China is increasingly decoupling from the global economy

Beijing, Berlin, Düsseldorf Mostly once a year, China’s head of state and party leader Xi Jinping gives a speech to high-ranking ministry and provincial leaders at the Central University of the Communist Party, which sets the course for the year. But this time it had a special meaning. Because the five-year plan is currently being finalized, which should set the course for the economy in the People’s Republic from March to 2025.

Foreign company representatives may not have liked what Xi said behind closed doors earlier this week. “The most essential feature of building a new development pattern is to achieve a high level of self-sufficiency and self-improvement,” says Xi. ”

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China’s economy is growing in the third quarter

Beijing, Berlin, Düsseldorf In view of the economic growth in China, German industry is drawing hope for its own export business. Car manufacturers, mechanical engineers and logisticians are reporting growth. “Business in China is going well again,” says the Cologne engine manufacturer Deutz. The mechanical engineering company Trumpf is also looking forward to attractive business.

The International Monetary Fund (IMF) and the World Bank are currently expecting that China will be the only large economy with growth in relation to the full year with around two percent plus. “The official Chinese figures must always be viewed with suspicion,” says Gabriel Felbermayr from the Kiel Institute for the World Economy to the Handelsblatt. “But the good trade data in particular are hard numbers.” Because they are confirmed by the relevant statistics from China’s trading partners.

The fact that the upswing in China is sustainable despite all the doubts about the official statistics is also shown by the figures from German corporations. Even in normal times, China is the most important sales market for German cars. Now the People’s Republic is even mutating into a lifeline for an otherwise starving industry.

The main reason for the surprisingly good result is the rapid recovery in business in China. While Mercedes sales in China fell by a fifth compared to the same quarter of the previous year in the first quarter as a result of the corona lockdown, after nine months the sales statistics show an increase of 8.3 percent compared to the first three quarters of 2019.

In the third quarter alone, Mercedes delivered 224,000 cars to customers in the Far East – an increase of more than 23 percent compared to the same quarter of the previous year. The result: The dividend from the joint venture with the Beijing state-owned company BAIC amounts to a whopping 1.2 billion euros and thus represents more than a third of Daimler’s total operating profit in the third quarter.

“Asia is definitely the locomotive,” says BMW CFO Nicolas Peter when looking at the global sales figures. In the third quarter alone, BMW sold 30 percent more cars in the People’s Republic than in the same quarter of the previous year. Since the beginning of the year, the Munich-based company has even sold twice as many cars in the Far East as on the once dominant US market.

Competitor Audi even reports “the best performance since entering the market 32 ​​years ago” for the third quarter in China, wrote Stephan Wöllenstein, China chief of the parent company Volkswagen, on LinkedIn.

The large German logisticians and mechanical engineers are also reporting that business in Asia is picking up again. “Freight traffic between Asia and North America has increased sharply throughout the industry,” says Deutsche Post. “There is also considerable demand for transport between Asia and Northern Europe.” Hapag-Lloyd, the largest German shipping company, has made a similar statement.

Other countries in the region such as Vietnam, Indonesia and Cambodia have also significantly expanded their exports again in the past few weeks – and have thus made a significant contribution to the recovery. After both Deutsche Post and Hapag-Lloyd cut their forecasts at the beginning of the pandemic, they have corrected their profit forecasts for the current year upwards again in the past few days. Shipping company world market leader Maersk also raised its expectations again last week. Container shipping companies and sea freight forwarders are currently benefiting from the steep rise in freight rates.

“Germany benefits from recovery in world trade”

So is China going to become the growth engine for the global economy again, as it was ten years ago after the financial crisis? Marcel Fratzscher, President of the German Institute for Economic Research, believes this is possible because China was able to successfully contain the virus and restart its economy faster than Europe and the USA.

“Germany is benefiting greatly from the recovery in world trade, which is being driven primarily by Asia and China,” Fratzscher told Handelsblatt. The economic recovery in China is more robust than in most other parts of the world, as the government in Beijing has launched large stimulus programs and the Chinese economy is less and less dependent on the rest of the world.

China expert Max Zenglein, chief economist at the Mercator Institute for China Studies (Merics), doubts that China will pull the world out of the recession. Like Fratzscher, he is convinced that the economic recovery in China will continue in the fourth quarter. “But the expectation that China will become the locomotive for the global economy is wishful thinking,” he told Handelsblatt.

For one thing, the growth in China is not enough for this. On the other hand, the trade balance is different from ten years ago: “China’s exports are growing much faster than imports,” said Zenglein. It is therefore not ruled out that China’s export industry will suffer setbacks if the upturn in the buyer countries is a long time coming.

