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Ajouter un commentaireHungry for German goods
Walking on the streets of Shanghai and Beijing, one is quick to notice that the newly-affluent in China drive Audi, Mercedes or BWM. After almost a decade of unprecedented growth, China’s emerging middle class is splurging on European goods like never before. This phenomenon has found its way into the highest circles. Indeed, Audis have even become something of a “cadre-car” for communist officials who strive for comfort and style but do not want to appear “flashy” while driving a BMW or a Mercedes. The four rings are quickly replacing the red flags of the domestically produced Hongqi government sedans of Deng and Mao’s time.
This new-found fondness of German products has translated into a renewed vigour for the German economy. Having previously established strong positions in Asia and benefiting from prudent cost-cutting measures, German firms are capitalizing on the new Kauflust of the mainlanders. Daimler, Audi and BMW are headed towards record profits this year. All reported spectacular operating profit margins of more than 9% in their luxury automotive sector in the second quarter, with Daimler reporting that 20-30% of its sales growth comes from China.
The Chinese are not just buying cars. In areas such as consumer goods, where Siemens and Bosch have long enjoyed favourable reputations as higher-quality, longer-lasting alternatives to domestic brands such as Haier and Robam, the Chinese are increasingly splurging on German-made products. Siemens has reported an €89 billion order backlog last month, the highest in its 163-year history.
Growing Chinese demand has also had positive effects on suppliers. Grammer, a leading German manufacturer for car seats and armrests increased its sales by 30% in the first half-year of 2010 to around €445 million.
Amidst dynamic growth in both countries, unpleasant episodes such as BASF boss Jürgen Habrecht and Siemens boss Peter Loescher’s direct criticisms at Prime Minister Wen Jiabao about unfair Chinese business practices during Chancellor Merkel’s July state visit to Beijing seem all but forgotten.
A story of optimism
Berlin has always appreciated the potential of the Chinese market and has been very keen to promote a deepening German-Chinese relationship. The Shanghai Expo capped off a three-year project first announced by Chancellor Merkel and Chinese Premier Wen in August 2007, aimed at promoting closer ties between Germany and China. The project, called “Germany and China – Moving Ahead Together” consisted of 600 events and activities, lasted from autumn 2007 to present, involving 130 million people in important urban centres such as Nanjing and Guangzhou.
German firms have mirrored this interest. Alone Daimler is investing around €3 billion in the construction of new plants over the next few years and hoping to drastically increase its sales volume. If BMW’s performance is any indication of what the future might bring, then it certainly looks good for German carmakers. The Bavarian firm’s sales grew around 82% in July, selling 13 852 vehicles.
The often criticized German model of export-dominated growth is –at least at the moment- paying off. Publications from within Germany and abroad have recently commented that Germany is single-handedly pulling the EU out of the slump. There is some merit to this contention. While Germany posted impressive numbers in the second quarter, across the channel, the Bank of England lowered its growth forecasts, citing tight credit conditions and government spending cuts. France, Spain and Portugal all posted GDP growth rates of between 0.2-0.9 percent with unemployment in Spain hovering around 20%. It seems that Germany has retained its place as the star-performer in Europe.
In many ways Germany is looking eastward to diversify its portfolio. One remembers that before the financial crisis Germany ran a large current-account surplus while selling freely to other euro-zone countries, allowing them to run up large debts. The common currency hid dangers that would have normally been revealed by an exchange-rate crisis. When recession finally came, it meant that the impact was much worse on Germany. Demand slumped in the euro-zone, where growth had been based on consumer spending. A collapse in exports and investment meant that German GDP fell by 7% from its peak.
To be wary or not to be wary
Should the growing expectations that the German economy can rely on China for retained and constant growth be viewed with scepticism ? There are already some worrying indications that demand in China is slowing. The China Association of Auto Manufacturers (CAAM) has observed that growth (compared to the same time last year) in new car purchases have slowed from 19% in June to 14% in July. First dealerships on the mainland have already dropped their prices to retain sales-volumes.
There also other signs that the Chinese market is showing cracks around the edges. Beijing has already stepped in to slow the overheating real estate market to prevent the formation of a property bubble. Also, recent labour disputes in coastal factories have had international reverberations. One can only imagine the effects to any disruptions in the ‘social contract’ between Beijing and the massive migrant worker populations, who are the backbone of China’s economic growth.
The German economic machine lives and dies with its export industry and thus is vulnerable to major shifts in its trade relationships. With an industrial sector that accounts for around 30% of its labour force and is responsible for 49% of its revenues, one can only imagine the effects if demand for German finished goods in the emerging markets were to slow. Considering that demand in the home market is expected to slow due to wide-ranging consolidation measures enacted this June, one draws the conclusion that Germany is now more than ever dependent on emerging markets.
Conclusion
There are several kinks in the Chinese-German trade relationship that have the potential to affect this cross-continental symbiosis. One issue on the horizon is the continued argument over China’s Market Economy Status (MES). As is well known, the EU has measures against some 49 Chinese products as well as anti-dumping duties targeted against the mainland. For Beijing, the issue is not merely economic but also political. It considers the lack of China’s MES status as motivated by protectionism and ultimately deems it a “loss of face”. This line of argument is especially explosive in China, where any sort of “mistreatment” of the Middle Kingdom by the west invokes inflammatory memories of the unequal treaties of the Opium Wars.
Even so, there is little reason to believe that the “Chermany” phenomenon is not here to stay. Despite some worries about the Chinese market, it is largely stable. Beijing has repeatedly shown willingness for concerted and prudent action against any sort of economic destabilization and has made it perfectly clear that it wants to foster the current rate of double-digit GDP growth (10.3% year on year in the second quarter compared with 11.9% in the first quarter). German firms are in China to stay too. Volkswagen has long cited China as its “second home market”, although it really is its first, considering that VW has sold more cars in China than in Germany for some time now.
With the slowly appreciating RMB, domestic demand is only expected to rise in China. The mainlanders’ stronger purchasing-power has translated into more consumers spending on luxury goods which has, according to chief HSBC Trinkaus economist Stefan Schilbe, meant more demand for German goods.
For China, the success of the Chermany phenomenon has even wider ramifications. Having recently overtaken Japan as the second-biggest economy in the world while its citizens enjoy a growing standard of life, many have argued that China provides a viable alternate governance model for African and Latin American states. The “Beijing Consensus” seems to have validated itself. Tight government control infused with a generous dose of market capitalism ensured that it took only a short thirty years from Deng Xiaoping’s first market-reforms to result in brim-full BMW and Mercedes dealerships in Chinese cities.
Headline Picture : flickr.com
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