The One Belt One Road from Germany’s perspective

In December 2016 Germany’s Ambassador to China Michael Clauss met the South China Morning Post to talk about the Central European presence of the One Belt One Road and China.[i] Unlike the usual diplomatic language, the interview sharply criticised several elements in China’s One Belt One Road program and the Central-Eastern European (CEE) policy related to the “16 + 1 Cooperation”. Since Germany fulfils a significant role in the life of the Central-Eastern European region, it is a must that Hungary studies the German attitude towards the grandiose vision of the Chinese foreign policy.

The early reception of Germany and the OBOR

The countries of the European Union tend to approach the One Belt One Road Initiative (hereinafter as OBOR) in a rather diffuse way.[ii] Typically, the sharpest borderline lies between the Western European countries and the Central-Eastern European (CEE) countries. While the previous group is far more sceptical about the feasibility of the grandiose plans, the group formed by the latter countries – which China attempts to hold together under the “16 + 1 Cooperation” – considers the OBOR as a unique opportunity to help the region break from its semi-peripheral status (see: Kelet-Közép Európa és Magyarország helye a Selyemúton).

Germany’s attitude towards the OBOR can typically be broken down to two stages.[iii]Upon the announcement of the plans in 2013, the German political elite and the press welcomed the Chinese ideas warmly. All of this was primarily due to the fact that foreign trading plays a significant role in the German economy; therefore, they noticed the better accessibility to the export markets in the new infrastructure network. Second, they hoped to establish better cooperation with the Chinese corporations under the aegis of the OBOR, which would enhance the presence of the German firms within China. In accordance with this, negotiations were started in the fields of railway, logistics and shipping. In March 2016 the state-owned Deutsche Bahn (DB) and the China Railways, whereas in March 2016 the privately owned logistics huge corporation, DHL and the Chinese Chengdu City signed a declaration of cooperation intent.[iv] As for Germany, the two significant harbours, Hamburg and Duisburg were also actively interested in the OBOR.[v]

The more or less insignificant fact that the former expression Silk Road (Seidenstraße) can be associated with a German geographer Ferdinand von Richthofen should not be ignored entirely; therefore, the Chinese announcement had a positive and nostalgic echo in the press.[vi]

The enthusiastic reception of the OBOR was proved by Chinese President Xi Jinping’s visit in March 2014, during which the railway connection between Chongqing and Duisburg was inaugurated officially, too.[vii] Over the next short period the project was still received positively, which was shown by plenty of high-level negotiations as well.[viii]

Xi Jinping in Duisburg[ix]

At the same time, we can observe a significant change in 2016,[x] which is clearly reflected by the interview made by Michael Clauss, too.

The changing judgement of the OBOR

The negative attitude to the One Belt One Road is mainly due to the economic factor. While earlier the better accessibility of the markets seemed attractive for Germany, today more and more warning signs suggest that the opposite is true as well. Although China’s existing technological underdevelopment makes its products non-dangerous for the German industry, in the following decades this situation can rapidly change. The Made in China 2025 Program, supported by the Chinese Government, aims to catch up with the developed industrial countries by joining the so-called fourth industrial revolution dynamically in certain centrally supported fields of the Chinese industry in ten years’ time.[xi] The considerable attention this endeavour receives in Germany is proved by the fact that MERICS, one of the leading German research institutes dealing with China, deals with this issue with high priority. In a study completed in December 2016, MERICS states that although the state of development of the Chinese industry still will not be able to catch up with the German standard at national level by 2025, it can become a competitor of the German corporations in the areas supported by the Government artificially, both within China and at the global market.[xii] Not surprisingly, in his interview Clauss expressed his concern that foreign firms can be pushed out of China owing to the protectionism accompanying the Made in China 2025 Program since the local firms can obviously succeed more easily at the Chinese background thanks to the support. All this would disadvantageously influence Germany, whose fifth most important export market is China (USD 76 billion) and who already has a considerable foreign trading deficit against China (USD 17.7 billion).[xiii] Under the Made in China 2025 Program the new Chinese products that have a higher value but require fast transport can also get to Germany’s traditional markets or even Europe through the infrastructure relationships to be realised under the OBOR (primarily railway, as well as railway and maritime transport), which would establish a competition situation for the German industry.

