Trade Delegation

Merkel's Chinese Handcuffs

merkel in china.dpa
Chancellor Merkel is on an important three-day trip to China, where she has met with the country's leader Li Keqiang.
  • Why it matters

    Why it matters

    China wants the European Union to recognize it as a market economy, but European companies complain that they face discrimination by Beijing.

  • Facts

    Facts

    • The European Union Chamber of Commerce has said 70 percent of its members feel less welcome in China today than they did a decade ago.
    • German companies are concerned that Chinese competitors are trying to take their technical know-how and undercut them through price dumping.
    • China has threatened a trade war with the European Union if Brussels doesn’t recognize it as a market economy.
  • Audio

    Audio

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Chancellor Angela Merkel faces a diplomatic tightrope walk during her three-day trip to China this week as tensions mount between Beijing and Europe over trade and investment.

China’s state news agency, Xinhua, has gone so far as to threaten Brussels with a trade war if the bloc doesn’t officially recognize Beijing as a market economy and do away with anti-dumping tariffs.

Ms. Merkel tried to ease tensions on Sunday during a speech to the Beijing Academy of Sciences, suggesting that China must address E.U. grievances before it receives recognition as a market economy, which would ease China’s ability to acquire companies and do business in Europe.

“No person has an interest in larger trade wars,” she said. “We don’t want that between the E.U. and China. But that also means we have to speak openly about existing problems.”

Chinese Prime Minster Li Keqiang also doesn’t want a trade war, he told reporters after the two leaders met with business leaders on Monday for bilateral talks, signing deals worth some €2.7 billion ($3 billion).

“China isn't a monolithic block of state capitalism. There are many different players and a number of independent private companies.”

Andy Gu, Vice President, Midea

After 24 agreements were inked between companies like Daimler and BAIC Motor Corporation, along with Airbus’s German helicopter unit and the China Aviation, Merkel stressed the need for transparency. Foreign investors need clear rules, she said, adding that Europe is “working on a solution” toward granting China its coveted market economy status.

“I don’t think it’s good to make this whole thing too emotional,” she said.

Though Germany hasn’t taken an official position on whether or not to grant China market economy status, Economics Minister Sigmar Gabriel has been critical of Beijing.

“If a country wants to receive the international status of a market economy, then it can’t behave like a state-led economy,” Mr. Gabriel told Der Spiegel news magazine.

When China  joined the World Trade Organization in 2001, a passage was included in the protocol that allowed China to be granted market economy status after 15 years, or by December 11, 2016. Under WTO rules, it would then become more difficult to initiate anti-dumping cases against Chinese goods.

But European companies complain that Beijing, despite promises of reform, continues to deny them market access while bolstering their Chinese competitors with lavish financial support.

In a recent poll, 70 percent of the 1,600 members of the European Union Chamber of Commerce said they feel less welcome in China today than they did a decade ago.

A long-standing source of tension is the glut of cheap Chinese steel that has flooded the European Union’s market, threatening to undercut the bloc’s domestic manufacturers.

“That’s a big problem for European steel manufacturers,” Ms. Merkel said during her speech. “We of course have to see that we have fair competition.”

There’s also growing concern among government officials and corporate executives that Chinese companies are trying to seize control of advanced German technology.

In the most controversial case, the Chinese company Midea has made an unsolicited bid to gain a controlling stake in the Bavarian industrial robotics company Kuka.

The household appliances manufacturer has offered Kuka €115 per share, which would value the company at €4.6 billion ($5.2 billion).

Under an economic strategy called “Made in China 2025,” Beijing has staked out the goal of controlling 70 percent of the global robotics market over the next decade.

Andy Gu, the vice president of Midea, rejected speculation that the Chinese government is orchestrating the Kuka deal.

“From the beginning, it was purely a business decision for us,” Mr. Gu told Handelsblatt. “Political considerations never played a role.”

“We are a private company,” he continued. “It’s not about what the Chinese government wants.”

Mr. Gabriel is leading an effort to find a European company to make a counteroffer. Siemens and ABB have been tipped as the top candidates,

But so far, there haven’t been any takers. On Sunday, Siemens chief executive Joe Kaeser said the company wasn’t interested in Kuka.

“If we had been interested, we would have acted on it some time ago,” Mr. Kaeser said in an interview with German broadcaster n-tv.

Kai Lucks, chairman of the German Association of Mergers and Acquisitions, said the German government needs greater powers to intervene and stop attempted acquisitions by foreign companies.

Under current German law, Berlin can only veto foreign acquisitions of domestic arms manufacturers and other strategic defense-related industries.

Kuka, which produces automated and digital manufacturing systems, doesn’t fit the bill.

“The case of Kuka has demonstrated that neither the E.U. nor the German federal government could have intervened,” Mr. Lucks told Handelsblatt.

Despite the heightened tensions, business interest in China remains high. Germany’s publicly traded DAX companies now generate 13 percent of their earnings in China.

Ms. Merkel brought along half her cabinet and a business delegation that includes the chief executives of Siemens, Thyssen and BASF.

On Monday, she and Chinese Prime Minster Li Keqiang are set to join economic representatives from the two countries as they sign more than 20 business deals.

Mr. Gu of Midea believes Europeans need to update their view of the world’s second largest economy.

“China isn’t a monolithic block of state capitalism,” Mr. Gu said. “The reality is totally different. There are many different players and a number of independent private companies.”

“I hope Europeans will begin to perceive this in the future,” he said.

 

Stephan Scheuer is Handelsblatt’s China correspondent, based in Beijing. Thomas Sigmund is the bureau chief in Berlin, where he directs political coverage. To contact: scheuer@handelsblatt.com and  sigmund@handelsblatt.com

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