play fair

Hey China, Grace Over

China’s Premier Li Keqiang waves as he arrives for a news conference after the closing ceremony of China’s National People’s Congress (NPC) at the Great Hall of the People in Beijing
A change is as good as market access. Source: Reuters [M]

The visit of Chinese Premier Li Keqiang to Berlin could be a celebration, because seldom have Germany and China needed each other quite as much as they do now. After the fiasco with Donald Trump in Sicily it is hugely important for Chancellor Angela Merkel to focus on cooperation with Beijing, to make sure that her ideals of free trade and an equitable form of globalization retain their relevance at July’s G20 summit in Hamburg – especially in this election year.

But a genuine partnership can only function between equals, and that is not the reality of economic relations between Berlin and Beijing. For years the People’s Republic of China asked for forbearance whenever the Germans and other Europeans complained about discrimination and lack of access to markets. After all, Chinese politicians claimed, China was a developing country and needed more time. But this period of grace is now well and truly over.

The country has become the world’s second largest economy and has to accept its responsibilities. Of course, every state pursues an industrial policy which supports its domestic economy, but Beijing always goes one step further. Many branches of industry are still completely taboo for foreign companies, and that is not fair.

German carmakers Volkswagen, Daimler and BMW have shaped the Chinese automobile industry and made it as big as it is today. And yet they are still being forced into “arranged marriages” with Chinese automakers to comply with a regulation that’s more than 40 years old. And to top that: For electromobility, a key market of the future, Beijing is planning the real-time transfer of sensor data to a state-controlled databank. That is dangerous, because it enables conclusions to be drawn about the technical specifications of cars. And new rules could force companies to share even more know-how with Chinese partners than they already do.

China‘s health sector is regarded as one of the most important markets of the future. Society is ageing in the world‘s most populous country, and high-quality medical care is becoming increasingly more important. Companies like Siemens can provide the technology needed for the right kind of patient care. But the Chinese State Council in Beijing has already made it abundantly clear that Chinese hospitals should buy predominantly Chinese medical equipment. There are reports from several provinces that clinics have even been prevented from buying equipment from companies like Siemens.

In July a new cyber security law will come into force. Of course, it is right and proper that the People‘s Republic attaches great importance to close scrutiny of critical infrastructure and to make sure it meets the highest standards. But it would be a fatal blow for technology companies like SAP if they were forced to share security keys with authorities, or even install backdoors in their programs for investigators. If Peking fails to provide clarity here, technology firms might well stay clear of China in the future.

Disadvantages are even clearer in the services sector. Many of the most interesting industries are completely off-limits for international firms. Foreign companies are not permitted in either the telecommunications sector, postal services or the media sector. And in banking and insurance, international companies have hardly any room for maneuver.

None of that is symptomatic of a close partnership between Germany and China. Demands from populists in Europe to reject approaches from Chinese firms are becoming increasingly strident. Investors and company buyers from the Far East are being portrayed as a danger. The many examples of inadequate market access in China are the strongest arguments of critics demanding barriers to ward off companies from the People‘s Republic.

Enthusiastic free traders will find it increasingly more difficult to prevail against such criticism if China doesn’t open its markets. In his speech to business leaders in the Swiss resort of Davos early in the year President Xi Jinping declared that free world trade was an objective of his government. But pronouncements on their own are not enough.

And yet it would be easy to make genuine progress. Brussels and Beijing have been negotiating an investment agreement for more than three years. Discussions have faltered because China continues to insist on a “no-go list” for investment. EU companies can only invest in industries which are not on this list. If Mr. Xi is really serious about his promise of free trade, then China has to do away with such negative lists and quickly finalize the agreement with Europe. China is well on the way to becoming a global economic and political power, but Beijing has to stop hiding behind its self-portrayal as a developing country. President Xi has to deliver on his great pronouncements and finally grant foreign companies fair access to a market with 1.4 billion customers.

 

To contact the author: scheuer@handelsblatt.com

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