Hong Kong/London
CNN business
—
German Chancellor Olaf Scholz arrived in China on Friday, We must continue to do business with the world’s second largest economy.
In a whirlwind one-day visit, Mr. Scholz will meet with Chinese President Xi Jinping and Premier Li Keqiang in Beijing.
Scholz will join representatives of 12 German industry giants, including CEOs of Volkswagen (VLKAF), Deutsche Bank (DB), Siemens (SIEGY) and chemical giant BASF (BASFY), according to people familiar with the matter. It’s a group. They will meet with a Chinese company behind closed doors.
It will be the first visit to China by a G7 leader in about three years, as Germany heads into recession. But there are growing concerns that the economic interests of China, Europe’s largest economy, are still closely tied to those of the Chinese government.
Since this year’s invasion of Ukraine, Germany has been forced to abandon its longstanding dependence on Russian energy. Now, some in Scholz’s coalition are nervous about the country’s growing ties with China. Beijing has declared that its friendship with Russia has “no limits”, Relations between China and the United States are deteriorating.
The tensions were recently highlighted by heated debates over a bid for Chinese state shipping giant Cosco to buy a 35% stake in the operator of one of Hamburg’s port’s four terminals. Due to pressure from some members of the government, the investment size was limited to 24.9% of his.
A potential deal has raised concerns in Germany Closer ties with China would leave critical infrastructure under political pressure from Beijing and disproportionately benefit Chinese companies.
But Germany is hardly in a position to shake relations with Beijing We are on the task of reviving our struggling economy. Its consumers and businesses are bearing the brunt of Europe’s energy crisis and a deep recession is looming.
The separation of the European Union and Germany from China would lead to a “huge GDP loss” for the German economy. Lysandra Flack, director of the ifo Center for International Economics, told CNN Business.
Kiel Institute for World Economics estimates A sharp drop in trade between the European Union and China would mean a 1% drop in Germany’s GDP.
Germany needs to strengthen its export market as relations with Russia, once a major supplier of natural gas, continue to deteriorate.
When it comes to China, Germany “doesn’t want to lose this market, this economic partner,” said Rafal Uratowski, assistant professor of political science and international studies at the University of Warsaw.
“they [will] Try to maintain this relationship whenever possible. ”
China has stepped up trade with Russia while openly remaining “neutral” in the war as the West imposes heavy economic sanctions on Russia.
That’s how it started a Some companies are already wary of doing business in China because of the strict “zero Covid” restrictions.
Pressure on Berlin is also mounting over China’s human rights record. In an open letter Wednesday, a coalition of 70 civil rights groups urged Scholz to “reconsider” a trip to Beijing.
“The invitation of the German trade delegation to join your visit will be seen as a sign of Germany’s readiness to deepen trade and economic ties at the expense of human rights and international law. ‘, they wrote in a memo published by World Uyghur Parliament. The Germany-based organization, run by Uyghurs, raises awareness of allegations of genocide in China’s Xinjiang Uighur Autonomous Region.
It suggested that Berlin was “relaxing its economic dependence on one authoritarian power, but deepening its economic dependence on another.”
In an editorial published in a German newspaper on Wednesday, Scholz said he would use his visit to “address difficult issues” including “civil and political liberties and respect for minority rights in Xinjiang.” Stated.
At a press conference last week, a German government spokesman said the country would not “cut off” from its most important trading partner, addressing widespread criticism.
“[The chancellor] Basically, he’s repeatedly said he’s no friend to cut off or turn away from China. But he also says it “spreads and minimizes risk”.
Last year, China was Germany’s largest trading partner for the sixth year in a row, with trade volume up more than 15% since 2020, according to official statistics. In 2021, Chinese imports from Germany and exports to Germany together were worth €245 billion ($242 billion).
Still, the turmoil surrounding the Hamburg port agreement is a reminder of the trade-offs Germany must face if it wants to maintain close ties with such important export markets and suppliers.
