China and the World

Auf wiedersehen, Angela

Slow progress on EU-China investment accord, as Merkel era nears end


Merkel: taking more of a ‘trade-first’ approach to China

Donald Trump’s condemnation of the Chinese government in a speech to the United Nations this week was uncompromising, contrasting with the more subdued scenes at an online summit between China and the European Union a few days earlier.

Even so, EU leaders briefed there was ‘intense’ discussion on the video call, which appeared to come to a frosty finish. There was no joint statement afterwards and Xi Jinping, the Chinese leader, didn’t join the post-summit news conference.

Xinhua’s report on the summit offered the standard platitudes on the search for win-win outcomes but there were hints at tenser moments, including the EU’s efforts to raise human rights concerns.

“There is no universal path for human rights development and no single best way to protect human rights,” Xi fired back. “China doesn’t accept a lecturer on human rights.”

China’s primary diplomatic goal in Europe at the moment is to prevent a situation in which the Europeans side more closely with the US in the clash between the two superpowers.

This comes at a time when there has been more friction, including European anger at Chinese efforts at ‘mask diplomacy’ earlier this year (see WiC488). Officials from the EU drew comparisons to the way that it had donated equipment more discreetly to the Chinese at the beginning of the Covid-19 pandemic, for instance. Most of the shipments from China were made on commercial terms and not given as aid, it was further noted by EU officials.

In March last year the EU published a strategic review of its relations with China labelling it as a “systemic rival” and warning that “the balance of challenges and opportunities” was shifting. That’s not to say that the Europeans are starting to see the Chinese in the same confrontational terms as the Trump administration, but there is an acknowledgement that the current approach to relations is close to running its course. That is particularly true on the industrial side.

For instance, a lengthy article in the Wall Street Journal this week pointed out that for German firms China was changing from a “growth partner to a rival”. The newspaper pointed out that Germany’s share of world trade in mechanical engineering goods – a sector that employs about 1.3 million Germans – shrank to 16.1% from 19.2% in the decade through 2018, while China’s share rose to 13.5% from 8.5%, according to data from the VDMA Mechanical Engineering Industry Association.

“It’s only a matter of time until Chinese firms are number one,” the VDMA’s managing director for foreign trade Ulrich Ackermann told the newspaper.

The Wall Street Journal cited the example of Herrenknecht, a family-owned maker of high-end tunnel borers It saw its revenues grow sevenfold between the turn of the century and 2015, largely thanks to China’s infrastructure demands. However, over the past four years its revenues have receded 5% because of competition from Chinese firms, not just in China but globally.

As a spokesperson told the paper: “Chinese companies are ever more competitive in international markets, offering abnormally low prices. It’s surprising for Europe how quickly they have come.”

Frustrations about access to the Chinese market for European firms also surfaced during last week’s talks, where a Comprehensive Agreement on Investment between Brussels and Beijing was again discussed. An investment agreement has now been debated on more than 30 separate occasions since 2013 and European negotiators are close to losing patience at the slow pace of Beijing’s response. The Chinese say that a breakthrough is possible by the end of the year but the EU is demanding real evidence of concessions first. “Europe needs to be a player, not a playing field,” European Council President Charles Michel told reporters after the video summit.

Much of the tone in the EU’s China policy is set by the Germans, who still have the most at stake in trade terms (exports to China of $110.5 billion in 2018, versus France’s much smaller $24.6 billion). The EU’s key political figure for well over a decade has been Angela Merkel, who has been adept at sidestepping political controversy and putting commercial interests first.

Commentators said that instinct was apparent again at the post-summit press conference last week, where she spent six minutes discussing trade negotiations with the Chinese. That included half a minute on the prospects for German wine and beer sales, compared to just 10 seconds on EU concerns about human rights.

Merkel was hoping that the investment deal would be sealed at this month’s summit, which was originally scheduled to be held in Leipzig, achieving another longstanding ambition before she leaves office. Instead she signalled her frustrations that negotiations had not advanced in the way that the Europeans had hoped. “In the last 15 years, China has become much stronger economically – that means the demand for reciprocity, for a level playing field, is of course today very much justified,” she urged.

She steps down next year after 15 years in office, which opens a window for a review of Berlin’s relations with Beijing. Markus Soder – her most likely successor – forged his political career in Bavaria, an industrial centre that is home to giants like BMW and Siemens. That’s the kind of background that could see him take a similar stance in prioritising trade flows, although the calculus might change if Chinese firms continue to eat into German market share.

To be appointed as Merkel’s replacement Soder may also need support from the Greens, which champions an “ethical foreign policy” and fight fiercely against climate change. That could counterbalance some of the more traditional lobbying influences on the policymaking process, like the big German carmakers that have become so reliant on China sales.

Maybe that will create conditions for a change of emphasis in Berlin’s China stance and ultimately a more aggressive tone from the EU as a whole.

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