months after Merkel met the Dalai Lama following her first official trip to China in 2007.

Steinmeier’s trip comes as trade between the countries is on track to reach an all-time high this year, foreign ministry spokesman Lu Kang said last week.  

Lu said he hoped the upcoming China trip would further cement political ties and increase the countries’ strategic mutual trust.

Beijing is seeking to build economic ties with major European countries amid tensions with Washington over trade and technology.

Even though Chinese President Xi Jinping and his US counterpart Donald Trump reached a 90-day truce on the two countries’ trade war late on Saturday in Buenos Aires, analysts warned that Washington could continue to try to block China’s attempts to close the technology gap with the US through its “Made in China 2025” initiative.

The programme is at the forefront of Beijing’s plan to transform itself into an innovative hi-tech powerhouse by 2025. And when the US started implementing 25 per cent tariffs on US$34 billion worth of Chinese goods in July, it targeted 818 products central to the programme, particularly technological parts.

In the meantime, Germany, like other European Union members, must be careful to avoid alienating either China or the US.

Germany and China share an interest in opposing unilateralism and defending the multilateral trading system based on rules enforced by the World Trade Organisation.

German firms ‘will invest more in China’ despite trade war, slow reform

Over the weekend on the sidelines of the G20 summit in Buenos Aires, Xi told Merkel that China was ready to make joint efforts with Germany to safeguard multilateralism and an open world economy, according to state news agency Xinhua.

Merkel said Germany appreciated China’s commitment to multilateral cooperation and resolved to uphold the Paris Agreement on climate change.

But there is common ground between Germany and the US – for years both have been aggrieved at China’s slow progress in lifting market barriers to foreign investment and cutting the subsidies it gives state enterprises.  

Wang Yiwei, a European studies professor at Renmin University, said China and Germany needed each another to withstand the US trade friction and to explore the market potential for China’s artificial intelligence advances, among other things.

“Donald Trump’s threat to levy 25 per cent tariffs on European carmakers has been the sword of Damocles for Germany,” he said.

Xi reaches out to Europe as US trade showdown at G20 looms

Chinese analysts have urged Beijing to fix its relations with its trading partners to counter the pressure from Washington.

A source close to the Chinese government said that pressure being exerted by the US, the EU and Japan on China over its trade practices and industrial policies had Beijing worried that its standing in the world could deteriorate.

The source said the central government must take quick, concrete action to create a level playing field for foreign investment and reduce the subsidies it unnecessarily gives its state firms.

Although China has risen to become the world’s second-biggest economy, “it did not move towards more opening up as it pledged or [had been] expected in the West”, the source said. “Its rise should not deviate from the mainstream society of Europe and the US.”

After Merkel’s visit to China in July, Beijing approved German chemical giant BASF’s plans to build a wholly owned plant in Guangdong. It also allowed German carmaker BMW to raise its stake in its joint venture with China’s Brilliance Automotive to 75 per cent from half, making BMW the first company in China’s vehicle sector to take advantage of Beijing’s removal of foreign-ownership limits.

Business insiders called the moves goodwill gestures aimed at cementing the trading alliance with Germany. But they still called for a wider opening up of China’s markets.

Chinese Vice-Premier Liu He said last week in Hamburg that China was willing to promote deeper cooperation with Germany in finance, trade and investment, and work closely with it to defend free trade.

Exit the Dragon? Germany gets tough on Chinese investment

When German Foreign Minister Heiko Maas visited China in November, he said talks with Chinese leaders focused not only on trade, but on the human rights issues related to the reported massive detention of Uygur Muslims in Xinjiang. The Uygurs talks, however, were “free of controversy”, Reuters reported.

China has overtaken the US in the past two years as Germany’s largest trading partner, according to German and Chinese statistics. Germany has long been China’s biggest trading partner in the EU. China’s trade volume with Germany alone is equivalent to its total combined trade volume with Britain, France and Italy.

But despite its close trade interaction with China, Germany is still wary of the impact of China’s state capitalism on market competition and its potential to erode the competitiveness of German partners. Germany also has voiced its concern about the effects of an increased Chinese presence on centralEuropean countries.

While Germany has said it welcomes China’s ambitious “Belt and Road Initiative”, a trade plan to link economies from Europe to Asia and Africa into a China-centred trading network, it has not fully embraced the concept.

As China pours investment into its belt and road countries, the German government has tightened its investment scrutiny because of national security concerns and blocked a Chinese proposal to acquire German machine equipment maker Leifeld Metal Spinning.

But Gavakel Dragonomics economist Xie Yanmei said Germany was “far more reluctant than the US to confront China and remains committed to engagement, so it will not sign up for a cross-Atlantic alliance to contain China”.

“Beijing is unlikely to covert Berlin into an ally, but doesn’t need to worry about it turning into an open foe either,” Xie said in a research note.

In a business confidence survey released on Tuesday, the German Chamber of Commerce in China called for the establishment of a reliable and transparent regulation environment.

US-China decoupling is already under way, says author

It also said that while half of the companies in its survey believed in Beijing’s commitment to further opening its markets, the results “have fallen short of the expectations of German companies in China”.

In addition, the chamber called Made in China 2025 a good opportunity for joint business development, but it said “non-transparent framework and subsidy conditions as well as the preferential treatment of Chinese companies hamper the dynamic cooperation between German and Chinese partners”.