A spokeswoman for Hamburger Hafen und Logistics (HHLA), which operates the port terminal, told CNN Business on Thursday that the deal with Costco is still under negotiation.
Flach, of the ifo Center for International Economics, said the deal required scrutiny because “there is no reciprocity and Germany cannot invest in a Chinese port, for example.”
But Alexander-Nicolai Sundkamp, associate professor of economics at the Kiel Institute for the World Economy, said it’s easy to overstate the impact of a potential deal.
“We’re not talking about a 25% stake in the Port of Hamburg or a port operator, we’re talking about a 25% stake in the terminal operator,” he told CNN Business.
Jürgen Matthes, head of global and regional markets at the German Economic Research Institute, told CNN Business that critics were no longer simply weighing the business benefits of Chinese investment in Germany. .
“Politics and economics must be considered together and can no longer be separated,” he said. “When geopolitics are involved, the perception of China becomes much lower and more negative,” he said.
China’s recent treatment of Lithuania has also deepened. The concern is that Beijing is “simply unwilling to break its trade rules,” Mattes added.A small country in Eastern Europe claimed last year China has erected trade barriers in retaliation for its support of Taiwan.
China defended the downgrade of relations with Lithuania and said it was acting in response to European countries undermining their “sovereignty and territorial integrity.” After a senior Lithuanian official visited Taiwan earlier this year, Beijing also announced sanctions against her, vowing to “stop all forms of interaction” with her ministry.
When the German delegation lands on Friday, it will face another problem that has become the biggest headache for companies across China.
“The biggest challenge for German companies remains China’s coronavirus-free policy,” said Maximilian Vutek of the German Chamber of Commerce in China.
“Regulation is stifling economic growth and is having a significant impact on China’s attractiveness as a destination for foreign direct investment,” he told CNN Business.
He said the wider restrictions have become so stifling that some companies have moved their regional headquarters to other locations such as Singapore. “It is almost impossible to manage an entire region without being able to move freely,” he added.
In a brief statement, Volkswagen told CNN Business that the CEO attended the trip after “almost three years without an in-person meeting” due to the coronavirus pandemic.
“Given the completely changed geopolitical and global economic conditions, a trip to Beijing offers an opportunity for a personal exchange of views,” said the automaker.
Despite Beijing’s coronavirus measures and geopolitical tensions, Germany has every economic incentive to get closer to China.
Dependence on China can be seen across industries. About 12% of total imports last year came from China, but China accounted for 80% of imported laptops and 70% of mobile phones, Sandkamp said.
The automotive, chemical and electrical industries also rely on Chinese trade.
“If you stop doing business with China, you’re going to have problems,” Sandkamp added.
China accounted for 40% of Volkswagen’s global shipments through the third quarter of this year and is also the largest market for other automakers such as Mercedes.
The wariness of some German officials about Germany’s proximity to China may influence more restrictive trade policies, but economic cooperation still benefits both sides.
German Economy Minister Robert Habeck told Reuters last week that the government was working on a new trade policy with China to reduce its dependence on Chinese raw materials, batteries and semiconductors.
Anonymous sources also told the news agency that the ministry is considering new rules that would make doing business with China less attractive.The ministry did not respond to a request for comment from CNN Business.
But Butek of the German Chamber of Commerce said, “Despite all the possibilities and challenges, for many German companies, China remains unique in terms of market size and market growth opportunities.” said.
“The majority will continue to focus on the Chinese market and expect their business to grow,” he predicted.
Companies appear to be following that line. Last week, BASF CEO Martin Brudermüller was quoted in Chinese state media as saying Germans should “stay away from China-bashing and look at themselves a little more self-critically.”
“We are benefiting from China’s policies to expand market access,” he said at a company event, according to the state-run Xinhua News Agency, noting that BASF’s chemical engineering hub is being built in southern China.
— CNN’s Simone McCarthy, Chris Stern, Lauren Kent, Claudia Otto, and Arnaud Siad contributed to this report.