"Crises Shift Forces"

China's importance for Germany's economy will most likely increase through the Covid-19 pandemic.

BERLIN/BEIJING | | china

BERLIN/BEIJING (Own report) - Germany will most likely have to rely on China to limit the economic damage caused by the Covid-19 pandemic, according to estimates by two flagship sectors of German industry - the automotive and mechanical engineering branches. The Mechanical Engineering Industry Association (VDMA) expects dramatic losses particularly in Europe and North America while expecting growth of business in China, where the situation "seems to become stabilized." Representatives of the automotive industry express similar views. VW, for example, is expecting to catch up in the People's Republic and not lag too far behind its original annual plans, whereas experts are expecting billions in losses on the US automotive market. "Crises shift forces" business circles predict regarding the uneven development in China and the USA. Berlin also depends on Beijing for the procurement of medical protective equipment. The largest supply so far is expected to arrive in Leipzig today - carried out by the German military.

Protective Equipment from China

The largest supply so far of medical protective equipment - more than ten million face masks - is due to arrive from China at the Leipzig/Halle Airport today to help combat the Covid-19 pandemic in Germany. The world's largest transport Aircraft, the only existing Ukrainian Antonov An-225, is flying on Bundeswehr assignment and German Defense Minister Annegret Kramp-Karrenbauer is planning to personally receive the delivery at the airport.[1] Already over the weekend, 8.3 million face masks were delivered to the Airport Halle/Leipzig by an Antonov An-124; a second An-124 delivery is expected soon. The Bundeswehr is regularly using Ukrainian Antonov aircrafts to transport its helicopters, tanks, trucks, and other heavy equipment to sites of deployments or maneuvers within the framework of the SALIS (Strategic Airlift International Solution) program. With SALIS several European NATO members have acquired strategic air transport capacities. Two Antonov An-124 - considered the world's second largest transport aircraft, after the An-225 - are usually on standby for the Bundeswehr at the Leipzig/Halle Airport.[2]

Late

For about five weeks, the Antonov aircrafts have been used within the SALIS framework, to supply protective equipment from China. On March 21, an An-124 delivered medical equipment to the airport in Pardubice in the Czech Republic, followed by a transport flight to Slovakia on March 23, another to the Czech Republic on March 31. Antonov aircrafts landed in Warsaw on April 9, in Wrocław on April 16 and at the airport Paris-Vatry on April 19. On April 23, an Antonov An-225 delivered face masks, gloves and protective suits from China to Kiev. More deliveries of China's protective equipment to the United States will follow.[3] Due to serious negligence, Germany is comparatively late - the Czech Republic, Slovakia and Poland have received the urgently needed supplies much earlier. The German government began to procure protective equipment only after a considerable delay and - is the only European country to reject China's offer of emergency supplies. (german-foreign-policy.com reported.[4])

Europe: "Epicenter of Disruptions"

Germany, at the moment, is not only dependent on China for the procurement of protective equipment, but also for attempting to prevent its economy from collapsing. This can be seen at a glance with the flagship sectors of German industry - mechanical engineering and automobile manufacturing. Last week, in reference to a survey made among its member companies, the German Mechanical Engineering Industry Association (VDMA) noted that the situation within its branch has "again worsened" due to the persistence of the Covid-19 pandemic. There are not only enormous difficulties in production, but contracts have also been canceled. "The epicenter of disruptions" lies clearly "in Europe." On the "demand side, "there are also significant lapses in the USA," while "in China ... the situation ... seems to become stabilized."[5] In fact, already last week the association announced that the reset of China's economy will bring with it "a tangible improvement." In China, the number of German mechanical engineers, who had rated the effects of the pandemic as "grave" have fallen to less than 50 percent, while 13 percent are already predicting the effects of the pandemic will be "rather minor"; just a few weeks earlier, only 3 percent held this opinion.[6]

Risks running into the billions in the USA

Similar can be said for the automotive industry. For example, the VW Corporation, which, had sold around 40 percent of its vehicles in China, prior to the corona crisis and suffered massive losses during the first quarter, can now significantly increase its sales again in the People's Republic of China. There is a "pent up demand on the market," explained Stephan Wöllenstein, director of the company's China subsidiary at the beginning of the month. In addition, it is expected that in the near future, "a very significant stimulus package will be adopted" in Beijing, from which the automotive industry can benefit.[7] In the People's Republic of China, it is expected that VW will be able to catch up and lag not far behind the original annual planning. At the same time, observers are warning that the German automotive branch could be facing huge losses on the US market. Alongside the immediate losses in production and sales, is the fact that car leasing is very widespread in the United States. The dramatic rise in unemployment - 26 million US-Americans have officially registered as unemployed since the beginning of the Corona crisis alone - threatens to cause insolvency in many cases. During the 2008 financial crisis, BMW alone, "had to write off around €2 billion" in credit losses and downturns in leasing on the US market. Something similar could happen again - perhaps even on a larger scale, warns a commentator and, in comparing German auto businesses in China and the USA, he predicts that the "crises shift forces."[8]

Useful China Connection

As a matter of fact, experts presume that particularly good relations with China could help German companies to somewhat easily weather the Corona storm. Ferdinand Dudenhöffer, for example, who made a name for himself as an automotive specialist at the University of Duisburg-Essen, and is, since recently, working at the University of St. Gallen, believes that Daimler, in the near future, could profit from two "immensely important investors:" the Chinese car manufacturers Geely and BAIC, who, together, hold 15 percent of the stocks in the Stuttgart company. The company could currently hope to increase its sales on the Chinese market, the connection to Geely and BAIC could be helpful. "The China connection will help Daimler overcome the crisis," predicts Dudenhöffer.[9] Over the weekend, a member of the board of the company confirmed that in March it was possible to again sell "around 50,000 vehicles" in the People's Republic of China. "This makes us optimistic."[10] Today, Monday, Daimler will restart its S-Class production in Sindelfingen. China is the largest sales market for this model.

Battle of Narratives

The fact that the German economy will most likely depend on China to limit the damage caused by the Covid-19 pandemic, does not prevent politicians and media in Germany from intensifying their China-bashing.[11]

 

[1] Größtes Flugzeug der Welt landet wieder in Leipzig/Halle. mz-web.de 25.04.2020.

[2] Markus Tiedke: Covid-19: Bundeswehr stellt Transportraum für Schutzmasken. bundeswehr.de 23.04.2020.

[3] Patrick Zwerger: "Mrija" knackt Weltrekord - dreimal in zehn Tagen. flugrevue.de 24.04.2020.

[4] See also Acceptance Denied.

[5] Corona-Pandemie trifft Maschinenbau immer stärker. vdma.org 20.04.2020.

[6] Maschinenbau in China kommt allmählich wieder in Fahrt. vdma.org 14.04.2020.

[7] Corona-Krise drückt VW-Verkäufe - Hoffen auf Konjunkturpaket in China. handelsblatt.com 17.04.2020.

[8] Markus Fasse: Autobauer werden noch abhängiger von China. handelsblatt.com 24.04.2020.

[9] Diana Dittmer: So kann Daimler aus der Krise finden. n-tv.de 23.04.2020.

[10] Daimler in China wieder zuversichtlicher. boerse.ard.de 26.04.2020.

[11] See also Battle of Narratives.