Merkel's visit focused squarely on economy

German Chancellor Angela Merkel (L) receive an honorary doctorate from President of the University of Nanjing, Chen Jun (R) at the University of the Chinese Academy of Sciences (UCAS) in Beijing, China, 12 May 2016. The German Chancellor is in China 12-14 June to attend the 4th Sino-German government consultations.[Photo/IC]

German Chancellor Angela Merkel's ongoing visit to China is focused on how the two countries can deepen economic relations and help boost a flagging global economy. The visit takes place two weeks after the G7 summit in Japan and just over two months before the G20 summit in China, where global economic issues are expected to dominate the agenda. Merkel will be accompanied by a large business delegation, and apart from talks in Beijing, she will also visit a Chinese-German joint venture in Shenyang, Northeast China's Liaoning province.

On the bilateral front, Merkel will bring several ministers for the regular China-Germany intergovernmental consultations. Top of the agenda is likely to be trade and investment, market access, innovation and cyber security. German companies such as Siemens have been vocal in criticizing China for failure to open markets and protect intellectual property rights. The European Chamber of Commerce also criticized Chinese restrictions in a report last week highlighting a drop in European Union investment in China due to "an increasingly hostile business environment".

Although German investment in China has stalled, an increasing number of Chinese companies are seeking a foothold in Germany. Chinese investment in Germany rose more than 35 percent last year. These investments were often in high-tech areas as China seeks to benefit from German expertise and technology. This has raised some questions about whether Chinese enterprises should be allowed to take over companies with the latest technology. For example, the Midea Group is currently trying to buy Kuka, a German manufacturer of industrial robots and a flagship company for "Industrie 4.0"－the fourth industrial revolution.

This has provoked a debate in Germany on whether such technology should be protected. German law allows the government the right to veto the takeover of companies in sensitive sectors but so far the law has been rarely used. Merkel herself has adopted a hands-off approach to foreign takeovers of German enterprises. Already this year ChemChina has bought the machinery giant KraussMaffei; Beijing Enterprise Holdings plans to acquire a major German waste management company, Energy from Waste; and Fujian Grand Chip Investment Fund LP plans to buy the German semiconductor equipment maker Aixtron.

Merkel is also likely to raise the sensitive issue of excess capacity, especially in steel production. This issue has now become linked with the debate over granting China market economy status later this year. Germany says it will wait for the impact assessment by the European Commission in July before taking a stance.

On the positive side, an agreement on cyber security is due to be signed that aims to protect companies from economic espionage.

The German chancellor is also expected to press Chinese leaders on the pace of internal economic reform, something Berlin strongly supports. Germany also has considerable experience in helping areas reliant on heavy industry to reform and change course.

On the multilateral front, Merkel may seek to establish a link between the G7 and G20 summits. In Japan, the G7 called for "a more forceful and balanced policy mix, in order to swiftly achieve a strong, sustainable and balanced growth pattern". This phrase covered up differences between Germany and the UK on the one hand, which are determined to continue with their austerity policies, and other G7 countries wanting to pursue greater public spending to boost economic growth. Merkel may press China not to follow those countries ready to further increase public debt.

There will be an exchange of views on trade issues against the background of the stalled major deals (Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership). And Merkel will push for an early conclusion of the EU-China bilateral investment treaty negotiations.

She is also expected to push forward other issues on the G20 agenda, including financial sector reform agenda and tax transparency.

For Merkel, her trip to China will be a break from internal problems (finding a successor to President Joachim Gauck) and European difficulties (UK referendum, migration, Ukraine).

The author is director of the EU-Asia Centre in Brussels.