Unlocking the potential

China and Germany believe collaboration on innovation is the right path to growth

After a bilateral economic and technological forum in Berlin on Oct 10, Premier Li Keqiang gave German Chancellor Angela Merkel a Lu Ban Lock, invented by the legendary ancient Chinese carpenter Lu Ban and based on mortise and tenon joints. Each piece of the puzzle is interconnected without fasteners and players have to unlock it and put the pieces back together.

After Li handed the gift to Merkel, he told her he hoped the two countries could "solve difficulties with intelligence and expand their future".

That statement, made more tangible by the puzzle, became Li's motto during his second visit to the European country.

During the third intergovernmental consultation meeting in Berlin, the two leaders vowed to broaden already expansive economic ties as both countries experience downturns in their economies. China, which in its wildest boom years enjoyed annual double-digit growth rates, currently expects GDP to expand by about 7.5 percent this year, Li said.

Germany's top think tanks recently slashed this year's growth rate expectations to just 1.3 percent for the eurozone's traditional economic engine.

As China's economy slows and as Germany warns that it is teetering on the brink of a recession, both countries are eager to find areas in which more cooperation would be mutually beneficial.

During Li's visit, innovation underscored many of China's meetings with German government officials. After 14 Chinese ministers and 12 German Cabinet members sat down to discuss trade and economic cooperation, both sides called for expanding their "innovation partnership".

Both countries also said they want to boost their multibillion-dollar trade and investment ties.

"We have summarized our cooperation under the keyword innovation. We have developed a framework for action," Merkel said.

China and Germany signed a wide-ranging guideline covering 110 cooperation agreements over the next five to 10 years, the largest agreement of its kind for China. The two sides also signed deals worth more than $18 billion that mostly covered collaboration in technology.

"With the establishment of a bilateral all-around strategic partnership this year, the long-term significance of bilateral relations has been continued and improved," Li said.

With innovation at the forefront of bilateral talks, it is telling that China will be the partner country for the world's largest computer trade fair, CeBIT 2015, in Germany.

Li, in his speech at the Hamburg Summit, said: "China and Europe are both committed to conducting structural and economic reform. This has provided new opportunities for us to expand cooperation in new technologies, new industries and new sectors."

He said when it comes to cooperation on urbanization and the green economy, Europe has advantages while China has the market.

"We believe the two sides may jointly develop a group of demonstration zones on industrial economy, energy conservation and environmental protection to maximize the catalytic and multiplying effect of our cooperation," Li said.

Analysts note that China understands it needs Germany's technological expertise to remain competitive in the long run, while German companies can cash in by expanding into underdeveloped economic sectors in China.

Li said ties between China and Germany are at "a high-level of cooperation that extends far beyond simple sell-and-buy relations".

Among the agreements signed, Volkswagen Group, which has had a leading presence in China since the 1980s, and FAW Group, one of its Chinese joint venture partners, are extending their current partnership 25 years, until 2041.

The Volkswagen Group and SAIC, its other Chinese joint venture partner, are investing abut 100 million euros in a new center in the Xinjiang Uygur autonomous region to test models from Shanghai Volkswagen. The facility will be built to the southeast of the joint venture's existing plant, in the capital, Urumqi, that was commissioned in August last year.

"Together with its strong partners, Volkswagen is focusing on innovation, eco-friendly technologies and excellently trained employees in China. Today's agreements pave the way for the sustainable development of China's automotive industry and for the Volkswagen Group and its joint ventures to benefit from growth," says Martin Winterkorn, Volkswagen's chairman of the board of management.

Jochem Heizmann, president and CEO of Volkswagen China, says: "We will be introducing our newest testing methods in China at our new proving ground, and will be paying very close attention to the appropriate training for our employees. This is clear testimony of Volkswagen's commitment to the Chinese market."

In other deals signed during Li's visit, Deutsche Telekom announced a joint venture with China Mobile to build a digital network for Web-connected cars on Chinese roads. And European aviation giant Airbus SAS and China Aviation Supplies Holding Co signed an agreement for China to buy 70 A320 narrow-body passenger jets.

The two aviation companies also signed a letter of intent reconfirming their intention to establish an A330 completion and delivery center in Tianjin, where an A320 assembly line is already located. The A330 is a medium wide-body jet.

At the summit, Li said he expects Germany to export more high-tech products to China and to make it easier for Chinese enterprises to invest in Germany.

"Both sides should continue to push forward cooperation in manufacturing, such as electric vehicles, aviation and aerospace; further upgrade industry and technology; enhance coordination on macro-economic policies; fully utilize the mechanism for Sino-Germany high-level fiscal and financial dialogue; and promote offshore RMB business in Europe," Li said.

Li also said that he hopes Germany can quickly solve its over-regulation of China-funded banks in the European country.

Bart Decroos, managing director of Sany Germany, the German arm of Chinese construction machine giant Sany Group, has similar hopes.

"I hope Premier Li's visit will further the enthusiasm of Chinese banks to enter the European market for retail financing of Chinese heavy equipment. We've already had promising discussions with some banks but one can still feel that for several banks coming to Europe, especially in retail financing, it's still a step into the unknown," Decroos says.

Hailing Germany as the "locomotive for cooperation between China and Europe", Li said China welcomes Germany's support in talks to secure a China-EU investment agreement.

Li said he hopes Germany supports the launch of a feasibility study into a China-EU free-trade area and influences the EU to increase its high-tech exports to China.

"Both in China and Germany, the political leadership has set out a framework that enables significant growth for companies in these sectors, because they believe these sectors are absolutely critical for their economies to be competitive long-term," says Jodie Roussell, European director of public affairs at TrinaSolar, a China-based manufacturer of photovoltaic modules.

"I think that there are abundant opportunities in China and Germany for companies in the renewable energy sector, but, of course, challenges remain such as business practices, interoperability of the yuan in international banking, the language divide. Of course, like any other pair of countries, Germany and China need to continue to enhance their mutual understanding."

During Li's visit to Europe this month he also secured a number of deals with Russia and Italy.

With Russia, 39 agreements worth $10 billion were signed after Li and Russian Prime Minister Dmitry Medvedev met for the 19th Regular Prime Ministers' Meetings.

China signed $10 billion in deals with Italy on Oct 14, a package that Italian Prime Minister Matteo Renzi described as no more than "antipasto" that should open the way to more future cooperation with China.

"The fact that Sino-Italian trade has increased significantly against the backdrop of the global economic recession demonstrates the huge potential of our cooperation," Li said at a joint news conference.

Renzi agreed, saying: "We must bring more China to Italy and take more Italy to China."

Experts say the agreements signed on Oct 14 will facilitate investment from Italy to China, with better financial services and specific destinations especially reserved for Italian investors.

zhangchunyan@chinadaily.com.cn

(China Daily Africa Weekly 10/17/2014 page16)