Germany and China

Strategic Partners or Global Competitors?

China Biggest Freighter world Source Joern Pollex dpa
China's CSCL Globe, one of the world's biggest container ships, docks in Hamburg in January. Source. Jörn Pollex/ dpa
  • Why it matters

    Why it matters

    Germany’s mid-sized companies believe bilateral economic relations are tilted in China’s favor.

  • Facts

    Facts

    • Chancellor Merkel’s trip will coincide with the fifth plenum, where the Communist Party makes its next five-year plan.
    • China has begun opening more sectors of its economy to foreign investment, but German companies complain they are still not being treated the same as Chinese businesses.
    • China plans to surpass industrial powers like Germany through a three-stage strategy that ends in 2049.
  • Audio

    Audio

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Chinese companies want German technology, and German companies want easier access to the Chinese market. This is the core premise of the “innovation partnership,” launched by Germany’s and China’s political leaders in Berlin. Not much progress had been made since then.

When Chancellor Angela Merkel arrives in Beijing on Wednesday, she’ll be looking for ways to move the stalled Germany-China partnership forward.

Lack of trust has been one of the biggest obstacles. The mid-sized companies that form the backbone of the German economy are skeptical of China’s intentions, according to Hubert Lienhard, who will lead the business delegation during Ms. Merkel’s trip.

“For mid-sized companies, intellectual property is the basis of their existence,” Mr. Lienhard, head of the Asia-Pacific Committee of German Business, told Handelsblatt. “When it comes to the innovation partnership, there’s understandable concern that this property will be lost.”

In May, Beijing unveiled a new economic plan called “made in China 2025.” The People’s Republic plans in three phases to become a leading industrial nation by 2049. In private, German executives express concern that transferring technological know-how to China only strengthens tomorrow’s competition.

“We want equal treatment, market access and for our intellectual property to be protected.”

Hubert Lienhard, Head of the Asia-Pacific Committee of German Business

“In many cases, Chinese companies become more competitive through the innovation partnership with German companies,” Björn Conrad, from the Mercator Institute for China Studies in Berlin, told Handelsblatt.

The German business community also accuses Beijing of not holding up its end of the bargain. A raft of new security laws, Internet restrictions and laws targeting non-governmental organizations have made it increasingly difficult to conduct business there.

“Foreign companies need to feel welcome in China,” Michael Clauss, Germany’s ambassador to China, told Handelsblatt. “Obstacles need to be cleared out of the way.”

China’s anti-monopoly authority, the Ministry of Commerce, has also been an obstacle for European companies. Last year, the world’s three largest container shipping companies, all European, had agreed to form an alliance called P3. The deal was approved by authorities in the United States and Europe. Then the Ministry of Commerce intervened and ruled against P3, squashing the deal.

“It affects all companies that plan a merger and are active in China,” said Ralf Steger, a monopoly expert with the law firm Kaye Scholer in Frankfurt. “Nobody should risk their merger deal being forbidden there. When that happens, you’ve failed globally.”

Ms. Merkel’s trip to Beijing coincides with the fifth plenary of the 18th Central Committee of the Communist Party. More than 200 high-ranking party officials are meeting this week to discuss China’s next five-year economic plan. Financial liberalization is expected to be a part of the discussions.

Beijing is expanding the economic sectors open to private investment through a system of “negative lists.”Anything not on the lists is open for investment. The new system is already active in the free-trade zones in Shanghai, Tianjin, Guangdong and Fujian. By 2018, it will be expanded to all of China.

Jörg Wuttke, president of the E.U. Chamber of Commerce in China, welcomed financial liberalization as a step forward, but he criticized the fact that there are separate negative lists for Chinese and foreign companies. In pilot programs, these lists have been used to restrict market access, Mr. Wuttke said. He also criticized the three-year implementation timeline as too slow.

There has been some concrete progress. In the aftermath of the P3 shipping alliance fiasco, Brussels and Beijing signed a treaty to cooperate more closely in regulating monopolies. But for mid-sized German companies, there’s a long way to go before the business climate in China improves for them.

“We want equal treatment, market access and for intellectual property to be protected,” Mr. Lienhard said. “When we see progress here, German companies will be more open to an innovation partnership with China.”

 

Stephan Scheuer is a Handelsblatt corrpespondent in Beijing. Heile Anger is an economics and policy editor in the Berlin bureau. To contact the authors: scheuer@handelsblatt.com, anger@handelsblatt.com

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