Countries mostly affected by the Made in China Program[xiv]

What is more, in recent decades the number of Chinese firm purchases has drastically increased in Europe.[xv] Also, MERICS highlighted the fact that this process is especially remarkable in the case of high-tech corporations (the most widely known case is that of the German KUKA firm’s, which was purchased by the Chinese Midea corporation for EUR 4.5 billion[xvi]), which can help the Chinese corporations “artificially” decrease their technological underdevelopment. For all this, Germany endeavours to prevent the purchasing of strategic corporations; therefore, it submitted a bill to the EU according to which the Member States could protect their corporations, primarily if the purchasing has a political purpose or the purchaser is unable to provide technological transfer for the corporation bought-up. [xvii]

Changes in the Chinese and German operating capital investments into each other’s countries between 2000 and 2016[xviii]

Germany received with similarly moderate enthusiasm the large port developments realised in the southern and south-eastern parts of Europe with Chinese support, especially Piraeus. The future Budapest-Belgrade railway connection will considerably shorten the transportation of the Chinese goods to Western Europe, as compared to the by-passing of the European continents by the ships. All this can adversely affect the Port of Hamburg, which is considered the most important centre for the China-Europe trading. Over 30% of Hamburg’s turnover is constituted by the trade with China in 2016 (2.6 million TEU).[xix]

The five most important commercial partners of the Port of Hamburg (Source: Port of Hamburg)[xx]

Although certain German corporations, particularly DHL, consider the southern ports advantageous as they accelerate their services (as compared to Hamburg, the shipping period is 9 days shorter through Piraeus),[xxi] the reception is not absolute positive at national level. Most probably, the stagnation in the container turnover of the Port of Hamburg experienced in recent years has largely been affected by Piraeus, while in the longer term the increasing number of railway shipments within the framework of the OBOR will keep decreasing the role of German ports.

Container turnover of Hamburg and Piraeus between 2010 and 2016[xxii]

In Germany China’s potential geopolitical ambitions are also received with strong scepticism, which is most clearly shown by the OBOR.[xxiii] In Germany many people suppose that the OBOR undermines the global US hegemony. Although the Chinese experts emphasise that the OBOR is a historical opportunity that would place Europe in the centre of world history again, Germany’s power would be far weaker in the reviving Eurasian economic region than that of China, which is expected to keep growing in the future.[xxiv]

A comparison of the economic power of Germany and China[xxv]

Therefore, Germany is not necessarily interested in deconstructing the prevailing world order – in a world order where it has successfully integrated with its highly-developed industrial export products and that has allowed it to keep its military expenses low in the long run.

Finally, Germany considers China’s stronger and stronger Central-Eastern European presence rather negatively This judgement is remarkable in the ‘16+1 Cooperation”, which can be deemed as one of the institutional innovations realised by China in recent years. In his interview Class highlights that the parallel institutions built in the region by China are incompatible with the strong commitment towards the EU. Germany tends to challenge this cooperation for two reasons. First, since the Chinese investments water the severe investments rules of the EU and deteriorate the political unity of the EU. Second, the Germans are concerned about China’s potential political pressure towards the smaller countries, which results from China’s economic power. in fact, it primarily means that China, exploiting the “16+1 Cooperation”, can be able to actively and efficiently intervene in the internal affairs of the European Union owing to the large number of countries. Thanks to the strong German economic relations, the region is considered a traditional supporter of the German policy. Therefore, it is not by accident that Germany is primarily interested in directing the relations of China and the Central-Eastern European countries possibly by way of the channels through the EU.

Its influence on Hungary and the CEE Region

Further deterioration of the Germany-China relations can imply severe risks for the Central-eastern European region and Hungary. Above all, if Germany would introduce a protectionist policy, it would trigger a counter-reaction from China. This would be tragic for the region not only in economic respect ­– China is an important market for the CEE Region and Hungary through the German corporations –but also because it would immediately destroy the OBOR-related hopes concerning the break-out from the peripheral position. Therefore, it is the interest of the CEE Region and Hungary that the OBOR connects rather than separates the EU and China, in which the CEE countries fulfil the role of some kind of a bridge.

Although the prospects do not seem to be favourable owing to the reasons discussed above, the process can rapidly turn the opposite direction. It is China and Germany’s common interest to establish a single global commercial system with strong international institutions. Donald Trump’s expectable protectionist measures can encourage Germany and China to establish closer cooperation, which can be facilitated by the OBOR.

Author: Viktor Eszterhai

 

[i] Berlin uneasy about Beijing’s growing clout in eastern, southern Europe. South China Morning Post, 18 February, 2017. http://www.scmp.com/news/china/diplomacy-defence/article/2072046/berlin-uneasy-about-beijings-growing-clout-eastern

[ii] One Belt, One Road (OBOR): China’s regional integration initiative. Briefing. European Parliament Tink Tank, July 2016.

http://www.europarl.europa.eu/RegData/etudes/BRIE/2016/586608/EPRS_BRI(2016)586608_EN.pdf

[iii] Gaspers, Jan: Germany and the ‘Belt and Road’ Initiative: Tackling Geopolitical Implications through Multilateral Frameworks. In van der Putten, Frans-Paul – Seaman, John – Huotari, Mikko – Ekman, Alice  – Otero-Iglesias, Miguel: Europe and China’svNew Silk Roads. European Think-tank Network on China (ETNC), December 2016. 24-29. (Gaspers, 2016)

[iv] Id. 24-25.

