China's growth has declined to its slowest pace in over a quarter century. DW talks to Jörg Wuttke, the president of the EU Chamber of Commerce in Beijing, about its impact on the fragile global economic recovery.
DW: What is your assessment about the current state of the Chinese economy, given the stock market volatility and weakening growth in China in recent months?
Jörg Wuttke: Until recently, the Chinese stock market remained detached from the real economy. For many years, the economy had experienced double-digit growth and then suddenly - since June 2014 - there had been a bull run on the Shanghai stock exchange, with the benchmark index surging by around 150 percent within a short period of time.
The index is now on the way back to the same level from where it had once risen. It's mainly a psychological problem associated with the stock market, as the country is still posting relatively strong real economic growth. However, I see China facing major problems in this regard in 2016.
Economic data in China are mostly predetermined by the government. But with growth slowing, do you believe the government is slowly losing its control on this front?
No, the control exercised by the government is not at risk. They have a strong political organization, with the Communist Party of China still having at least 80 million members across the country.
China also has deep pockets to tackle relatively quickly any economic problems that might arise. Even in provinces that have already slipped into recession, there hasn't so far been any unrest or mass protests. However, it would become quite expensive for the party to maintain its grip and keep the situation under control.
How is the situation in China impacting European companies operating there?
We certainly benefited a lot from China's strong growth rates in recent years. But this year, Chinese manufacturing growth is certain to stagnate, and much will depend on the performance of the service sector. However, most European firms are not active in the country's service sector. Moreover, there are problems related to the huge debt load facing Chinese companies and local governments.
But even if some sectors of the Chinese economy perform well and post solid growth, market access to EU firms in these areas still remains an issue. One must not forget that the regulatory requirements mandated by the Chinese government are so comprehensive that our Chamber of Commerce lists about 800 individual provisions in a 400-page catalog.
Which companies are mainly affected by the Chinese downturn?
Almost a half of European exports to China come from Germany. As a consequence of the sputtering growth and the simultaneous devaluation of the renminbi, exports to China will certainly be affected. We as investors are strongly positioned on the Chinese market.
In 2015, Europeans investors pumped 9 billion euros into China, while the Chinese invested around 22 billion euros in Europe. And I believe this trend will continue this year. At present, Europe is a more attractive investment destination than China.
At this year's World Economic Forum in Davos, investor George Soros said China's economy is headed for a "hard landing." What is your take on this?
Soros is a very famous personality and his statements on the renminbi, unfortunately, drew a warning on the front page of the Chinese newspaper "People's Daily" - the nation's largest and most important newspaper.
This, in turn, resulted in front-page coverage from the "Financial Times." And now everyone across the world believes the Chinese currency has a problem. This reaction of the Chinese leadership to Soros' comments is extremely unfortunate and we will have to wait and see how the world reacts to it.
Still, China is the most important developing country for us. Even if the Chinese economy grows by only 5 percent, it is in absolute terms still more than 10 percent growth a decade ago. Moreover, there isn't a second China in the world. Although there is growing talk about India, it certainly takes another 20 years for the Indian economy to offer the same level of opportunities as China's.
That's why we are extremely keen that China implements its reforms and, at the same time, stops issuing warnings against Soros.
What is your outlook for the Chinese economy in the next five years?
China's economy is likely to face headwinds in the next two, three years. I hope by then the government will have finally implemented the economic reform program it unveiled at the end of 2013. Consumer spending still plays a relatively small role in the country's economy.
By looking at the per-capita consumption on all types of goods, one can quickly conclude that China's current situation is comparable to Korea's in the 1970s and Japan's in the 1960s. It's still possible to achieve 20 to 30 years of strong growth. But the real issue is how effectively the country deals with economic crises, as China is not particularly good at crisis management.
Joerg Wuttke is President of the European Union Chamber of Commerce in China, and he has been living in China since 1993.