Germany is bettering its European rivals in the race to harness Chinese growth as exports to the Asian nation begin to outstrip those to the US.
With its consumers and companies sating their appetite for power turbines, cars and electronics, China became Germany’s largest non-European customer at the end of last year, helping drive up share prices from BASF SE to Bayerische Motoren Werke AG. Economists expect data tomorrow to show German exports rose the most in five months in February as China’s share of foreign sales continues to grow.
“This is a turning point in Germany’s economic history,” said Andreas Rees, chief Germany economist at UniCredit Markets and Investment in Munich. “China could become the largest export market of all by 2015.”
The US has been Germany’s most important trading partner beyond European borders since the end of World War II, a relationship that helped turn the country into a pillar of economic and political stability for the west. Now, with China becoming the main impulse for world growth, Germany’s exporters of machinery, consumer goods and luxury cars are increasingly turning to the east.
“The theme for this decade is that millions of people in China want to live like Europeans,” said Herbert Perus, head of equities at Raiffeisen Capital Management in Vienna, who helps oversee about $36 billion. “The ‘Made in Germany’ brand is going to be very strong in this market.”
Germany sold goods worth 5.4 billion euros ($7.7 billion) to China including Hong Kong in December, beating the 5.3 billion euros of exports to the US.
Quadrupled share
While exports to the US reclaimed the top non-European spot in January, Rees said that will likely be temporary. Sales to mainland China surged 44 per cent last year, more than to any other destination. They have more than quadrupled in the last decade, tripling China’s share of Germany’s exports to 5.6 per cent. By contrast, the US share dropped to 6.9 per cent in 2010 from 10.3 per cent in 2000.
Societe Generale estimates that by 2020, China will account for about 15 per cent of German exports. By contrast, it estimates China’s share of French and Italian foreign sales will be seven per cent and six per cent, respectively.
“If it weren’t for China, the Germans would really be feeling the pinch,” said Niall Ferguson, professor of history at Harvard University, who is currently teaching at the London School of Economics. “It helps explain why the Germans remain so callous about the difficulties of the peripheral euro-zone economies.”
Special status
The German government, which dragged its heels over European Union bailouts for debt-stricken euro-area members such as Greece, will this year elevate China to a status it has given to only seven other countries involving full cabinet-level consultations.
Chinese demand is soaring for exactly the goods German firms specialise in — industrial machinery, cars and consumer products. The Chinese middle class could double its 2008 size to 400 million people by 2014, Societe Generale predicts, fueling growth for European firms that make the goods they want.
Company profits in Germany have jumped 129 per cent in the past year, driving the benchmark DAX Index up 15 per cent. The European Stoxx 600 Index climbed 5 per cent over the same period.
BMW has risen 72 per cent in the past 12 months while shares in French carmaker Renault SA gained eight per cent. Renault sold about 14,000 vehicles in China last year compared with BMW’s 58,500 sales in the first quarter of 2011 alone.
Currency policy
The benefit Germany gets from Chinese trade may explain why German Chancellor Angela Merkel has been quieter than U.S. President Barack Obama in lobbying China to let the yuan appreciate.
“The benefit of having a more rapid appreciation of the yuan might be outweighed for Germany by the effect of much slower Chinese growth,” said Steven Barrow, currency strategist at Standard Bank Plc in London. “A gradual adjustment would be more beneficial.”
While the dollar has dropped 4 per cent against the yuan in the past 12 months, the euro has risen two per cent against the Chinese currency. That hasn’t damped economic growth.
After contracting 4.7 per cent in 2009 during the global financial crisis, the German economy expanded a record 3.6 per cent in 2010 and the Bundesbank forecasts growth of 2.5 per cent this year.
‘Great stimulus’
By contrast, the European Central Bank projects 1.7 per cent growth for the 17-nation euro area as a whole. China had growth of 10.3 per cent last year, helping it overtake Japan as the world’s second-biggest economy.
“If China continues to grow at this pace, then that’s a great stimulus for German exports and its economy,” said Aline Schuiling, senior economist at ABN Amro in Amsterdam. “Germany can deliver the required investment goods more competitively than anyone else in Europe.”
