Germany’s growth engine starts to splutter as China’s economy slows
Trump’s ‘America First’ policies are hurting global trade and factories in Asian nation are becoming rivals to European giants that once supplied them
For three decades, China’s rising demand for German cars, machines and engineering tools has been a growth engine for Europe’s largest economy, gratefully championed by successive governments in Berlin.
But the engine is starting to splutter. China’s economy is slowing. Donald Trump’s “America-first” policies are hitting global trade. China’s factories are becoming rivals to the German giants that once supplied them.
The slowdown is not helping at a tough time for Germany. Its economy contracted 0.1% in the second quarter and some analysts expect third-quarter GDP data due on November 14 to show a similar decline, which would mean recession for the first time since 2013.
While German trade with China is only a small part of the country’s €3.4-trillion (R55.8trillion) economy, it has been one of the few components of GDP that Berlin could count on to grow year after year.
Now, with growth in Chinese demand for goods “made in Germany” ebbing, the once lucrative export market is proving less supportive as the economy stagnates.
“China is our most important trading partner but the future trend is hard to predict,” said Axel Mattern, a senior manager at the Port of Hamburg, where there are signs China’s slowdown and Sino-US rifts are putting a brake on trade.
While it is too early to call the demise of the Sino-German trading relationship, the cooling of its red-hot growth has rekindled doubts about whether years of ever closer economic ties have helped Germany.
Some industrialists say that politicians who looked past human rights abuses in China in the hope trade would turn the Asian country into a Westernstyle state with an open economy and equal market access were deluded.
“That turned out to be wishful thinking,” said Federation of German Industries’s Stefan Mair, leading advocate for a more pragmatic German policy towards China.
When the Berlin Wall fell in 1989, Sino-German trade was tiny. As Beijing embraced globalisation, China’s share of German exports soared from 0.6% in 1990 to 7.1% in 2018. In 2016, China overtook the US to become Germany’s biggest trading partner, and it still is.
Over the years, the relationship helped Germany shake off its 1990s reputation as “the sick man of Europe” and recover from the global financial crisis much faster than others.
Carmakers BMW and Volkswagen, industrial giants such as Siemens and Germany’s “Mittelstand”, the smaller companies that form the backbone of the economy, have all benefited.
Following the approach of her predecessor Gerhard
Schroeder in the early 2000s, Chancellor Angela Merkel has set aside concern about China’s record on human rights and intellectual property to court its leadership for business. In September, she completed her 13th trip to China in 14 years.
Since the 2008/2009 financial crisis, German exports to China have risen every year except 2015 and last fell prior to that in 1997 hitting a record €93bn in 2018. But even before
Trump’s dispute with China, growth had started to recede, from 13.3% in 2017 to 8% in 2018 to 2.7% in the first nine months of 2019, according to official German data.
Home in on the recent months and the trend appears starker. Chinese customs data shows imports from Germany fell 3.6% in August from the same month in 2018 and 9.2% in September. Cumulatively, the Chinese data shows imports from Germany fell 2% in the first nine months of 2019.
The IMF downgraded its growth forecast for Germany’s economy in October to 0.5% in 2019 and 1.2% in 2020, citing weaker Chinese demand as one factor behind a broader slowdown in industrial output, along with fallout from trade tensions.
The Association of German Chambers of Industry and Commerce also cited the Sino-US dispute and the broader cooling of China’s economy as factors behind its prediction that, overall, German exports would fall in 2020 for the first time since the financial crisis.
The effect is already being felt. Brose Group, a family auto parts supplier in Bavaria, said slowing Chinese demand was a factor in its decision in October to cut 2,000 jobs from its 26,000-strong workforce.
Some argue the difficulties should be kept in perspective. In Hamburg, a gateway for goods to and from China, Mattern pointed to a 3% rise in Chinese business in the first half of 2019.
“The biggest problem is the protectionist trend and the biggest representative of that is in Washington. If I look at the world from that perspective, the Port of Hamburg is pretty comfortable with China being its biggest partner,” he said.
But others say the decades spent cultivating China as a destination for German exports has been to the detriment of local industry, and now they want a more hard-nosed approach.
German officials have described the Chinese takeover in 2016 of Bavarian robotics firm Kuka as a wake-up call that underlined the need to shield strategic parts of the economy from foreign buyers.
Berlin tightened foreign investment rules in 2018 so that it can investigate and, if necessary, block purchases of stakes in German firms by non-European entities.
Asked to comment on German policy towards China, finance minister Olaf Scholz said there was evidence Beijing was starting to open up its financial sectors, but he acknowledged that getting a level playing field remained “work in progress”.
The shift in policy has not gone unnoticed.
Shi Mingde, who worked as Beijing’s ambassador in Berlin from 2012 until March, told Chinese media in September that Germany’s latest policy shifts were aimed at China.
“Germany seems to be opposed to trade protectionism on the surface but at the same time Germany itself is engaged in another set of trade protectionism,” he said.
GERMAN OFFICIALS HAVE DESCRIBED THE CHINESE TAKEOVER IN 2016 OF BAVARIAN ROBOTICS FIRM KUKA AS A WAKE-UP CALL