German Chancellor Angela Merkel’s recent and ninth visit to China to attend the annual government-to-government consultations might have been the most difficult one so far. This time Merkel arrived with a much longer list of pressing issues to discuss than before, including issues such as market economy status, overcapacity in steel exports, the South China Sea dispute, and the rule of law.
Merkel arrived to attend the consultations, which were launched to upgrade the Germany-China relationship in 2011, on June 12, together with six federal ministers, five state secretaries, as well as a 20-member business delegation. She met with Chinese President Xi Jinping, Chinese Premier Li Keqiang, and the chairman of the National Party’s Congress, Zhang Dejiang, in Beijing before traveling on to Shenyang on June 14. Due to high concerns about development in and outside China, German civil society and industry alike closely followed every step and word from Merkel during her visit.
First, Merkel gave a speech at Nanjing University in Beijing, where she focused on the importance of the rule of law, noting that only an efficient rule of law maintains the trust of the citizens and (including foreign) enterprises. This can only be achieved by a “rule of law, rather than rule by law,” she told the students. Merkel said this at a time when the Chinese government has increasingly tightened control on media and public opinion, and arrests activists as well as journalists (including those working for major German newspapers). The Chinese government’s control will most likely also tighten on foreign nongovernmental organizations (NGOS), once the new law on foreign NGOs comes into effect in January 2017. China passed a new law restricting the work of foreign organizations in late April, which concerns roughly 7,000 foreign organizations. Worries even among the largest German political foundations are high and this visit probably did not change this.
In her speech, Merkel stressed the importance of NGOs but refrained from further criticizing the new law. Nevertheless, these parts of her speech do not appear in the Chinese media. With Li Keqiang, whom Merkel met later that day, she also discussed how to establish an “early warning system” in case NGOs (such as chambers of commerce or political foundations) will meet difficulties when carrying out their work.
During the press conference following the consultations, Merkel also addressed the sensitive issue of maritime security in the South China Sea and the importance to seek solutions in order to avoid new tensions. Li responded that the disputes in the South China Sea should be solved among the immediately involved parties and that “one should not complicate things” – a subtle hint to stay out of it. Despite these warnings, European leaders are becoming more vocal. Earlier this year, the EU had already released a statement urging all involved parties in the South China Sea dispute to pursue their claims “in accordance with international law.” Also the G7 leaders, who met in April in Japan, agreed to send a “clear signal” and raised concerns over the situation in the East China and South China Seas.
On the positive side, the consultations included an agreement over cooperation in third countries, not only economically but also on development assistance — “A qualitative new approach,” Merkel called it in the press conference. Notably, both Li and Merkel made specific references to Afghanistan. Both countries agreed to establish a disaster management office and to cooperate on training Afghan personal in the mining sector. Merkel suggested additional cooperation between Germany and China in Mali, where China has gradually increased contributing troops (now at almost 400) to the UN peacekeeping mission.
The focus of this visit, however, was on economic and trade issues. The hot topic of 2016 between China and the European Union (EU), and central to Germany, is the question of China’s market economy status. With China’s accession to the World Trade Organization in 2001 came a promise for the EU to grant China market economy status after 15 years. The deadline is in December and the EU is divided on whether and under which legal commitments it should acknowledge China as a market economy.
Meanwhile, China simply expects the EU to “keep its promise” as Li Keqiang reiterated during the press conference. While he emphasized that China does not want this issue to escalate into a trade war if the promise is broken, the warning loomed over the topic, not least because China did in fact threaten a trade war in recent weeks. Merkel cautiously noted that Germany does not dispute its commitments made to China on market economy status and pointed to the European Commission as being in charge of the decision – but then she did warn (both sides) not to “emotionalize the whole thing too much.”
Merkel also took the time to name the concerns of German industries and businesses over China’s overcapacity in its steel sector and the need for a level playing field for foreign firms. While she did not express any objections to a Chinese appliance maker (Midea) acquiring major stakes in the German industrial robot maker KUKA, a topic that has been heatedly discussed in the German media in recent weeks, she noted that German firms could make a counter offer. This relates to the fact that while Chinese firms have enough access to conduct such major acquisitions in Europe, China does not allow European businesses to invest in more sensitive areas of China’s economy.
Therefore Merkel also pointed out during the press conference with Li that “Germany has always offered itself as an open investment market for businesses, including for Chinese companies” and that “this reciprocity is also expected from the Chinese side.” Merkel expressed not only the concerns of German firms but most European firms, which suffer from China’s overcapacities, the lack of market access, and an uncertain rule of law situation. According to a survey released beginning of June by the European Chamber of Commerce in China “Only 47 percent of European businesses plan to expand their China operations (…), down from 56 percent last year and 86 percent in 2013.”
Amid these tussles, German-Chinese trade and investment relations are still expanding: During the visit, both countries signed more than 20 agreements, including business deals worth around €2.7 billion ($3 billion). Reports mention deals for Airbus, Daimler, and the wind turbine producer WindMW. Merkel’s final stop before heading back to Berlin was to Shenyang, a traditional heavy industry city in Liaoning Province. Merkel said she sees a similar transformation in Liaoning as in Germany’s Ruhr industrial base, which had developed into a modern heavy industry base in the post-war era. A factory of German manufacturer BMW is already based in Shenyang and several major German companies have invested in constructing a German-China industrial park. Merkel’s visit to Shenyang underlined Germany’s will to further expand in China.
No doubt both sides have considered this meeting as more important than many of the previous exchanges, but it is also certain that it was not easy. During the Q&A at the press conference Li Keqiang took the liberty twice to answer on Merkel’s behalf to questions concerning market economy status and the South China Sea dispute. This did not prevent Merkel from adding her remarks, to “just say what I want.” During this visit Merkel managed the balancing act of diplomatically addressing various serious issues.
But she probably did not say everything she wanted: Missing in her speeches was the issue of human rights in China. Just in May, her Christian Democratic Union colleague, the chairman of the German Bundestag Human Rights Committee, Michael Brand, was denied a visa to travel to China as he refused to remove pro-Tibetan articles from his website.
Angela Stanzel is Policy Fellow in the Asia and China program at the European Council on Foreign Relations (ECFR).