In the first three quarters of the year taken together, China’s growth was in any case only 0.7 percent higher than in the same period in 2019. Even if the world’s second largest economy will still achieve an increase in gross domestic product (GDP) of around two percent in 2020 as a whole, as the IMF and World Bank expect, this would be the lowest growth rate in decades.

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Official figures from the People’s Republic, experts have warned for years, should be viewed with caution anyway. Local governments often report embellished dates to Beijing in order to be better off in front of the central government. Because of the assessment basis alone, the Chinese GDP figure cannot be compared with the values ​​for Germany, for example. The economist Michael Pettis from Peking University points out.

In most countries, including Germany, the actual value added is measured when calculating GDP, i.e. what is actually produced and what services are provided. In China, on the other hand, the measurement is based on input – and this input in the form of state investments is largely determined by the government itself.

This is also the case this year: the recovery has so far been based primarily on the increase in industrial production, which is dominated by state-owned companies, and state infrastructure projects. “The Chinese GDP is a political figure and does not capture the true economic conditions,” commented Shezhad Qazi, Managing Director at the US analysis company China Beige Book, which specializes in the Chinese economy.

With all due caution towards Chinese statistics, IfW President Felbermayr is nevertheless convinced: “China has clearly supported the current German economic development, and this dynamic can continue to carry over the coming months.”

Because from June to August, German exports to China were 4.3 percent above the value of the same period in the previous year, while exports to the rest of the world were 11.4 percent below. But the impetus is manageable because only seven to eight percent of German exports go to China.

Alternatives to business in China

From China and Asia, it is mainly furniture, household appliances, kitchen and bathroom items that are shipped to Europe – products that are needed in your own four walls during the pandemic. In the opposite direction, notes a spokesman for Hapag-Lloyd, there is particularly strong demand from the Chinese side for chemicals and raw products. On the routes from Northern Europe to Asia, the level of the previous year was reached again after the massive slump in spring.

Business is going well again not only with China, but also with other Asian countries such as South Korea, Vietnam, Indonesia and Singapore, emphasizes Siemens boss Joe Kaeser, who is also chairman of the Asia-Pacific Committee of German Business (APA). At the APA annual conference on Monday, Chancellor Angela Merkel and Minister of Economic Affairs Peter Altmaier (both CDU) as well as Kaeser warned the industry to look for more alternatives to their business in China in Asia in the future.

They cited two reasons: the Chinese government’s declared policy of wanting to become less dependent on high-tech imports, and the temporary supply bottlenecks during the corona crisis for products that were only sourced from China, such as protective masks.

The fact that German economists also currently believe in the sustainability of the Chinese upswing is primarily due to a number from Monday: demand in retail. It has lagged significantly behind the recovery in industrial production since the beginning of the year, but is now showing a slight trend reversal. Retail sales in September increased by 3.3 percent compared to the previous year. Analysts had expected an average increase of around 1.8 percent.

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In August, the number rose slightly by 0.5 percent for the first time since the corona crisis. The “big jump” in September shows “that consumption has stabilized further,” wrote Iris Pang, China chief economist at Bank ING, “and there were also signs of more spending by the economy.”

In the course of the year so far, however, the retail sector is still down by 7.2 percent. The slowly recovering private demand is also based primarily on rising sales of luxury goods and cars.

Overall weak consumption is a particular problem for China, as growth in the world’s second largest economy has relied more and more on private consumers in recent years. Designated in June

Zhang Bin of the Chinese Academy of Social Sciences (CASS), which is under the auspices of the State Council of the People’s Republic of China, described the sluggish demand as “worrying”. China’s Prime Minister Li Keqiang recently pointed out that it was important to stimulate consumption.

Growth target is set

Starting next Monday, the country’s political leaders will meet for four days at the highest level to discuss the so-called 14th Five-Year Plan. The plan is intended to set the Communist Party’s goals from 2021 to 2026, especially for the economy, and will apply from the beginning of next year.

Usually a growth target is also set there. However, reports in Chinese state media suggest that there may not be such a determination this time around.

In the end, the further development depends above all on whether China continues to keep the number of corona cases under control. Occasionally, small, locally limited outbreaks had triggered violent countermeasures by the local authorities. Entire neighborhoods were quarantined after an outbreak in Beijing in June. A huge Covid-19 mass test was only ordered in the port city of Qingdao at the beginning of October after individual new cases became known.

Apart from that, everyday life in the People’s Republic is largely normal. Millions of Chinese had once again traveled around the country for “Golden Week”, a week of public holidays.

More: The pandemic strengthens China’s role in the global economy, says Handelsblatt reporter Stephan Scheuer.

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