Strategic Shifts

BEIJING/BERLIN (Own report) – Disputes over US military provocations are accompanying the German chancellor’s current visit to China. After a US Navy destroyer transited through the maritime waters claimed by Beijing near the Spratly Islands in the South China Sea, the Chinese government summoned the US ambassador. German government sources have confirmed that this conflict will play a role in the talks, Angela Merkel will hold today in Beijing, and expect discord. Berlin is already in a difficult position. The transformation of China’s economy from an investment-driven to a consumer- and service-driven growth model will be of disadvantage to the German industry. “German capital goods and automobiles” will most likely “no longer enjoy the same levels of demand growth in China as previously,” according to Sebastian Heilmann, Director of the Mercator Institute for China Studies (MERICS) in Berlin. Because of the structural transformation of China’s economy, the “country’s demand for access to finance and currency markets, as well as general demand for service-related know-how” has increased massively. In this respect, Great Britain “is much better positioned than Germany.” A “strategic shift is taking place in European-Chinese relations” – away from Berlin and towards London.

Excellent Business Partner

As in the past, Merkel’s current visit to China is focused, above all, on the expansion of business relations. Over the past few years and decades, the People’s Republic of China has assumed a vast importance for the German economy. In 2014, that country was Germany’s most important non-European trading partner – even ahead of the USA, and second non-EU site of investments after the USA. German companies’ direct investments in China – both those made directly and those through intermediaries – supersede, in the meantime, by far, those made in Italy or France, with the tendency rising. Government circles estimate that around 5,000 German companies are doing business in China, accounting for between five and ten percent of their total turnovers. Automobile companies are exporting up to a third of their products to China. That Matthias Müller, Volkswagen’s CEO, is accompanying the chancellor on her trip to Beijing, is an indication of the importance the auto industry places in the People’s Republic of China. During the first semester of 2015, Volkswagen’s market in China slumped by 70,000 autos, much worse than in Russia, which gives cause for serious concern at the production headquarters in Wolfsburg.

London rather than Berlin

This is aggravated by the fact that the structural transformation of the Chinese economy, as Heilmann explains, implies that “a strategic shift is taking place in European-Chinese relations which could have serious repercussions for Germany.” With its mechanical engineering and automobile producers, Germany had been “for more than a decade … the anchor state for Chinese involvement in Europe,” summarizes the specialist on China. “The Chancellor and her government were wooed by the Chinese.”[2] It is true that currently, 30 percent of the Europe-China trade volume is with Germany. Now, however, “from the Chinese side, the demand for industrial goods has declined.” while simultaneously, China’s “demand for access to international finance and currency markets, as well as its general demand for service-related know-how, has increased massively.” In this respect, “the UK is much better positioned than Germany and is better able to meet China’s substantial requirements,” explains Heilmann. Chinese President Xi Jinping made a state visit of several days to London, last week, to jump-start the expansion of Chinese-British business relations. “Suddenly the UK has left Germany in its tracks with a highly proactive China policy,” concludes Heilmann: “London is taking over the lead role in relations with China” (within the EU – editors note). This is “significantly” due to “changing Chinese interests.”

For more information on this topic see: Germany in the Island Dispute, Germany in the Island Dispute (II), and Using Double Talk (II).

Full article: Strategic Shifts (German Foreign Policy)

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