Face-to-face meetings held amid growing global challenges, complicated geopolitics

On Nov 10, a group of German business executives wrote a joint opinion article for the daily Frankfurter Allgemeine Zeitung, warning against pressure to withdraw from the vast China market that has served the German economy well.

The authors included the CEOs of industrial conglomerate Siemens, chemical manufacturing giant BASF, pharmaceutical company Merck, auto parts supplier Schaeffler, industrial machine manufacturer Trumpf, the port of Hamburg and the technology companies Bosch and Heraeus.

They said German companies' sites in China and elsewhere in the world contribute significantly to their competitiveness, and that China has become the world's second-largest and most dynamic market.

"So our presence there is particularly important in the interest of German economic strength," they wrote.

The business leaders argued that the Chinese market's potential offers an opportunity to expand faster and to be more successful in other markets — securing jobs in Germany.

While admitting the issues that exist between China and Germany, the CEOs voiced deep concern about the overemphasis on systemic rivalry, referring to the European Union, which since 2019 has described China as a cooperation partner, an economic competitor and a systemic rival, a definition that China opposes.

"Despite all the challenges of China and with China, we are convinced that its fundamental growth dynamic will remain. A withdrawal from China would cut us off from these opportunities," they wrote.

The opinion article was published six days after German Chancellor Olaf Scholz visited Beijing. He met with President Xi Jinping and Premier Li Keqiang, and brought with him a delegation comprising heads of a dozen industrial giants, including Volkswagen, BMW, Deutsche Bank, Siemens, BASF, Bayer, Merck and BioNTech.

Scholz's visit also came amid fresh debate in Germany and the EU about whether Germany, Europe's largest economy, is too dependent on China after EU member states tried hard in the past nine months to reduce dependency on Russian energy following the Russia-Ukraine conflict.

Scholz traveled to China several times as finance minister and mayor of Hamburg, but this was his first trip to the nation since becoming chancellor in December last year. He is also the first EU leader to visit China since the COVID-19 pandemic emerged nearly three years ago.

In an article published a day before his trip, Scholz noted the differences on some political and geopolitical issues between the two countries, but made clear his opposition to economic decoupling from China and to a new Cold War.

"Germany, of all countries, that had such a painful experience of division during the Cold War, has no interest in seeing new blocs emerge in the world," he wrote.

"Even in changed circumstances, China remains an important business and trading partner for Germany and Europe. We do not want to decouple from it."

While Scholz noted the need to dismantle one-sided dependencies through smart diversification, he said this requires prudence and pragmatism.

"A significant amount of trade between Germany and China concerns products where there is neither a lack of alternative suppliers nor a risk of dangerous monopolies. Instead, China, Germany and Europe benefit equally," he wrote.

Jochum Haakma, chairman of the EU-China Business Association, said Scholz's visit was "very opportune and timely", as Germany is China's biggest European investment and trading partner.

"There is a great interdependency between Europe and China, and Germany is one of the biggest players on the European side. Open talks between both leaderships on the highest level to share different perceptions, but striving to reach common goals could be very meaningful," he said. "I don't believe in isolation and containment."

Ding Chun, director of the Center for European Studies at Fudan University, said Scholz's visit to China and the meeting between Xi and other European leaders at the G20 Summit in Bali, Indonesia, last month shows that European nations are different from the United States.

"They (Europeans) want to maintain contacts, cooperation and normal economic and trade ties with China and to jointly tackle global challenges. This is good for China-Germany and China-EU ties, especially in the sense that there will be no economic decoupling," he said.

Scholz's trip to China will be followed by a visit on Thursday by European Council President Charles Michel at the invitation of President Xi, who was re-elected general secretary of the Communist Party of China at its 20th National Congress in October.

In addition to meeting Xi, Michel will hold talks with Premier Li and Li Zhanshu, chairman of the Standing Committee of the National People's Congress, the nation's top legislature.

French President Emmanuel Macron said on Nov 16 that he intends to visit China at the start of next year.

At the annual meeting of the Asia-Pacific Economic Cooperation intergovernmental forum in Bangkok, Thailand, last month, Macron urged heads of state and government to avoid the world being divided into blocs of influence.

