Sat, Apr 21, 2018 - Page 9 News List

‘Boiled frog syndrome:’ Germany’s China problem

Germany’s top firms are so dependent on the Chinese market that Berlin has avoided confronting Beijing over trade tensions, but US President Donald Trump might be the gift Beijing needs to gain control of the manufacturing industry

By Noah Barkin  /  Reuters, CHROBENHAUSEN, Germany

Illustration: Tania Chou

Bauer AG, a big producer of construction equipment, is better placed than many German companies that invested heavily in China over the past few decades.

The Bavaria-based firm, which traces its roots back to 1790, does not have to worry about keeping a Chinese joint venture partner happy because it is the sole owner of its two plants in Shanghai and Tianjin.

The specialist engineering machines Bauer produces there are sold in countries across Asia, shielding the group from swings in the volatile Chinese building market.

Even so, chief executive officer Thomas Bauer, the seventh generation in his family to run the firm, is worried 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 bet.

“Germany has put too many eggs into one basket, and that basket is China,” Thomas Bauer, a jovial 62-year-old with a thick Bavarian accent, told reporters at the company’s headquarters in Schrobenhausen, an hour’s drive north of Munich, Germany.

Thomas Bauer’s concern points to a growing fear in Germany. For more than a decade, the country has been the growth locomotive of Europe, its economy weathering global financial turmoil, the eurozone debt crisis and a record influx of refugees.

That resilience was based on two key drivers: Germany had innovative firms that produced high-end manufactured goods that fast-growing economies needed; and the country was better than others at profiting from an open, rules-based global trading system that rewarded competitiveness.

China has been crucial on both fronts. Over the past decade it bought up German cars and machinery at an astonishing pace, as it gradually opened up to foreign firms. Last year alone, German manufacturers sold about 5 million cars in China, more than three times as many as in the US.

However, even as the good times roll on, a radical shift is taking place in how Deutschland AG views the vast Chinese market.

Not only has the opening of China shifted into reverse under Chinese President Xi Jinping (習近平), but Chinese firms have moved up the value chain far faster than many in Germany expected.

Germany’s China conundrum is part of a broader challenge facing Europe: Years of inward-focused crisis fighting have left the bloc politically divided and ill-prepared to respond to looming geopolitical and economic challenges. Now the continent risks being squeezed between a more assertive Beijing and the “America First” policies of US President Donald Trump.

In private, some executives liken the situation of German industry in China to the proverbial frog in a pot of slowly heating water which ends up boiling to death because it will not or cannot jump out.

German Ambassador to China Michael Clauss at a meeting with industry chiefs in Berlin last month warned of “tectonic changes” in the relationship, participants said.

“We need to prepare people here for a new era in our partnership with China,” said an official at Germany’s powerful Federation of German Industries. “These are still golden times, but there is a huge amount of concern about what lies ahead.”

ROLE OF THE STATE

German companies were among the first in the West to set up shop in China, giving Germany an advantage as the Chinese economy took off.

Bilateral trade between the two countries hit a record 187 billion euros (US$231 billion) last year, dwarfing China’s trade with France and the UK, both about 70 billion euros. Last year, Germany ran a trade deficit with China of 14 billion euros, tiny compared with the US deficit of about 346 billion euros.

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