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Home / World / RPT-INSIGHT-Cooked Frog Syndrome – Germany's China Problem

RPT-INSIGHT-Cooked Frog Syndrome – Germany's China Problem



[Recurring Sunday story without text changes]

* Increasing fear in Germany over relations with China

* Berlin is under increasing pressure to harden

* Some large companies still distrust Beijing [196592002] ] * Others Waste Their Exposure to China

By Noah Barkin

SCHROBENHAUSEN, Germany / PRNewswire / – Bauer, a major manufacturer of construction equipment, is better off than many German companies that have invested heavily in China the last decades.

The Bavarian company, which can trace its roots back to 1790, need not worry about making a Chinese joint venture partner happy because it is the sole owner of its two plants in Shanghai and Tianjin.

And Bauer's specialty machinery manufacturing machinery is sold in countries across Asia, protecting the group from volatility in the volatile Chinese construction market.

Nevertheless, CEO Thomas Bauer, who leads the company in his family's seventh generation, worries about his company's place in China and a broader economic relationship that until recently was seen by German corporations and politicians as a lucrative one-way street bet ,

"Germany has put too many eggs in a basket, and this basket is China," said Bauer, a jovial 62-year-old with a strong Bavarian accent towards Reuters at the company headquarters in Schrobenhausen, an hour's drive north of Munich.

Bauer's concern points to a growing fear in Germany. For more than a decade, the country has been Europe's growth engine, its economy has weathered the global financial turmoil, the debt crisis in the Eurozone and a record influx of refugees.

This resilience was based on two key factors: Germany had innovative companies producing high quality finished goods needed by fast-growing economies; and the country was better than others in profiting from an open, rule-based global trading system that rewarded competitiveness.

China was crucial on both fronts. Over the past decade, it has been buying up German cars and machines at a staggering pace as it has gradually opened up to foreign companies. Last year alone, German manufacturers in China sold nearly five million cars, more than three times as much as in the US.

But even in the good times, there is a radical shift in which Deutschland AG sees the huge Chinese market.

Under President Xi Jinping, China's opening has not only shifted in the opposite direction, but Chinese companies have moved up the value chain far faster than many expect in Germany.

Germany's China problem is part of a greater challenge for Europe: The years of domestic crisis management have left the bloc politically divided and ill-prepared to respond to the emerging geopolitical and economic challenges. Now the continent is risking being pushed between a more assertive Beijing and Donald Trump's "America First" policy.

In the private sector, some executives compare the situation of German industry in China with the proverbial frog in a pot of slowly warming water, which eventually cooks to death because it can not or may not pop out.

Germany's ambassador to China, Michael Clauss, warned of "tectonic changes" in the relationship last month at a meeting with industry leaders in Berlin, according to the participants.

"We have to prepare the people here for a new era in our partnership with China," said an official of the powerful German BDI industry association. "These are still golden times, but there is great concern about what lies ahead."

ROLE OF THE STATE

German companies were among the first in the West to settle in China and give Germany an advantage. when the Chinese economy flared up.

Bilateral trade between the two countries reached a record 1

87 billion euros last year, overshadowing China's trade with France and the UK, both around 70 billion. In 2017, Germany had a trade deficit of 14 billion euros against China, which is small compared to the US deficit of 375 billion dollars or 346 billion euros.

Bauer AG, which employs 11,000 people in 70 countries, built its first production facilities in China in the mid-1990s. At that time, not a single Chinese company could manufacture the sophisticated drills it produced – towering yellow structures that served as foundations for skyscrapers, power plants, and airports.

Until 2013, Bauer counted 36 Chinese competitors who were able to produce such machines, a shift that, according to the CEO, was accelerated by European suppliers who sold jointly-constructed parts to the Chinese.

A decade ago, the company's Chinese plants generated sales of 109 million euros. In five of the next nine years, sales fell to less than half.

What Bauer and other German companies fear the most today is the role of the Chinese state in the economy.

Last year, China introduced a Cyber ​​Security Act that tightened state control over Internet services, including secure VPN connections used by foreign companies to communicate confidentially with headquarters. More recently, some German companies have expressed pressure to accept Communist Party officials on the boards of their joint ventures.

The Bauer boss fears that Xi's "Made in China 2025" strategy, which identifies 10 key sectors – robotics, aerospace and clean-energy cars – poses a direct challenge to German manufacturing dominance ,

In order to maintain its lead, Bauer says that his company is intensively involved with digitization.

"There will be no competition against copiers, it will be one against innovative engineers who want to overtake us," he said. "If we do not find answers soon, it can end badly."

TRUMP TARIFF

The German fear of China reflects what prompted Trump to threaten Beijing with tens of billions of dollars in tariffs.

But because Germany's top companies have become so dependent on the Chinese market, it has avoided the government in Berlin confronting China head-on.

Already in February, the carmaker Daimler showed how ruthlessly annoy some companies Beijing.

Following a backlash in China on a Mercedez-Benz ad on Instagram quoting the Dalai Lama – the Tibetan spiritual leader seen by Beijing as a separatist – Daimler deleted the post and CEO Dieter Zetsche wrote a letter in which he expressed his deep regret "woe and sorrow" the "careless and insensitive mistake" of his company had caused the Chinese people.

"There is a big gap between what people in Germany say about China and what they really think," said Bernhard Bartsch of the Bertelsmann Foundation, a German research group.

At the end of this month, Bertelsmann, together with the Berlin-based Chinese think tank MERICS, will lead a discussion in the Oxford Union style: "In ten years, China will seriously undermine Europe's political and economic system"

The Chinese company is also

A survey by the German Chamber of Commerce in China at the end of last year showed that for the first time in years, more than half of its members were not planning to invest in new locations in China. Nearly 13 percent of Chinese companies operating in China said they could go within the next two years.

For decades, Germany's approach to China can be summarized with the motto "Change through Trade".

Now this strategy is in ruins and government officials are joking that the win-win relationship has a new meaning: China wins twice.

"The hope was that closer economic relations would lead to an opening, and today it is clear that this was a false hope," said a German government official. "They tell us what we want to hear and then do the opposite."

Berlin begins to withdraw. Last year, after the takeover of robot manufacturer Kuka by the Chinese company Midea triggered a turmoil, it tightened restrictions on foreign investment and introduced new pan-European rules for takeovers.

In December, the German domestic intelligence service angered Beijing when it accused Chinese counterfeiters of using fake social media accounts to collect information about German politicians – a rare public blame that Berlin says it sends a message to the Chinese should send.

A summit meeting between the German and Chinese governments later this year should, according to official officials, show a harder line from Berlin.

But they also acknowledge that divisions within the EU and a huge gap between Europe and the standalone Trump government will make it difficult to force change in Beijing.

"What really worries the Chinese is that Europe and the United States work together against them," said the German official. "In that sense, Trump is really a gift to China."

Reporting by Noah Barkin; Arrangement by Simon Robinson


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