Merkel heads to China to shore up business ties

Two-day trip follows flurry of Britain-China deals during Xi Jinping's high-profile UK visit

BERLIN • Chancellor Angela Merkel is flying to China to shore up German business interests challenged by Volkswagen's diesel emissions scandal and the flurry of deals clinched during Chinese President Xi Jinping's visit to Britain last week.

Dr Merkel, who departs today, must use the two-day trip to reinvigorate German business ties with China, while also handling pressure from Beijing to express the appreciation Britain displayed last week with its show of pomp for the Chinese President.

The Chancellor is taking with her a delegation of nearly 20 executives representing the machinery, auto, electrical and telecommunications sectors. Business leaders will join her for a lunch with Premier Li Keqiang on the second day of the visit.

German foreign direct investment in China amounts to €48 billion (S$74 billion) and 5,000 German businesses operate there, but a golden era of quick and easy mutual gains appears to be over.

Germany has the greatest trade exposure to China of the 28 European Union nations. But slower Chinese growth has hit German exporters and clouded their outlook.

The German engineering sector saw exports to China shrink by 4.9 per cent in the first half of this year. At the same time, China's investment in Britain signals Beijing's growing interest in services and in securing access to financial markets, while its demand for the industrial goods that Germany produces stutters.

"The days of plenty are over," Mr Sebastian Heilmann, director of the Mercator Institute for China Studies in Berlin, said of Germany-China business ties.

The scandal at Volkswagen has highlighted Germany's reliance on its auto industry. The auto sector is, in turn, heavily reliant on China.

Last year, Germany's carmakers accounted for nearly a third of the country's €75 billion in exports to China. Ahead of the trip, German officials played down the risk of the Volkswagen scandal hurting trust in German products in China. "I don't see that," one Merkel aide said.

New Volkswagen chief executive Matthias Mueller will be on board and is expected to update Dr Merkel on the carmaker's internal investigation into the emissions scandal, said a person close to the matter.

German airline Lufthansa will be hoping to make progress on a joint-venture deal with Air China and Deutsche Boerse aims to seal a cooperation agreement with a Chinese financial market operator.

Berlin has dismissed any suggestion that Germany's position as China's dominant European trading partner is under threat after Mr Xi's visit to Britain. "Germany will remain China's strongest partner in Europe - by far," the Merkel aide said.

REUTERS

A version of this article appeared in the print edition of The Straits Times on October 28, 2015, with the headline 'Merkel heads to China to shore up business ties'. Print Edition | Subscribe