Closer Look: In Germany and Switzerland, Li Chooses His Friends Carefully

BY    2013-05-27 19:50:02

  Premier Li Keqiang chose Switzerland and Germany as the only two European destinations of his first foreign trip since taking office in March. Why these two?
  Switzerland is not in the European Union. In an op-ed published in a Swiss newspaper, Li said that he has several "important obligations to be fulfilled" during the trip.
  First is a free-trade agreement between China and Switzerland, a deal that will make Switzerland the second European country, after Iceland, to have a free-trade agreement with China.
  The agreement will certainly be welcome in Switzerland, especially by the country's watchmakers. China is Switzerland's largest trading partner in Asia, and Switzerland is China's seventh largest trading partner in Europe and the sixth largest European source of foreign investment.
  Swiss products face an 11 percent tariff in China, and famous Swiss watches are hit with a 20 percent import tax. The mainland is the third largest market for Swiss watches, after the United States and Hong Kong. A recent campaign against corruption has affected the sales of Swiss watches in China, and means the free-trade agreement is a timely boost for the watch industry.
  The deal's significance goes beyond Switzerland. Li's visit is set against the backdrop of the EU's anti-dumping and anti-subsidy investigations into Chinese exports of solar panels and telecoms equipments. Also, the EU has not recognized China as a market economy. Li said in his op-ed that "China will not stop opening to the outside and is determined to hold on to the multilateral trading system while promoting regional trade liberalization." Specifically, this trade agreement "sends a powerful message" that China rejects trade and investment protectionism, he wrote.
  In addition to the free-trade agreement, Li said that strengthening exchanges and cooperation in the financial sector, and increasing mutual trust and understanding, are also his purposes. Switzerland was among the first Western countries to establish diplomatic relations with China, and one of the first European countries to recognize China's market economy status. Since 2008, Switzerland's policy towards China has become more practical, especially with its policy on Tibetans in exile.
  In 1960, Switzerland started to accept Tibetans seeking refuge. Today it has more than 4,000 Tibetans, the largest number of any European country. The Dalai Lama has a representative office in Switzerland and has been received by Swiss officials many times. In August 2008, however, the Swiss government for the first time in ten years decided not to meet with the Dalai Lama during his visit to the country. China's closer ties with Switzerland demonstrated the Chinese government's firm policy on its core issues.
  Germany is the last leg on Li's first foreign trip. The two countries have enjoyed close cooperation and strong economic ties. Bilateral trade with Germany accounts for one-third of total China-Europe trade. Direct investment from Germany to China is about one-quarter of the European total.
  In September 2012, when German Chancellor Angela Merkel visited China, German officials said Sino-German ties were special, a term usually used only between countries sharing values and ideologies, such as the United States and Britain. Given China and Germany's differing political systems and ideology, the wording tells us a lot about how strong the economic linkages and consensus are. But how special are the ties?
  First, the two economies are complementary. Germany needs a market and China needs technology. While the euro crisis is still unfolding, China has taken advantage of a weak euro and invested heavily in Germany. In 2012, a total of 15 German companies merged with or were acquired by Chinese companies, including construction equipment maker Sany's merger with Putzmeister and Lenovo's purchase of electronics producer Medion.
  Moreover, both the Germans and Chinese share a preference for a high rate of savings and investment in the real economy. These linkages and similarities lead to good will. Merkel voiced her objection to the anti-dumping investigation into Chinese exports, and the country's economic minister, Philipp Rosler, said the European Commission's decision to impose punitive import duties on Chinese products is a "grave mistake."
  To some extent, Li's visit is a returning of this support. With this solid foundation and the opportunity offered by China's urbanization, there will certainly be more room for Sino-German relations to grow.
  By choosing to visit a practical, non-EU country and a heavyweight in the union, Li is setting up two models China can use to work with countries within and without Europe's borders.

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