China and Germany to forge closer ties

Posted on April 20, 2012

The victory of Nico Rosberg in a Mercedes car in the Chinese Formula 1 Grand Prix last weekend could scarcely have come at a better moment for Germany or for Daimler, the carmaker.

It underlined German engineering excellence and its extraordinary success in the Chinese market.

On Sunday, Wen Jiabao, the Chinese premier, will open the huge Hanover trade fair with Angela Merkel, the German chancellor, as the world’s two largest export nations seek to reinforce their burgeoning bilateral relations.

The annual event, at which China is Germany’s official “partner country”, will give both leaders an opportunity to showcase their strong personal relations, as well as the remarkable growth in commercial and investment ties which saw bilateral trade reach €144bn last year.

“It is a very strong relationship at this point,” says a senior official in Berlin. “Both leaders like to emphasise that it is a strategic partnership – especially the Chinese. They mean that long-term commitments are more important than short-run interests.”

Yet away from the official smiles, there is tension in the relationship too, for the countries are increasingly competitors, especially in the engineering products that are Germany’s traditional strength. “On macroeconomic policy they have a lot more in common at the moment than Germany and America,” says Sebastian Heilmann, professor of China’s political economy at Trier university.

“But at the same time there is open competition. China is an essential market for German industry. But Chinese competition, especially in engineering, is growing alarmingly.”

Even as they celebrate a surge in exports, German business leaders will seek reassurances from Mr Wen. At a German-Chinese economic forum in Hanover on Monday, they are expected to call for curbs on unfair competition in third markets, for tougher controls on illegal copying of German technology patents, and for China to lift restrictions on the export of its rare earths, needed for mobile phones and other high-tech products.

Germany China trade

For Ms Merkel, however, the bigger picture is paramount. China is seen in Berlin as “very supportive” in helping to resolve the eurozone crisis. German officials are also anticipating China will commit more funds to the IMF. Officials point in contrast to the unwillingness of the US administration to contribute any more to the IMF, while others, such as Canada, are also hesitating.

For China, Germany is its most important partner in Europe, not merely for economic reasons, but for political ones too, says Eberhard Sandschneider, director of the research institute at the German Council on Foreign Relations in Berlin.

“They see the balance of power shifting in the different member states of the European Union, and they recognise the importance of Ms Merkel,” he says.

A decade ago, Beijing had hoped that a stronger EU would make Brussels a one-stop shop for its diplomatic and business affairs in Europe. Now it focuses more on Berlin.

“A disappointment is that the EU is not a single entity,” says Song Xinning, professor at Renmin university who advises the government on Europe. “You can’t expect to work just with Brussels. You have to work with both – and the member states take the leading role.”

Professor Sandschneider sees a deeper interest. “There is a massive interest of the Chinese leadership in the German model of social stability,” he says. “They have lost their traditional social security system, which was the family. They are looking for a new system.

“They have sent delegation after delegation to look at our models – of economic growth, ecological balancing, and social stability. Not to copy them directly, but to understand the philosophy behind them.”

As for the fears of German manufacturers, especially about seeing Chinese companies copy their technology, he says: “They know their technology is endangered, and they know there is no alternative. It is an extremely competitive environment, and there is no easy answer. Germany is not overexposed, but its vulnerability has grown. Whatever happens in China will have a huge effect.”

Prof Heilmann says: “In world politics, certainly, they have a lot of common interests. But business interest is temporary. I think there will be many more conflicts in the coming years.”

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