Beijing and Berlin Find Cooperation at Third China-Germany High-Level Financial Dialogue

The Lede: On Sunday, German Finance Minister Christian Lindner and He Lifeng, China’s vice-premier and top economic aide to Chinese President Xi Jinping met in Frankfurt at the third China-Germany High-Level Financial Dialogue and released a joint statement outlining a number of areas of consensus amid Berlin charting its China strategy and a larger EU trend toward a ‘de-risking’ path.

What We Know:

• In a joint statement with He, Lindner pledged Germany’s support for the Asian Infrastructure Investment Bank (AIIB), the Beijing’s based institution that’s currently the world’s second largest multilateral development bank after the World Bank. This comes after Canadian finance minister Chrystia Freeland announced in June that all ties with the bank were to be frozen pending a government review over claims made by a former Canadian top executive at the bank who reported widespread “communist dominance” within the institution.
• Both sides agreed to support German financial institutions' conducting business in Chinese currency, encourage German entities to issue and invest in bonds in the yuan, and work towards listing shares on each other's stock markets.
• The two countries recognized their mutual support for the G20’s Common Framework for debt treatment for over-indebted countries.
• The financial dialogue included high-ranking representatives of both countries' central banks and supervisory authorities as well as people from German business.
• Lindner proposed that Germany and China should increase the frequency of financial dialogues to hold the meetings annually instead of every two years.

The Background: In addition to being finance minister, Lindner is the leader of the German center-right, liberal Free Democratic Party (FDP). In the past, he considered himself a China critic and showed solidarity with protesters in Hong Kong during the opposition. Now, Lindner is more focused on promoting Germany’s businesses in the Chinese market. Last week, the European Commission for Trade Valdis Dombrovskis visited China, where both sides agreed to work together and exchange information to re-balance export policies in an effort to bring down their recent trade tensions. In July, the German government published its ‘Strategy on China,’ which forms the basis of Germany’s approach to managing its dependence on China in light of issues regarding international law and human rights.

Likely Outcomes:

• China and Germany likely both recognize that the ‘de-risking’ narrative has startled their respective markets, both of which are encountering a degree of hardship this year. The joint statement released from this dialogue is likely a course correction between the countries to nail down the areas of financial agreement.
• While there appears to be some significant agreement in the joint statement, the sentiment has likely shifted substantially enough to discourage German interest in the China market as a whole. The German government does not all agree with Lidner’s direction, but rather prefers to lean harder into the ‘Strategy on China’ to reduce dependence. Nonetheless, German financial interests in the China market will likely remain intact in areas that are less sensitive to the larger geopolitical competition between Beijing and the West.

Quotables:

"We welcome the fact that the Chinese side is also committed to this in our Joint Statement, because solutions are inconceivable without China as such an important player in world politics.” – Christian Lindner, German minister of finance

“Cooperation helps the development of both countries, and the strengthening of economic relations lead to a win-win situation.” – He Lifeng, vice-premier of China

“These press statements by German finance minister & Chinese vice premier feel like traveling back in time into the deepest Merkel era years. Not a single critical word by Lindner who celebrates lots of putative “successes” in 25 point joint statement.” – Thorsten Benner, director of the Global Public Policy Institute

“Lindner is lost … He acted as if foreign affairs could be ignored. Now he allows the Chinese to play on his vanity and his ignorance.” – Reinhard Bütikofer, German member of the European Parliament from the Green Party

“Beyond the occasional political rhetoric … China-Germany economic relations are strong and reasonably health. Both sides are committed to maintaining global economic connectivity – in other words: both are strong defenders of, and great beneficiaries from, globalisation. Thus, cooperation remains a win-win for both sides.” – Frederick Kliem, Germany expert at the S. Rajaratnam School of International Studies

Good Reads:

Joint Statement of the 3rd China-Germany High-Level Financial Dialogue (German Federal Ministry of Finance)

Global Supply Chains Key for China and Germany, He Lifeng Says (Bloomberg)

Germany backs China’s aid bank despite Canada’s concerns (Politico)

Germany Welcomes China's Support for G20 Debt Restructuring Framework (VOA)

China’s friends in Germany’s center-right and far-right (Politico)

A ‘thaw’ in Germany’s ties with China? Berlin and Beijing commit to closer financial cooperation (SCMP)