Berlin-Beijing Summit

Germany Could Use a Chinese Lifeline

china-germany-merkel-li-prime-minister-oct-10-2014-berlin-visit
China in your Land – Chancellor Merkel and Chinese Premier Li outside Merkel's office in Berlin on Friday.
  • Why it matters

    Why it matters

    Increased trade between China and Germany, the world’s second and fourth largest economies, could help save the euro zone from falling back into recession.

  • Facts

    Facts

    • China has become Germany’s fifth-largest trade destination, accounting for €67 billion of exports last year.
    • German firms such as Volkswagen, chemical firms Bayer and BASF have become more dependent on sales in China.
    • The two countries plan to cooperate on more than 100 projects to boost trade, a German government source said.
  • Audio

    Audio

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Angela Merkel took a risk last week. Less than a week before Chinese Prime Minister Li Keqiang was due to arrive in Berlin for a state visit, Germany’s chancellor said she hoped for “a prudent reaction” from the Hong Kong police to protests taking place in the region, which is administered by China.

The response from high-ranking diplomats in China was prompt, saying Germany should not interfere in its domestic affairs.

Ms. Merkel, faced with German exports and production dropping at the fastest rate since the financial crisis five years ago, will nevertheless be pushing some political buttons at her meeting with Mr. Li, which started on Friday.

The real theme, however, will be trade.

“The German economy has strongly benefited from high growth rates in China. Correspondingly, the economy will suffer from weakening dynamics.”

Jörg Rocholl, President of the European School of Management and Technology

Germany, and the struggling euro zone at large, are in need of a boost. Economic data released over the past month points to a major slowdown of Germany’s economy, Europe’s largest and number four in the world.

A recession in Germany is now a distinct possibility, economists believe. With that, the prospects for another recession in the euro zone have increased as well.

The summit with China, the world’s second largest economy, and the meeting’s focus could not be better timed. Ms. Merkel and her counterpart Mr. Li want to hammer out concrete cooperation projects to share innovation and increase trade. The summit also includes members of 14 Chinese government departments and 12 German ministries.

“It concerns questions on research innovation, in the areas of agriculture, construction and buildings, innovation in the areas of climate protection, environmental technologies, material, and much more,” Ms. Merkel said in a weekly video message published Saturday on YouTube.

In March, Germany and China agreed on a strategic partnership. This week in Berlin, the two countries plan to draw up a concrete list of more than a hundred cooperation projects, a German government source told Handelsblatt. Next year should be the official year of the two countries’ “innovation partnership.”

 

China Audi
Audi and other German carmakers are hoping the Chinese economy will keep on rolling. Source: DPA

 

Although the rest of the European Union is still Germany’s biggest export destination, China has grown in importance. Last year, the share of German exports going to China doubled to 6.1 percent of all German goods shipped abroad compared with 2008.

A further increase in Chinese trade can help offset a weakening economy at home. A group of four leading German economic institutes and the International Monetary Fund earlier this week slashed their forecasts for German growth for this year and 2015. Growth will not be at or near the level of 2 percent predicted just half a year ago, but could be as low as 1.2 percent.

Whether closer cooperation will bring results quickly enough remains to be seen, especially as China’s economy has lost some pace of its own. The IMF expects the Asian country’s economy to grow little over 7 percent this year and next, still robust but which pales in comparison to rates as high as 10 percent seen in the past.

Whether closer cooperation will bring results quickly enough remains to be seen, especially as China’s economy has lost some pace of its own.

“In the last few years, the German economy has strongly benefited from high growth rates in China. Correspondingly, the economy will suffer from weakening dynamics,” said Jörg Rocholl, economist and president of the European School of Management and Technology in Berlin.

With growing trade, Chinese firms have increasingly listed their shares on the Frankfurt Stock Exchange to fund their global expansion plans.

German firms themselves have also become more dependent on China, selling more and more products to a growing Chinese middle class and to companies which are getting a bigger global footprint.

 

Increased importance of China to Germanys economy

 

Of the 2 million cars Volkswagen sold globally in the first nine months of this year, 45 percent were purchased in China. German chemical firms Bayer and Basf earn almost a 10th of their sales in China.

As a global leader in exporting cars and machines, German businesses expect growth to continue, at least in China.

“The (Chinese) middle class and its spending power continues to grow. The shift from a producer of mass goods to a high-tech location is energetically supported by the new (Chinese) leadership,” said Anton Börner, president of German trade association BGA.

 

Gilbert Kreijger is a company and markets reporter for Handelsblatt Global Edition in Berlin. Finn Mayer-Kuckuk is Handelsblatt’s correspondent in Beijing. Jens Münchrath heads Handelsblatt’s economics and monetary policy reporting team. To contact the authors: kreijger@handelsblatt.com, mayer@handelsblatt.com and muenchrath@handelsblatt.com 

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