The Chinese market has continued to unleash potential for European multinational firms gradually recovering from the early impact of the coronavirus pandemic, a reassuring factor amid uncertainties still surrounding the global economic outlook.
Over the past week, German automakers have been posting upbeat data for their Chinese market performances while growth in other major markets remained below prior-year levels.
Audi Group said on Friday that car deliveries in China rose by 4.4 percent year-on-year in the first three quarters, while all the other major markets saw a two-digit decline. Demand for the Audi models in China, in particular, rose significantly by 17.8 percent in the third quarter, the company said.
Volkswagen on Thursday also said its largest single market China was a “key driver” of the market recovery, as deliveries in China between July and September grew by 3 percent from a year ago. Overall, the company’s business was heavily impacted by the pandemic in the first nine months, with worldwide vehicle deliveries down 18.7 percent.
China’s economic recovery gathered pace in the third quarter from a slump in the first quarter and a modest rebound in the second. Its GDP grew 4.9 percent year-on-year in July-September, according to official data.
The International Monetary Fund (IMF) recently revised up the 2020 growth forecast for China to 1.9 percent. China’s growth is having positive spillovers both for the Asian region and for commodity prices and for broadly participants in the global value chains that China is a big part of, said Jonathan Ostry, an IMF official.
Within the country, factories are humming and people’s life is gradually returning to normal. In recent years China has been seeking to restructure its economy from an export-oriented one toward a consumption-driven economy, and its vast domestic market is unleashing its potential when the world most needed it.
Data from the Federation of the Swiss Watch Industry showed that Swiss watch exports to the Chinese mainland market climbed 10.6 percent in January-September to 1.53 billion Swiss francs (1.67 billion U.S. dollars), the highest in terms of total value and the only market that registered growth during the said period.
French consumer goods giants are also benefiting from strong demand in China. When publishing its half-year results report in August, said it has shown great resilience during the first half of 2020 amid the pandemic, and its performance in the Chinese mainland, with a 30-percent growth in the second quarter, was one of the decisive factors.
The third edition of the China International Import Expo (CIIE), the world’s first import-themed national-level expo, is to take place on Nov. 5-10 in Shanghai.
“The holding of (the) CIIE as scheduled sends a clear signal to the whole world — a signal that China has recovered from the COVID-19 epidemic,” L’Oreal Group CEO Jean-Paul Agon told Xinhua.
For many European companies, the vitality of the Chinese market makes it a perfect place for pushing towards sustainable development and digitalization in alignment with their respective visions.
Jean-Francois Palus, managing director of global Luxury group Kering, told Xinhua that China is a crucial part of Kering’s sustainable development strategy. For the third CIIE, Kering will present its vision on the evolution of the luxury sector, in particular the role and responsibility of luxury in contributing to a more sustainable future for the fashion and textile sectors as a whole, Palus said.
According to French industrial group Schneider Electric, another participant of this year’s CIIE, the company’s R&D investment in China continued to grow this year despite the uncertainty generated by the pandemic.
Holding the CIIE as planned in the context of the COVID-19 pandemic has special significance and will give new impetus to global economic development, said Yin Zheng, head of Schneider Electric China, who added that the company would focus on the simultaneous development of the digital economy and the green economy.
Merkel’s China Reset Is Mostly Hollow
German Chancellor Angela Merkel is enjoying praise for her cabinet’s recent volte-face on China, including a de facto ban of Huawei, a fresh strategy for the Indo-Pacific, and a newfound willingness to call out Beijing’s human rights abuses. Germany’s apparent shift is welcome news in Washington, which has subjected Merkel to extraordinary pressure on ties with Beijing. But Germany’s dependence on China goes far deeper than its recent efforts can address, and there are reasons to doubt the sincerity of its supposed reset.
Germany’s new information-technology security bill, for example, stops short of excluding Huawei from the country’s wireless network by imposing a dual-track approval process. The first track involves technical certification by Germany’s pro-Huawei Federal Office for Information Security. The second track requires a “declaration of trustworthiness” to be assessed by various ministries, some of which—like the influential Ministry for Economic Affairs and Energy—are headed by vocal China doves.
In theory, the legislation gives Merkel the ability to outlaw Huawei by citing security concerns and consigning the Chinese telecommunications giant to regulatory perdition. But if Beijing threatens to retaliate against any number of German business interests in China—from Merkel’s coveted European Union-China investment treaty to BASF’s $10 billion plastics factory in Zhanjiang and Volkswagen’s $17.5 billion electric-vehicle deal—it is unclear how much pain Berlin will be willing to take over Huawei’s security issues.