[v] Hamburg Summit to focus on Belt and Road Initiative. China Daily, 16 November 2016. http://europe.chinadaily.com.cn/business/2016-11/16/content_27398730.htm

[vi] Die rollende Seidenstraße. Süddeutsche Zeitung, 27. April 2015. http://www.sueddeutsche.de/wirtschaft/von-westeuropa-nach-china-die-rollende-seidenstrasse-1.2454706

[vii] President Xi Jinping Visits the Port of Duisburg, Germany, Ministry of Foreign Affairs of the People’s Republic of China, March 30, 214. http://www.fmprc.gov.cn/mfa_eng/topics_665678/xjpzxcxdsjhaqhfbfwhlfgdgblshlhgjkezzzbomzb_666590/t1164914.shtml

[viii] Konferenz im Auswärtigen Amt zur Seidenstraßen-Initiative “OBOR”. Auswärtiges Amt, 2 Februar, 2016.

https://www.auswaertiges-amt.de/DE/Aussenpolitik/Laender/Aktuelle_Artikel/China/160202_Seidenstra%C3%9Fe_Initiative.html

[ix] President Xi Jinping Visits the Port of Duisburg, Germany, Ministry of Foreign Affairs of the People’s Republic of China, March 30, 214.

[x] Larres, Klaus : China and Germany: The Honeymoon Is Over. The Diplomat, November 16, 2016. (Larres, 2016) http://thediplomat.com/2016/11/china-and-gemany-the-honeymoon-is-over/

[xi] Made in China 2025.The State Council of the People’s Republic of China.

http://english.gov.cn/2016special/madeinchina2025/

[xii] Wübbeke, Jost – Meissner, Mirjam –Zenglein, Max J. – Ives Jaqueline – Conrad, Björn: Made in China 2025: The making of a high-tech superpower and consequences for industrial countries. Mercator Institute of China Studies, 2. December 2016. (Wübbeke at all., 2016) https://www.merics.org/fileadmin/user_upload/downloads/MPOC/MPOC_Made_in_China_2025/MPOC_No.2_MadeinChina_2025.pdf

[xiii] Foreign trade Ranking of Germany’s trading partners in foreign trade 2016, Statistisches Bundesamt (Destatis), March 21, 2017.

https://www.destatis.de/EN/FactsFigures/NationalEconomyEnvironment/ForeignTrade/Tables/OrderRankGermanyTradingPartners.pdf?__blob=publicationFile

[xiv] Wübbeke at all., 2016. 60.

[xv] Hanemann, Thilo – Huotari, Mikko: Record Flows and Growing Imbalances. MERICS, 3. January 2017. (Hanemann, Thilo – Huotari, 2017) https://www.merics.org/fileadmin/user_upload/downloads/MPOC/COFDI_2017/MPOC_03_Update_COFDI_Web.pdf

[xvi] Id. 42.

[xvii] Chazan, Guy –Wagstyl, Stefan: Berlin pushes for EU-wide rules to block Chinese takeovers, Financial Times, October 28, 2016. https://www.ft.com/content/1b892ae4-9cd6-11e6-8324-be63473ce146

[xviii] Hanemann, Thilo – Huotari, 2017. 5.

Chinese Investment in Europe in 2016 5.

[xix] Germany’s link to China. China Daily, 10 November 2014.

http://www.chinadaily.com.cn/world/2014livisitgrl/2014-10/10/content_18719175.htm

Michaels, Daniel: Port of Hamburg Shows Germany Is Vulnerable on China Trade. The Wall Street Journal, 2016. 10.

https://www.wsj.com/articles/port-of-hamburg-shows-germany-is-vulnerable-on-china-trade-1440601584

[xx]Top 10 Trading Partners in Seaborne Container Traffic, Port of Hamburg, 2017.  https://www.hafen-hamburg.de/en/statistics/trading-partners

[xxi] Wöhrle, Thomas: Multimodal Halfway Around the World. 9 February 2017. http://dhl-freight-connections.com/en/multimodal-halfway-around-the-world/

http://dhl-freight-connections.com/en/multimodal-halfway-around-the-world/

[xxii] List of busiest ports in Europe. Wikipedia, 2017. https://en.wikipedia.org/wiki/List_of_busiest_ports_in_Europe

[xxiii] Gaspers, 2016. 27.

[xxiv] Larres, 2016.

[xxv] International Monetary Fund’s World Economic Outlook (WEO) Database, October 2016.