"It's a huge mistake," he said, referring to the fact that a growing number of countries are being forced to choose between the US and China.

Macron and several other European leaders are resisting US pressure on European countries to comply with Washington's geopolitical moves to tighten semiconductor export curbs to China.

Dutch Foreign Trade Minister Liesje Schreinemacher, referring to US pressure on the Netherlands regarding semiconductor export controls on China, told the media, "The Netherlands will not copy the American measures one-to-one."

The Netherlands is home to ASML, the largest global producer of chipmaking devices.

Concerns voiced

Michael Spence, a Nobel laureate in economics, said European leaders are beginning to express discomfort with the US' approach to China.

"Concerns stem primarily from aggressive efforts to impede China's technological development," he wrote in an op-ed article for the international media organization Project Syndicate on Friday.

"Many fear that sweeping new restrictions on exports of advanced technology, software and equipment to China may mark a shift from broadly constructive strategic competition to a zero-sum approach," said Spence, the former dean of Stanford Graduate School of Business.

In October, Scholz resisted pressure from the partners in his three-way coalition government and reached a compromise in allowing Chinese shipping giant COSCO to buy a 24.9 percent stake in shipping company HHLA, which runs a terminal at Hamburg's port. The original deal would have allowed COSCO a 35 percent stake.

But Germany's Ministry of Economic Affairs, headed by Robert Habeck of the Greens party, announced early last month it was blocking the sale of Elmos Semiconductor, which is based in the German city of Dortmund, to Silex, a Swedish subsidiary of Chinese chip company Sai Microelectronics. In a statement, the ministry cited national security concerns, despite the fact that the acquisition deal was announced in December last year.

The German Foreign Ministry, headed by Annalena Baerbock, also from the Greens party, is reportedly circulating a 61-page draft copy of its China strategy.

The ministry urges German companies to diversify and reduce export dependency, adding that those "that are particularly exposed to China "should be obliged "to specify and summarize relevant China-related developments and figures" under their disclosure requirements.

According to a Reuters report, German business chiefs, including those from BASF, Deutsch Bank and Siemens, clashed in a meeting in September with the Ministry of Economic Affairs over its proposal to screen all company investment going into China.

Markus Jerger, head of the Mittelstand Association, which represents small and medium-sized German companies, attended the meeting. He said, "To put a break on the German economy's China activities, as the Ministry for Economic Affairs would like, or is trying to do, is the wrong way."

Beijing has rejected rhetoric that European states should cut their economic dependency on China and restrict Chinese investment in crucial infrastructure.

Foreign Ministry spokesman Zhao Lijian told a daily briefing on Monday that China is open to foreign investment in ports and telecommunications. He cited investment in a number of Chinese ports such as Shanghai, Tianjin, Dalian, Qingdao and Shenzhen by Danish shipping company Maersk. Zhao also said that as of June 2020, China had approved 266 telecom companies with foreign investment. "The so-called 'dependency on China' is a false narrative, because cooperation is mutually beneficial, and dependency is always mutual when it comes to business and trade," Zhao said.

Horst Lochel, an expert on China at the Frankfurt School of Finance &Management, warned against premature decisions regarding Chinese investors in Germany.

In a recent interview with German broadcaster DW, Lochel stressed that at least 5,000 German companies are operating in China and more than 2 million German jobs depend on exports to China. "The countries' economies are intertwined," he said, adding that overcritical views of China are hypocritical, as the German government is forging closer energy ties with countries in the Middle East with which it doesn't see eye-to-eye on political issues.

Huge investments

Lai Suetyi, associate professor at the Center for European Studies at Guangdong University of Foreign Studies, said she is neither optimistic given the return of geopolitics, nor pessimistic about Sino-EU economic ties, especially with Germany.

"Recent new investments to China from companies such as BASF and Volkswagen were huge, meaning they have long-term plans to do business in China and to see a profitable Chinese market," she said.

In September, BASF opened a factory as part of its investment of up to 10 billion euros ($10.34 billion) by 2030 in Zhanjiang, Guangdong province, to produce engineering plastic compounds for customers in the automotive and electronics industries.

