Hong Kong/London
CNN Business
—
German Chancellor Olaf Scholz arrived in China on Friday with a crew of top executives, sending a transparent message: enterprise with the world’s second largest economic system should proceed.
Scholz met with Chinese leader Xi Jinping at Beijing’s Great Hall of the People after touchdown in the capital Friday morning and was acquired by Premier Li Keqiang in the afternoon.
Joining Scholz for the whirl-wind someday go to is a delegation of 12 German trade titans, together with the CEOs of Volkswagen
(VLKAF), Deutsche Bank
(DB), Siemens
(SIEGY) and chemical compounds big BASF
(BASFY), in accordance with an individual aware of the matter. They had been anticipated to satisfy with Chinese corporations behind closed doorways.
The group entered China with out taking part in the same old seven-day resort quarantine. Images confirmed hazmat-clad medical employees greeting Scholz’s jet at Beijing’s Capital International Airport to check the official delegation for Covid-19 upon their arrival.
During the Friday morning assembly between the 2 leaders, Xi known as for Germany and China to work collectively amid a “complex and volatile” worldwide state of affairs, and stated the go to would “enhance mutual understanding and trust, deepen pragmatic cooperation in various fields and plan for the next phase of Sino-German relations,” in accordance with a readout from state broadcaster CCTV.
Scholz’s go to — the primary by a G7 leader to China in roughly three years — comes as Germany slides in direction of recession. But it has fired up considerations that the financial pursuits of Europe’s greatest economic system are nonetheless too intently tied to these of Beijing.
Since the invasion of Ukraine this yr, Germany has been pressured to ditch its lengthy dependence on Russian power. Now, some in Scholz’s coalition authorities are rising nervous concerning the nation’s deepening ties with China. Beijing has declared its friendship with Russia has “no limits,” whereas China’s relations with the United States are deteriorating.
The rigidity was highlighted just lately by a fierce debate over a bid by Chinese state delivery big Cosco to purchase a 35% stake in the operator of one of many 4 terminals on the port of Hamburg. Under strain from some members of the federal government, the scale of the funding was restricted to 24.9%.
The potential deal has raised considerations in Germany that nearer ties with China will go away vital infrastructure uncovered to political strain from Beijing, and disproportionately profit Chinese corporations.
But Germany is hardly in a place to rock the boat with Beijing because it grapples with the problem of reviving its struggling economic system. Its customers and corporations have borne the brunt of Europe’s energy crisis, and a deep recession is looming.
If the European Union and Germany had been to decouple from China, it will result in “large GDP losses” for the German economic system, Lisandra Flach, director of the ifo Center for International Economics, informed CNN Business.
The Kiel Institute for the World Economy estimates {that a} main discount in commerce between the European Union and China would shave 1% off of Germany’s GDP.
Germany must shore up its export markets as ties with Russia, as soon as its primary provider of pure gasoline, proceed to unravel.
When it involves China, Germany received’t wish to “lose also this market, this economic partner,” stated Rafal Ulatowski, an assistant professor of political science and worldwide research on the University of Warsaw.
“They [will] try to keep these relations as long as it’s possible.”
As Western international locations have imposed swingeing financial sanctions on Russia, China has publicly maintained its “neutrality” in the struggle whereas ramping up its commerce with Moscow.
That has triggered a backlash in Europe, the place some corporations are already turning into cautious of doing enterprise in China due to its stringent “zero Covid” restrictions.
Pressure on Berlin can be mounting over China’s human rights file. In an open letter Wednesday, a coalition of 70 civil rights teams urged Scholz to “rethink” his journey to Beijing.
“The invitation of a German trade delegation to join your visit will be viewed as an indication that Germany is ready to deepen trade and economic links, at the cost of human rights and international law,” they wrote in the memo, printed by the World Uyghur Congress. Based in Germany, the group is run by Uyghurs elevating consciousness of allegations of genocide in China’s Xinjiang area.
It steered Berlin was “loosening economic dependence on one authoritarian power, only to deepen economic dependence on another.”
In an op-ed printed in a German newspaper on Wednesday, Scholz stated he would use his go to to “address difficult issues,” together with “respect for civil and political liberties and the rights of ethnic minorities in Xinjiang province.”
A spokesperson for the German authorities addressed wider criticism final week, saying at a press convention that it had no intention of “decoupling” from its most necessary buying and selling accomplice.
“[The chancellor] has basically said again and again that he is not a friend of decoupling, or turning away, from China. But he also says: diversify and minimize risk,” the spokesperson stated.