Indeed, soon after Berlin announced its IT security bill, news broke that in 2018, a high-ranking official suppressed intelligence on China’s influence operations at all levels of German government, society, and business for fear it would damage economic ties. According to Axios, the chancellor personally reviewed the report before visiting Beijing the following year amid a crackdown on Hong Kong democracy protests. The result was 13 business deals between German and Chinese executives, signed in the Great Hall of the People on Tiananmen Square and overseen by Merkel.
If there are reasons to question the efficacy of Berlin’s new IT policy, the same goes for its other China initiatives. For all the publicity about a “new direction” in Germany’s China strategy, the Foreign Office’s recent Indo-Pacific guidelines shun the U.S.-led security order in Asia in favor of what it calls “entanglement” through trade, investment, and development aid. As for human rights, Merkel has clarified that “solutions” to problems like Hong Kong “can only be achieved through dialogue,” while even more hawkish officials such as Omid Nouripour, a Green member of the parliamentary Committee on Foreign Affairs, have claimed that Berlin must take a “much clearer stance” on human rights abuses in Xinjiang and Tibet but that it must stop short of “full confrontation.”
The German government’s tendency to close ranks behind business interests has also been demonstrated by the international financial scandal around Wirecard, the German payments company. A recent Financial Times report detailed the failure of Germany’s regulators, market watchdog, anti-money laundering agency, and other government bodies to play any role in uncovering the largest case of financial fraud in postwar German history, despite numerous tipoffs. Tellingly, while the German finance minister was reportedly aware of explosive investigations into Wirecard last September, he did not stop Merkel from lobbying for the German company on her business trip to China.
To be fair, behind what can seem like a ruthless pursuit of German economic interests in China is a serious strategy for stability.
Berlin is at pains to stave off the mass losses in manufacturing and economic dislocation that have rocked the United States, United Kingdom, and Southern Europe in recent years. German officials believe the kind of economically driven nationalist populism which led to Brexit and the election of U.S. President Donald Trump must be avoided in Germany at all costs, and Germany’s neighbors might be the first to agree. As the engine of German export growth, the destination of $100 billion worth of German goods last year, and Germany’s biggest overall trading partner, China is not just a large and profitable market. Germans see China as the mechanism for sustaining the only prolonged era of domestic harmony their country has ever known.
German leaders do not help their own case by coupling seemingly pitiless economic nationalism with soaring rhetoric about human rights and multilateralism. But on any issue impacting Germany’s economic well-being, Berlin’s actual decision-making is remarkably consistent. In addition to securing ties with China, Merkel is currently defending the Nord Stream 2 gas pipeline with Russia against threatened sanctions from the U.S. Senate, and low levels of defense spending against White House plans to withdraw 12,000 U.S. troops from German soil. As far as Berlin is concerned, Americans can list the sacrifices they’ve made for German security and prosperity until they’re blue in the face. The benefits to domestic stability of economic cooperation with strategic rivals remain a core German national interest.
As long as that is the case, the German government will continue to irritate U.S. officials by showing less interest in its own security than the United States does, and by giving the impression that it would be worse for Washington than for Berlin if Germany ever became a Chinese dependency. But recognizing the consistency of Germany’s foreign-policy decisions should help Americans ask better questions than they have in the past. How much alignment with Germany does U.S. China policy require? How much German autonomy can Washington tolerate? What economic incentives and backstops can the United States offer Germany to reduce the existential risk it sees in confronting China?
Washington and Berlin can still form a community of interests around issues such as trade and climate policy, but until Americans come up with answers to these questions, a comprehensive consensus on China is unlikely to emerge any time soon. Appeals to Xinjiang and the Taiwan Strait will not supply the impetus, because most Germans simply do not perceive immediate threats to their security or prosperity there. Nor will reports of Chinese espionage and surveillance, which Berlin will continue to view as the unpleasant but necessary price of political stability at home.
The United States likes to criticize Germany for being stuck in the past on everything from infrastructure and energy to technology and geopolitics. But after being stifled on so many issues by a country over which it supposedly has so much leverage, U.S. officials should take a look in the mirror. Stuck in their own past assumptions of hegemony, Americans seem to have forgotten that powerful countries such as Germany do not make radical changes in policy out of fairness to others. They do so out of necessity or fear. Until Berlin is made to feel one or the other, Germany’s “new direction” on China will likely remain cosmetic.
BY JEREMY STERN