Falling Confidence

Trade Concerns Cloud Merkel's China Visit

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This weekend's visit will be Ms. Merkel's ninth to China.
  • Why it matters

    Why it matters

    There are dangers that a trade war could develop between the European Union and China if trust between the two sides is not restored.

  • Facts

    Facts

    • Angela Merkel is due to visit Beijing this weekend.
    • A new poll suggests about 70 percent of E.U. companies feel less welcome in China than 10 years ago.
    • Last year, European direct investments in China fell by 9 percent compared with 2014.
  • Audio

    Audio

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When Chancellor Angela Merkel visits Beijing at the weekend, it’s supposed to be a friendly affair. Both countries are celebrating the peak of their relations. Ms. Merkel is bringing along half her cabinet for a round of intergovernmental consultations. The Chinese hold their guests from Germany in high esteem, and Ms. Merkel has already visited the country eight times.

The mood among people in the business world, however, is subdued. And the reason isn’t just the current controversy over the planned takeover of German robot-maker Kuka by the Chinese appliance maker Midea, which has raised concerns about the transfer of commercial knowledge. On Wednesday, a proposal to block such foreign firms from taking over German companies that are seen as economically and strategically important was revealed by Die Zeit newspaper, citing government sources familiar with the matter.

The key reason could be that many European firms say they aren’t satisfied with the business climate in the Asian superpower, according to a new poll. And now China’s official news agency is warning about a “trade war” should the European Union not classify China as a market economy. Such a designation is a coveted status that means a particular economy is based on supply and demand and a free price system.

“We have never experienced so much pessimism,” Jörg Wuttke, president of the European Union Chamber of Commerce in China, said.

“We welcome Chinese investment in Europe. But Europe should differentiate between private companies and state-run companies.”

Jörg Wuttke, President, European Union Chamber of Commerce in China

In the annual survey of the chamber’s 1,600 members, the E.U. firms clearly expressed concern over the path China is taking. Growth has slowed, reforms have been postponed and Chinese competitors enjoy unfair advantages.

Although overcapacity, Internet censorship and lack of market access have been issues for years, the E.U. companies have never been so emphatic in expressing their interests and concerns. About 70 percent of the companies feel less welcome in China than 10 years ago.

The changed situation in China is also having an impact on the investment climate. Last year, European direct investments in China went down by 9 percent to €9.3 billion (about $10.6 billion) compared with 2014. During the same period, Chinese investment in Europe increased by 44 percent to €20 billion.

Chinese companies are alarmed that German and E.U. politicians are trying to thwart the takeover of Kuka by Midea. Concerns about possible theft of technology are proof of prejudice and reflect lack of understanding, said Duan Wei, general manager of the Chinese Chamber of Commerce in Germany. European companies in China have not been discriminated against, he says, but cases exist in which Chinese firms have been restricted in Europe.

“Such as in the German construction market,” said Mr. Duan, adding that the sector in principle is open to all companies, but “in reality, so it seems, access to the market is mainly reserved for investors from E.U. countries.”

Mr. Wuttke is understanding about the Kuka controversy.

“We welcome Chinese investment in Europe. But Europe should differentiate between private companies and state-run companies,” he said.

Even highly indebted state-run companies from China are backed by public funds in international deals, he said. That’s where Europe must be able to step in if need be. The European Union must also be able to protect itself against cheap imports to the extent allowed within the framework of the World Trade Organization, he added. China has caused upheavals in Europe, particularly with its drastic increase in steel exports, Mr. Wuttke maintains.

“I am for granting China the status of a market economy, and for Europe continuing to safeguard certain defense instruments,” he said.

Kai Lucks, president of the German Federal Mergers & Acquisitions Association, agrees.

“There are state companies that have built up capacities thanks to access to cheap capital that could ruin the world market,” he said.

Europe should not yet grant China the status of a market economy because it would make the imposition of antidumping-related import duties all the more difficult, Mr. Lucks said.

The United States and Japan don’t want to grant China market economy status. E.U. states are split, but Germany has yet to make a definite decision.

“When a country wants to be given the status of a market economy internationally, it can’t behave like a state-run economy,” Germany’s economic minister, Sigmar Gabriel, said recently in the German news magazine Spiegel.

 

Stephan Scheuer is Handelsblatt’s China correspondent, based in Beijing. Torsten Riecke is Handelsblatt’s international correspondent. To contact the authors: scheuer@handelsblatt.com and riecke@handelsblatt.com

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