Last yr, China was Germany’s greatest buying and selling accomplice for the sixth yr in a row, with the worth of commerce up over 15% from 2020, in accordance with official statistics. Together, Chinese imports from, and exports to, Germany had been value €245 billion ($242 billion) in 2021.
Still, the furore surrounding the Hamburg port deal is a reminder of the tradeoffs Germany has to confront if it desires to take care of shut ties with such a significant export market and provider.
A spokesperson for Hamburger Hafen und Logistik (HHLA), the corporate working the port terminal, informed CNN Business on Thursday that it was nonetheless negotiating the cope with Cosco.
Flach, of the ifo Center for International Economics, stated the deal warranted scrutiny as a result of “there is no reciprocity: Germany cannot invest in Chinese ports, for instance.”
However, it’s straightforward to overstate the impression of the potential settlement, stated Alexander-Nikolai Sandkamp, assistant professor of economics on the Kiel Institute for the World Economy.
“We’re not talking about a 25% stake in the Hamburg harbor, or even the operator of the harbor, but a 25% stake in the operator of a terminal,” he informed CNN Business.
Jürgen Matthes, head of worldwide and regional markets on the German Economic Institute, informed CNN Business that critics had been now not merely weighing the enterprise advantages of Chinese funding in the nation.
“Politics and economics have to be looked at together and cannot be taken separately any longer,” he stated. “When geopolitics comes into play, the view of China has very much declined and become much more negative.”
China’s current therapy of Lithuania has additionally deepened considerations that Beijing “does not hesitate to simply break trade rules,” Matthes added. The small, Eastern European nation claimed final yr that Beijing had erected commerce boundaries in retaliation for its help for Taiwan.
China has defended its downgrading of relations with Lithuania, saying it’s performing in response to the European nation undermining its “sovereignty and territorial integrity.” This yr, after a Lithuanian official visited Taiwan, Beijing additionally announced sanctions towards her and vowed to “suspend all forms of exchange” together with her ministry.
As the German delegation touches down on Friday, they are going to be confronted with one other difficulty, which has develop into the one greatest headache for corporations throughout China.
“The biggest challenge for German businesses remains China’s zero-Covid policy,” stated Maximilian Butek of the German Chamber of Commerce in China.
“The restrictions are suffocating economic growth and heavily impact China’s attractiveness as a destination for foreign direct investment,” he informed CNN Business.
He stated the broader restrictions had been so stifling that some corporations had moved their regional headquarters to different places, comparable to Singapore. “Managing the whole region without being able to travel freely is almost impossible,” he added.
In a quick assertion, Volkswagen informed CNN Business that its CEO was attending the journey since “there have been no direct meetings for almost three years” because of the coronavirus pandemic.
“In view of the completely changed geopolitical and global economic situation, the trip to Beijing offers the opportunity for a personal exchange of views,” the automaker stated.
Despite Beijing’s Covid curbs and geopolitical tensions, Germany has each financial incentive to remain near China.
Its dependency on China could be seen throughout industries. While about 12% of complete imports got here from China final yr, the nation was chargeable for 80% of imported laptops and 70% of cellphones, Sandkamp stated.
The car, chemical and electrical industries are additionally reliant on Chinese commerce.
“If we were to stop trading with China, we would run into trouble,” Sandkamp added.
China made up 40% of Volkswagen’s worldwide deliveries in the primary three quarters of this yr, and it’s additionally the top marketplace for different automakers comparable to Mercedes.
Wariness amongst some German officers over the nation’s closeness with China might filter right into a more restrictive commerce coverage, although financial cooperation remains to be in each events’ pursuits.
Last week, Germany’s economic system minister Robert Habeck informed Reuters that the federal government was efforting a brand new commerce coverage with China to scale back dependence on Chinese uncooked supplies, batteries and semiconductors.
Unidentified sources additionally informed the information company that the ministry was weighing new guidelines that may make enterprise with China much less engaging. The ministry didn’t reply to a request for remark from CNN Business.
But “despite all odds and challenges, China remains unrivaled in terms of market size and market growth opportunities for many German companies,” stated Butek, of the German Chamber.
He predicted that “the large majority will stay committed to the Chinese market and is expecting to expand their business.”
Companies seem like toeing that line. Last week, BASF CEO Martin Brudermüller was quoted in Chinese state media as saying that Germans ought to “step away from China-bashing and look at ourselves a bit self-critically.”
“We benefit from China’s policies of widening market access,” he stated at an organization occasion, in accordance with state-run information company Xinhua, pointing to the development of a BASF chemical engineering site in southern China.
— CNN’s Simone McCarthy, Chris Stern, Lauren Kent, Claudia Otto and Arnaud Siad contributed to this report.