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German economics minister warns of 'trade war' with China

Economics Minister Rainer Bruederle began his two-day trip to China with warnings of a "trade war." He is hoping his visit will help promote “sensible arrangements.” But observers are skeptical.

Economics Minister Rainer Bruederle

Rainer Bruederle arrived in China on Tuesday

Economics Minister Rainer Bruederle has framed his two-day trip to China, which began in Beijing on Tuesday, as a pacifying mission, following recent acrimony between China and many G-20 countries over trade.

"The danger of a trade war has appeared on the horizon," Bruederle told reporters traveling with him on his two-day trip to China, which is to include stops in Beijing and Shanghai. The minister warned that accusations of currency manipulation should not be allowed to escalate, and protectionism must be avoided.

Some of China's trading partners in the US and Europe have recently accused Beijing of allowing the yuan to depreciate at a faster pace. Critics say the unit could be undervalued by as much as 40 percent.

Ambassador and missionary

Speaking in Beijing, Bruederle refuted these claims, pointing out that the yuan had increased in value by 15 to 17 percent in the past two years, and he added that he did not expect the Chinese government to adopt flexible trading patterns in the future.

"We must not allow the situation to get out of hand, or turn our backs on free trade," Bruederle said, adding that he saw himself as an "ambassador, perhaps even a missionary, for the fight against protectionism."

China's Prime Minister Wen Jiabao, European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso

China has faced pressure from the EU over currency depreciation

Bruederle expressed satisfaction with the state of German-Chinese trade, which has grown significantly this year. German exports to China have grown by 52 percent to 30 billion euros ($42 billion) in the first seven months of this year, while Chinese exports have risen by 34 percent, compared to 2009 figures.

Germany is considered one of China's best friends in the West. "The Germans have been pushing for an open trade policy towards China," Jonathan Holslag of the Brussels Institute of Contemporary China Studies (BICCS) told Deutsche Welle. "Germany's economic revival after the financial crisis has been - to a large degree - made in China."

"Most of the expansion in Germany's exports – particularly cars and machinery – has been bound for China," says Holslag. For this reason, Holslag believes, the German government has often cautioned against protectionism towards China. "Angela Merkel has also openly expressed her support for granting China market economy status," Holslag points out. "This would make it more difficult for the European Commission to apply anti-dumping procedures."

Good on the small-scale, not so much on the large-scale

But despite Germany's huge economic interest in China – not only through exports, but also through direct investment from individual companies – Bruederle's leverage during this trip is likely to be limited.

The minister said that one of his main aims for the trip was to ensure that medium-sized German businesses gained better opportunities in China. After his meetings with Chinese commerce minister Chen Deming and Zhang Ping, the head of the country's top economic planning agency, Bruederle said he had been assured that German companies could take part in open competition in China provided they used a minimum of 50 percent local products.

But Holslag believes this is a secondary priority for Bruederle compared to maintaining export agreements. "It's important to distinguish degrees of urgency," he says. "The most important objective for the German government is to step up exports, and the second level is access to the Chinese market. Germany is likely to be very cautious in negotiations, in order to protect exports."

German machinery to be exported to China

Germany's recovery has been largely based on exports to China

But despite this, there is concern that German companies are being disadvantaged by the Chinese government. Rolf Langhammer, vice-president of the Kiel Institute for the World Economy, believes that this is where Bruederle can at least make sure German businesses can get their voices heard. "Germany enjoys a very good position in China compared to other European countries, but of course there are barriers to mid-sized German companies," he told Deutsche Welle. "A lot of representatives of these firms are accompanying Bruederle."

Langhammer does not think that Bruederle can apply much pressure on the question of global exchange rates – the issue he addressed on arrival. "The Chinese government has always made clear that it won't let itself be influenced on this subject, and Bruederle's visit won't change anything in the discussion about the exchange rate."

Langhammer is also unconvinced by Bruederle's attempt to position himself as a mediator between the China and the West. "That's a role he cannot play," he says. "He is much too small for that. He doesn't speak for the eurozone, he speaks for an export country called Germany. Of course he can represent the interests of mid-sized companies, and he can voice their concerns if they feel themselves disadvantaged alongside Chinese competition, but he can't solve the big questions – and he can't be a mediator in them."

Author: Ben Knight
Editor: Chuck Penfold

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