Merkel bids to bolster trade with China trip

CHANCELLOR ANGELA Merkel’s second trip to China in seven months last week underlines how important the Chinese market is to Germany, but European leaders will be hoping Merkel looked beyond short-term issues of trade and used the opportunity to build up confidence in the euro zone.

You only have to look out the window in Beijing to get an understanding of how important China is to Germany’s economy. China is the biggest market for Mercedes S Class saloons, and Volkswagen is the country’s biggest carmaker with about 20 per cent of the market.

These trips tend to be annual events for German chancellors, but Premier Wen Jiabao asked Ms Merkel to come early before the Communist Party begins its once-a-decade transition of power in October. Her two-day visit included meetings with vice-president Xi Jinping, who visited Ireland in February and is set to become party leader and president, and Li Keqiang, who is in line to succeed Wen as premier.

Trade last year between the two countries was worth €135 billion, which Ms Merkel is keen to keep growing strongly. She travelled with no fewer than seven government ministers, and the accompanying business delegation was made up of more than 20 top German firms, including the chiefs of Siemens, SAP, Volkswagen, ThyssenKrupp AG and BASF.

Within China there is a feeling that Germany is a model for other European nations, particularly for those on the periphery that are looking for bailouts.

Prof Gu Junli, an expert on German studies with the Chinese Academy of Social Sciences, said: “Germany cannot develop as well without the EU, and, meanwhile, Germany is the locomotive leading the EU. It plays a very important role in stabilising the EU economy. Germany’s economic model is a good example for other EU countries.

“Some small countries are not happy with Germany for the way it is dealing with the debt crisis, and think it’s not giving enough money, but I don’t agree. Germany has to stay as strong as it can to support the EU economy.

“The first time she came this year it was to seek help for European debt.

“This time she is here for Germany, to develop economic co- operation and other international issues. But of course, all co-operation between China and Germany will have a positive effect to EU countries and the euro zone,” Mr Gu added.

The EU is still Germany’s main export focus, but China is clearly the location where any significant future growth is going to come from.

Germany is China’s largest European trading partner. Because of the large amounts of components and capital equipment China imports from Germany, it runs a rare trade deficit with that country – €13 billion last year and €10.37 billion in the first seven months of this year.

Germany’s exports to China have risen by 206 per cent since 2005, while its exports to the rest of the EU rose by 24 per cent in that time. Exports to the US were up 6.3 per cent over the period.

European leaders will be watching to see whether Germany looks beyond the booming trade links between the two countries and tries to get China to buy European bonds.

“The Chinese are thinking about whether a ‘German Europe’ is emerging from the euro crisis, just as we are. They increasingly see Berlin as the place to go to get things done,” said Jonas Parello-Plesner of the European Council on Foreign Relations, in a report published in May.

His colleague and co-author Hans Kundnani said Europe’s future relationship with China would be determined by Germany’s rapidly evolving bilateral relationship with China. “The danger of this new special relationship is that it could undermine European strategic and economic interests,” said Mr Kundnani.

After meeting Ms Merkel, Mr Wen, who has himself been to Germany six times, said he had greater confidence in the euro zone but remained anxious about European debt. He said Italy, Greece and Spain must increase their determination to reform.

The debt crisis is seen in China as a result of poor financial discipline. Many Chinese are puzzled as to why they should be asked to help bail out a bloc of rich countries with powerhouses like Germany and France at its head.

Mr Wen warned how the impact of the global financial crisis and the European sovereign debt crisis on the world was “continuously deepening”.

“As important economies and strategic partners, China and Germany should make consistent efforts on promoting the confidence of the international community, joining together in dealing with challenges and creating a better tomorrow,” he said.

“Recently, the European debt crisis has continued to worsen, giving rise to serious concerns in the international community. Frankly speaking, I am also worried.”

In an opinion piece for the China Daily, Sanjaya Baru, director for geo-economics and strategy at the International Institute for Strategic Studies, London, said there was a worry that Germany might put short-term economic interests ahead of longer-term strategic interests regarding some political and geopolitical issues.

“Merkel’s focus may well remain on trade, investment and currency flows. After all, unless she can turn around the euro zone, her rising profile at home and in Europe could easily wither,” said Mr Baru.

“What this means is that to secure German leadership of Europe, and her own leadership of Germany, Merkel has to ‘walk on two legs’, so to speak. She needs to balance geo-economic and geopolitical factors – both interests and values – in advancing Germany’s relations with China.”

The trade dimension to the trip has been impressive. Airbus committed to investing €1.28 billion in the second phase of an aircraft final assembly plant opened in 2008 in Tianjin, Wen’s hometown.

China’s ICBC Leasing, which signed a memorandum of understanding to co-operate with the IDA during Taoiseach Enda Kenny’s visit in March, signed an agreement to purchase 50 Airbus jetliners valued at €2.79 billion.

VW will also invest €175 million in an environmentally friendly production facility and vocational training initiative in Tianjin.