Threat of US Isolationism – More Trade Between Germany and China Expected

The increasing protectionism of the US government could intensify trade relations between Germany and China. Business executives of German companies operating in China expect the two countries to grow closer in the future. Two thirds anticipate that German-Chinese trade relations will intensify. Meanwhile, only 13 per cent of those surveyed predict that the Chinese government will offer something along the lines of a "China First" response to the situation in the USA. These are the findings of the current ZEW-PwC China Economic Barometer, a survey carried out by the Mannheim-based Centre for European Economic Research (ZEW) together with the accounting and consulting firm PricewaterhouseCoopers (PwC) on a quarterly basis among business executives of German companies operating in China. 44 executives took part in the most recent survey.

"The change of administration in the White House and the fear of a trend towards greater US isolationism has led many business executives to hope for increased trade with China," says Thomas Heck, head of the China Business Group for Germany and Europe at PwC. "This could go at least some way toward compensating for the potential negative effects this kind of policy could have on global trade."Despite their essentially positive predictions regarding trade, particularly with Germany, the surveyed executives expect the movement of goods between China and the rest of the world to fall slightly over the coming six months.

Overall they offered a considerably brighter assessment of the economic situation in China in the current survey for March compared to the previous quarter, with the indicator rising from -8.1 points to +5.8 points. This improved economic climate is expected to bring positive effects for German companies. 59 per cent of those surveyed anticipate an increase in production over the coming six months, while 49 per cent predict staffing increases.

Economic predictions for the next 12 months indicate uncertainty

When it comes to the economic outlook for the coming twelve months, however, the mood is rather more cautious. The overall assessment fell from 1.6 points to -3.5 points. "The economic predictions for the next twelve months indicate a certain level of uncertainty," says Dr. Michael Schröder, project leader and senior researcher in the ZEW Research Department "International Finance and Financial Management". "The likelihood of the situation either worsening or improving increased in comparison to the previous survey. All in all, a worsening of the situation is considered more likely."

The significance of private domestic demand in China has also noticeably increased. The indicator for private consumption rose from 29.6 to 41.5 points, while the indicator for private capital expenditure went up from 10 to 28.2 points. In terms of expected investments for the coming six months, the best performers are the consumer goods industry (34.5 points), the information and telecommunications sector (45.0 points) as well as the service sector (51.3 points). With this in mind, 71.4 per cent of the surveyed executives anticipate a slight increase in inflation while 56.4 per cent expect higher interest rates.

Increased environmental protections a starting point for successful economic strategy

When discussing the future of the Chinese market and necessary reforms, the measures most frequently suggested by the surveyed business executives include the privatisation of Chinese state-owned companies (17 per cent), improved legal certainty for foreign companies (14 per cent) and the removal of trade barriers (13.2 per cent). Increased environmental protections were also seen by 11.8 per cent of those surveyed as a strong starting point for a successful economic strategy – an assessment that PwC expert Thomas Heck confirms: "China plans to dismantle excess capacities in heavy industry and reduce its use of coal as an energy source. As China turns away from coal, renewable energies could become increasingly significant."

For further information please contact:

Dr. Michael Schröder, Phone: +49 (0)621/1235-368, E-mail: schroeder@zew.de