Sieren′s China: Germany could feel effects of Beijing woes | Asia| An in-depth look at news from across the continent | DW | 17.01.2019
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Sieren's China: Germany could feel effects of Beijing woes

China's exports fell sharply in December. Investment decreased, and the growth forecast for 2019 was lowered. But this is less a problem for China than it could be for Germany, DW's Frank Sieren writes.

Theeconomy of China is faltering. Foreign trade has not been this bad for two years. In December, there was a 4.4 percent drop in exports compared with the same period in 2017. Imports also fell 7.6 percent. This is a trend that has taken over China's whole economy. In 2019, GDP is predicted to grow just 6-6.5 percent. This would be the lowest rate of increase since 1990.

China is now responsible for one-third third of global growth. Many important industry sectors in Germany are dependent on the Chinese market and not only in Germany. A weaker economy in China will have a global impact. In 2018, for the first time in 28 years fewer cars were sold than the year before. There was a 6 percent decrease in sales but still 22.7 million cars were sold.  Premium brands such Daimler and BMW even managed to enjoy higher sales. But Volkswagen and other volume brands sold fewer cars for the first time in 20 years. Ford sales in China fell by a third.

Frank Sieren

Frank Sieren has lived in Beijing for 25 years

Apple also missed its sales target for the first time in the decade since the iPhone was introduced. CEO Tim Cook said that the drop in profits was directly linked to lower demand for iPhones, iPads and MacBooks in China.

Though Cook attributed this to the country's economic woes, the situation is not so simple. Personal income grew 5.7 percent in the first three quarters of 2018 in China. But what is a decisive factor is that Huawei, Apple's biggest rival, sold 6.6 percent more phones than in 2017 and is now selling twice as many devices as Apple. There's a similar trend in cars, with Geely sales increasing by 20 percent.

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By the numbers

It is very probable that this trend will continue — even if the uncertainty caused by the trade dispute with the United States decreases. Retail sales did not witness strong growth towards the end of the year, nor did industrial production. The real estate market, which represents about 15 percent of China's GDP, also cooled.

But it would not be so terrible for China should it be determined that we have come to the end of a period of global growth. Despite the recent weak development, the overall result for the whole year is not bad. China's exports grew by 10 percent in comparison to the previous year and imports grew by 16 percent. The trade surplus with the US grew by 17.2 percent to $323.3 billion. Exports to the US increased by 11.3 percent while imports from the US only increased by 0.7 percent. This is good news for China but not for US President Donald Trump, who has less and less leverage over China every day. 

For a long time, China's economy was based on exports. Now the domestic market comprises a good 70 percent of the global economy. So Beijing will do everything it can in 2019 to increase the population's trust in Chinese products. But not at all costs: The government is much more sensitive than it was 10 years ago to the risk of rising debt. It has been able to reduce debt, which was over 15 percent in early 2017, to under 10 percent by closing down several shadow banks. This has also had a direct influence on consumption.

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The right balance

China's priority will be to find the right balance between the accelerator and the brake. This time round, it does not seem probable that China will be able to pull the global economy out of its lethargy with a huge economic stimulus program cost what it may, as it was able to do after the global crisis of 2008-09.

The central bank has announced that it will encourage lending to small enterprises. Companies that do not fire employees will be reimbursed half of their contributions to unemployment insurance. Changes to income tax and VAT, as well as financial incentives for buying consumer goods and cars, are also currently under discussion. The stock market has already calmed down as a result of the announced measures. Earlier this week, the markets in Shenzhen and Shanghai both rose by 2 percent.

These are just some of the several instruments that the government can use to get the economy going again. And they will help domestic businesses more than they will foreign companies in China.

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