BASF board chairman Martin Brudermuller said: "It's an exciting start to our Zhanjiang Verbund site. Inauguration of the first plant paves the way for the site. Upon completion, it will be our third-largest Verbund site globally and a role model for sustainable production in China and around the world."

Verbund refers to BASF's chemical production sites that have highly interlinked product flows.

This year, BMW took an additional 25 percent stake in its Chinese joint venture BMW Brilliance, raising its stake in the company to 75 percent. Unlike some parts of the world, BMW has seen strong growth in the Chinese market — selling 590,000 cars in China in the first nine months of this year.

Last month, BMW announced investment of 10 billion yuan ($1.40 billion) to expand production of electric vehicle batteries in China.

In October, Volkswagen said it would invest about 2.4 billion euros in a joint venture in China aimed at increasing efficiency in automated driving. The company's Cariad software subsidiary will take a 60 percent stake in the venture with Horizon Robotics, which is based in Beijing.

According to China's Ministry of Commerce, German foreign direct investment in the Chinese mainland rose by 30.3 percent year-on-year in the first eight months of this year. Two-way accumulated investment exceeded $55 billion.

Ministry spokeswoman She Jueting told a news conference in October that closer economic ties between China and Germany stem from the development of globalization and the laws of the market, adding that the complementary advantages of the two economies are beneficial to businesses and consumers.

A report in September by Rhodium Group, which is based in New York and tracks foreign direct investment, showed that the overwhelming majority of European investment in China in recent decades has come mainly from certain large companies. Germany is the top investor by far, comprising 43 percent of the total in the past four years, according to the report.

China has been Germany's biggest trade partner for the past six years, with volumes exceeding 245 billion euros last year, according to the German Federal Statistical Office.

In 2020, China overtook the US as the EU's largest trade partner in goods, with the overall value of trade reaching 586 billion euros, according to Eurostat, the EU's statistics office.

In Beijing on Nov 4, Scholz said cooperation between Germany and China has seen fruitful results. He added that Germany is ready to strengthen mutually beneficial cooperation with China on an equal footing and provide a fair market environment for entrepreneurs from both nations to operate in each other's country for the benefit of both sides.

Germany and other Eurozone economies face a growing energy crisis and high inflation. In the 19-member Eurozone, inflation reached 10.6 percent in October, including a 10.4 percent record high in Germany. On Monday, European Central Bank President Christine Lagarde warned that inflation had not yet peaked.

Haakma, from the EU-China Business Association, said China and Germany, and China and the EU, can increase cooperation in areas such as climate change, food security, food safety, water management, flood control, electric cars and pharmaceuticals.

Lai, from Guangdong University of Foreign Studies, believes that China's continuous urbanization, its growing middle-class population, and the government's commitment to a green transition offer great opportunities for the China-EU economic partnership. But she said cooperation on technology and infrastructure is likely to be further complicated by global geopolitics.

Ding, from Fudan University, believes that all sides understand that economic and trade ties are mutually beneficial and that they should discuss their differences at the negotiating table, including the China-EU Comprehensive Agreement on Investment, or CAI.

"CAI should be pushed forward, as it addresses a lot of bilateral trade and investment issues," he said.

China and the EU concluded their talks on CAI at the end of 2020, but the ratification process has been halted by the European Parliament due to tit-for-tat sanctions between the two sides.

"You can't solve these issues by freezing CAI," Ding said.

He added that the 20th National Congress of the CPC sent a clear signal to Europe and the rest of the world that China will continue its reform and opening-up.

David Dollar, a senior fellow for foreign policy, global economy and development at the Brookings Institution, said "there was a fair amount of material about continuing to open up the economy" in Xi's report at the start of the 20th National Congress.

"I give Xi Jinping credit for making some important moves in terms of opening up the economy over the last 10 years," he said, citing the fact that China joined the Regional Comprehensive Economic Partnership, negotiated CAI with the EU, and applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

"So, in terms of their actual external policymaking, I would say things accelerated — liberalization accelerated to some extent under Xi Jinping," said Dollar, a former World Bank country director for China and former US Treasury emissary in Beijing.