Should we stay positive about increasing global interdependence trends?

Opening any newspaper or magazine these days, one feels bombarded with negative news about the state of the Chinese economy. Record-high unemployment, drastic declines in imports and exports, a real estate sector that is not only stuttering but also partially falling apart, and, the lowest full-year GDP growth rate in decades (except 2020). More than enough reasons to be worried, right?

Last week, I attended a round table of Chinese and foreign CEOs from multinational companies (MNCs) from diverse industries. None was budgeting for a decrease in revenues, either this year or next. How does this fit together?

China’s Attractiveness to Foreign Investors

One truth is that everyone picks the numbers that fit their story. If one wants to write the story that China’s economy is in a disastrous state, the decline in inbound foreign direct investment ( 87.1% YOY in Q2/23), real estate ( 8.8% YOY in June), and imports ( 10.1% YOY in June) gives enough ammunition. However, the world bank is forecasting a GDP growth for China in 2023 is 5.6% and 4.5% in 2024—the second highest of any large economy (after India). And remember, we’re speaking about a dramatically different-sized economy as the base. Through its growth rate, China will add the complete Indian economy (3.4 trillion USD) to its GDP in just five years. Such a large economy has to mature at some point, and the boom years of the last 30 years just came slowly to an end— a slowdown phase predicted by economists for years. In addition, thanks to the COVID-19 years, damage has been done to previously unwavering confidence in China’s endless growth story; not only foreign capital but also many foreigners have left the country. The government is trying to remain attractive to foreign investment and foreigners. In very quick steps, visa regulations have been eased, and special income tax exemptions for foreigners have just been extended this week for another four years.

When China’s Premier Li Qiang arrived in Germany on June 18 to embark on his first state visit since taking office, I had the pleasure of attending the 11th China–Germany Economic and Technical Cooperation Forum hosted by the German Ministry for Economics and Climate, where Chancellor Scholz and Premier Li were also present. The two leaders met with many representatives from German businesses. In all the discussions, one could sense three major themes.

·?????? First, the Chinese side is trying to create confidence in the reliability and potential of its economy, which underlines the importance of welcoming foreign investment into China.

·?????? Second, the German government responded a bit more cautiously, stressing areas of cooperation but also significant differences in world views and a need for managing risks.

·?????? Third, the businesses with probably the longest experience in China of all the stakeholders—with many companies doing business in China for more than 100 years and many executives present on the forum—have been in China dozens of times. The business side wants to benefit naturally from the market of the second-largest economy of the world and its robust innovation system. While companies active in China have geopolitical risks clearly on their radar, the pressing need is the management of concrete business challenges, ranging from local competition to market access.

Extensive discussion also occurred regarding dependencies and derisking by diversification.

According to McKinsey’s report, every region in the world has imported 25 percent or more (in value-added terms) of at least one important type of resource or manufactured good that it needs—and often much more. It seems that no region is close to being self-sufficient. So, should we follow the trend of increasing global interdependence or keep an eye on the negative sides? While people may have different opinions from different perspectives, personally, I am a strong believer in the benefits of globalization and Ricardo’s theory of comparative advantages.

China-Germany Cooperation

I’d like to share my view based on my experiences, starting with China–Germany cooperation. In 1972, the Federal Republic of Germany and the People’s Republic of China first established diplomatic relations. Since then, Sino–German relations have become multifaceted and intense. During the late 20th and early 21st centuries, Germany played a significant role in modernizing China’s infrastructure and industry, particularly in transportation, communication, and manufacturing. The two countries have also collaborated on a wide range of projects related to renewable energy, environmental protection, and scientific research. For example, after the initiation of the Sino-German Energy Partnership in 2006 bilateral cooperation between China and Germany in the energy sector developed into a strategic partnership in 2016.

Germany has become China’s largest trading partner in Europe, and China is Germany’s largest trading partner outside the European Union. In terms of overall trade—both exports and imports—China has been Germany’s main trading partner since 2016. According to the German Federal Statistics Office, the volume of peer-to-peer goods trade reached about 298.9 billion euros last year.

In my opinion, the economic relationship between China and Germany is a typical example of Ricardo’s theory, as it clearly demonstrates the benefits for both sides in terms of specialization, what they can do best, and then trading these goods with one another. Of course, this requires negotiations, trust, and a level playing field provided by international contracts and agreements.

German Companies Have Confidence in the Chinese Market and Globalization in the Long Run

MNCs play a pivotal role in transnational trade and cooperation by managing global flows to deliver in an interconnected world. As chairman of the board of directors of the German Chamber of Commerce in East China, I frequently connect with executives from German companies in China and global companies engaged in the Chinese market. Two topics frequently discussed are the Sino–German cooperation and global interdependence. No one knows what lies in the future, but many executives remain cautiously positive about future globalization trends. One fact that also inspired me is that we had 2,109 German company members in AHK Greater China’s ?China-wide network last year, and the number has continued to increase slightly in recent years, demonstrating German companies’ confidence in the Chinese market. Finally, it’s also a fact that the German economy is built on strong exports of high-quality goods; it just can’t afford to move into an age of trade barriers and self-reliance in products. The German economy’s success and the nation’s comparative wealth are strongly linked to our globalized world, and in the end, it exemplifies Ricardo’s theory.

Nowadays, nations are connected not only through trade and investments, but also increasingly through communication, digital technologies, and shared challenges. Premier Li repeatedly called for greater “openness and cooperation” throughout his German tour. This goes both ways of course. Andy Grove, the co-founder of Intel, once famously said “You have no choice but to operate in a world shaped by globalization and the information revolution. There are two options: Adapt or die.” ?I too believe that the advantages of globalization are striking, if rules are agreed upon and honored. By weighing the pros and cons, we can work toward creating a more sustainable and equitable global community through greater cooperation and collaboration among nations.

#GlobalInterdependence #globalization #Sino-German #economy #cooperation 德国工商大会大中华区

(Disclaimer: The ideas, views, and opinions expressed in my LinkedIn posts and profiles represent my own views and not those of any of my current or previous employers or organizations with which I am associated. Any and all comments on my posts from respondents/commenters to my postings belong to, and only to the person posting)