China's Confidence Issue: Hard or Smart Landing - What Can We Expect?

In the latest edition of the Asia Policy Brief, Bernhard Bartsch, Senior Expert in the Program „Germany and Asia“, analyzes the current political and economic developments in China. The People’s Republic is currently undergoing far-reaching economic and political change, and how it will all play out – for China and for the world – is anything but clear. Whether and how China will be able to transition to a more sustainable economic model depends critically on trust in the government’s ability to control and implement reform. There are numerous disturbing symptoms: lower growth, the stock market crash, the opaque anti-corruption campaign and China’s dealing with international companies or its neighbor states. The era when China guaranteed global stability is definitely over.

The question is no longer ascent or collapse, but good governance or bad governance. The success of President Xi’s reform agenda currently seems just as likely as its failure or its stagnation in the current state of uncertainty.

Each of these options should be taken and discussed seriously in Germany. All scenarios have one thing in commen: Economic and political cooperation between China and Germany will become more challenging. Exports to the People’s Republic account for about 2 percent of Germany’s gross domestic product. Yet China plays a far greater role for many individual companies. In 2014, DAX members made over 13 percent of their global sales in China, or €132 billion in total.

There is no other major developed country with which Beijing works as closely and trustingly. However, Germany should not rely too heavily on the singular access it enjoys, and instead focus on alternatives as well. Planning according to different scenarios requires policymakers and the business community to do one thing without disregarding another.