The German chancellor followed a string of other leaders to Beijing this week and had meetings which included all the usual expected topics but did little more than hint at the basic problems lying beneath the relationships. Something has to be done about trade imbalances, we want to take relations to a new level… This is a very strange time in world affairs, of course, but there are certain fundamental issues which are unavoidable. For Germany, in terms of its relationship with China, one sees two pretty weighty issues that need to be addressed. One is the war in Ukraine and the second is the huge investment by German companies in the Chinese economy over the past 40 years and the consequence and benefits accruing (or not) from that. From the announcements that have followed the meetings, it’s not clear to what extent either of these topics were addressed in any detail.
At the heart of the second problem is the fact that German companies have transferred just about all their technology to China over the past four decades, supposedly in the belief that it was safe to do so, that the relationship was long-term and reciprocal. But as many people, including German businesspeople, have pointed out, this was shortsighted and naive, and the Chinese side can’t be faulted for take advantage of the opportunities offered once the basis of the relationship were accepted. The basic arrangement at the heart of most of the major German investments and commitments in China over the past few decades was joint ventures with state owned enterprises and a 49-51 split to the benefit of the SOEs. And so here we are, already in the next era. German firms are still weighed down by legacy issues such as unions with a real role, and Chinese companies can do just about all the things that only German companies could do in the 1980s.
China’s economy has problems too, of course, and the German economy and society arguably have greater depth and flexibility as a consequence of the systemic difference which should help them to address problems and find solutions. As long as they clearly accept that the problems exist. Ditto other European countries, and also collectively as the EU. If the EU operated in concert, it would change the nature of Europe’s relationship to China. Ditto on the Ukraine war issue.
Anyway, Mr. Merz came away with a few benefits, including an order for 120 Airbus planes, although that is more of a French gig than it is German. The offer acknowledged the existence of a single entity called Europe which is encouraging, and the fact is that Europe has some strong cards to play in this discussion if they operate in a united way. And ironically, it is precisely the provision of Airbus planes which could be used as a bargaining ship to obtain a revision of the Beijing approach on, for instance, rare earth supplies. But the precondition is clear and united resolve.
Anyway, the new lunar year has begun with much energy. We wish you all happy horses!