Germany’s growth engine in China stalls

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    Ebbing. File photo of container ships loaded at a loading terminal in the port of Hamburg Germany. While German trade with China is only a small part of the country’s 3.4 trillion euro (3.8 trillion) economy, it has been one of the few components of GDP that Berlin could count on to grow year after year. (Reuters Photo)
    Ebbing. File photo of container ships loaded at a loading terminal in the port of Hamburg Germany. While German trade with China is only a small part of the country’s 3.4 trillion euro (3.8 trillion) economy, it has been one of the few components of GDP that Berlin could count on to grow year after year. (Reuters Photo)

    BERLIN- For three decades, China’s burgeoning demand for German cars, machines and engineering tools has been a steady engine of growth 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 hurting global trade and China’s factories are becoming rivals to the German giants that once supplied them.

    The slowdown is not helping at a challenging time for Germany. Its economy contracted 0.1 percent in the second quarter and some analysts expect third-quarter gross domestic product (GDP) data due on Nov. 14 to show a similar decline – which would leave the economy in recession for the first time since 2013.

    While German trade with China is only a small part of the country’s 3.4 trillion euro (3.8 trillion) 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, and by some measures falling, 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 politicians who looked past human rights abuses in China in the hope trade would turn the Asian country into a Western-style state with an open economy and equal market access were deluded.

    “That turned out to be wishful thinking,” said the Federation of German Industry’s (BDI) Stefan Mair, a leading advocate for a more pragmatic German policy towards China.

    GROWTH DOWNGRADES

    When the Berlin Wall fell in 1989, Sino-German trade was tiny. As Beijing embraced globalization, China’s share of German exports soared from 0.6 percent in 1990 to 7.1 percent last year. In 2016, China overtook the United States 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 concerns over 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 2008-09 financial crisis, German exports to China have grown every year except 2015 – and last fell prior to that in 1997 – hitting a record 93 billion euros in 2018. But even before Trump’s dispute with China, growth had started to recede, from 13.3 percent in 2017 to 8 percent in 2018 to 2.7 percent 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 percent in August from the same month last year and 9.2 percent in September. Cumulatively, the Chinese data shows imports from Germany fell 2 percent during the first nine months of 2019.

    The International Monetary Fund downgraded its growth forecast for Germany’s economy last month to 0.5 percent in 2019 and 1.2 percent in 2020, saying in its World Economic Outlook that weaker Chinese demand was one factor behind a broader slowdown in industrial output, along with the fallout from trade tensions.

    The Association of German Chambers of Industry and Commerce (DIHK) 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 next year for the first time since the financial crisis.

    ‘WORK IN PROGRESS’

    The impact is already being felt. Brose Group, a family-owned auto parts supplier in Bavaria, said slowing Chinese demand was a factor behind its decision last month to cut 2,000 jobs from its 26,000-strong workforce.

    Some argue the current difficulties should be kept in perspective. In Hamburg, a gateway for goods to and from China, Mattern pointed to a 3 percent 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. — Reuters