China wants to introduce the "social credit rating system" for companies next year. The aim is to better monitor and control market participants. The system comprises various requirements that serve as the basis for calculating the ratings. The behavior of companies is to be continuously monitored and the values adjusted accordingly. This is how a rating is created. If companies do not comply with all the rules, they risk sanctions or even being blacklisted, among other things. "However, there is a lack of transparency for European companies. The assessment criteria and the measures derived from them are unclear. In addition, we fear that not only hard criteria such as tax payments will be taken into account," warns Ulrich Ackermann, Head of VDMA Foreign Trade. "If this remains the case, investors will be massively unsettled. That is why the Chancellor must speak plainly with her Chinese counterparts," demands Ackermann.

Investment agreement called for

The EU has been negotiating a bilateral investment agreement with China since 2013. This includes uniformly high protection standards and is also intended to guarantee improved market access. Oliver Wack, Area Manager East Asia at VDMA Foreign Trade, criticizes: "The VDMA supports the EU's goal of reaching a conclusion in 2020. However, even after more than 20 rounds of negotiations, the Chinese side has still not made any significant progress." On the contrary, the list of trade barriers in China is growing: more stringent visa requirements have recently been added, as well as a new Chinese cybersecurity law and market-distorting subsidies. Wack explains: "In Europe, criticism of China's delaying tactics is growing. European policy will have to adapt more to the challenges arising from competition between the economic systems."

The VDMA is calling on German Chancellor Angela Merkel to make progress on contentious trade issues in the interests of industry during her trip to China.

Weakening export business

After the USA, China is the most important export market and location for foreign investment for the German mechanical engineering industry. Nevertheless, the market is weakening: growth in the export business with China has recently declined. After a strong 2018 with exports exceeding the 19 billion euro mark (up 10%), German mechanical engineering exports only increased by 0.6% year-on-year to around 9.3 billion euros in the first half of 2019.