the industry is picking up again and worrying foreign markets, notably Germany

With growth announced Tuesday at 5.3% for its first quarter, China exceeds forecasts. What is behind this performance, and how is it seen from Germany, for which China is the number one trading partner? Responses from our correspondents.

The Chinese National Bureau of Statistics announced, Tuesday April 16, growth of 5.3% for its first quarter, a figure higher than estimates. If this result remains in line with the official ambition of reaching 5% for the year 2024, the possible repercussions are being carefully observed by the rest of the world, part of which, starting with Europe and the United States, is worried about having to absorb Chinese overcapacity at cut prices.

Germany, closely linked economically to China, is torn between fear of unfair competition and dependence on the immense market that the Chinese represent for German industry.

A production boom following the dark period of Covid

While around thirty economists consulted in March 2024 by Nikkei Asia were expecting 4.5%, growth of 5.3% in the first quarter is, at first glance, good news for China. But there is reason to put this figure into perspective, due to the difficulties which plagued the year 2023, particularly for January and February. China was just emerging from the dark period for the economy due to Covid, and this therefore accentuates today’s good results.

This performance must also be put into perspective because it comes above all from industrial production, boosted by public investments, and not from domestic consumption, which remains anemic, around 3%. The Chinese remain cautious, not to say pessimistic, and have really not regained the taste for shopping. So it’s good to produce, but you still have to sell. And the Chinese market, as immense as it is, is no longer enough to absorb the enormous Chinese production.

Domestic consumption is not keeping up and exports are being sold off

The consequence is therefore the following: Chinese products seek to sell to the rest of the world, even if it means cutting prices. Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis bank, explains that “exports have not increased in value, but only in volume”that is to say, the prices of Chinese exports are collapsing. “This is a very weak point for Chinashe observes, but on the other hand, it is China’s competitiveness which is increasing, thanks to export prices which continue to fall.”

It is therefore urgent for China to revive its domestic consumption. The government announced new tax measures to stimulate domestic demand. Businesses are encouraged to modernize their industrial equipment and, on the other hand, households are encouraged to consume more, in particular by purchasing new cars and household appliances.

Problem for Germany and its struggling industry

China is Germany’s largest trading partner with a trade volume of 253 billion euros in 2023. And if Olaf Scholz has just completed a three-day state visit to China, two days of which were devoted mainly to the economy, the Chancellor seems to have forgotten the “risk reduction strategy”, supposed to reduce the risks of dependence on China.

While the European Union denounces Chinese obstacles to free competition, the German delegation above all showed restraint during the visit. Germany does not support protectionist trends in Europe. Regarding automobiles, for example, the European Commission is considering introducing customs duties on imports of batteries manufactured in China, because they sell on average 20% less expensive, due to public subsidies, according to the Commission. The German automobile industry was well represented in the delegation of industrialists accompanying Olaf Scholz and it does not want restrictions on Chinese exports, because German automobile manufacturers today rely on the Chinese market, which has become much more important. for them than the European market.

Throughout his trip, Olaf Scholz therefore seemed to mute the “risk reduction” strategy, defined with the Greens in July 2023. This strategy calls on German companies to reduce their dependence on the Chinese market. The State, for its part, undertakes to support the production of unprofitable strategic goods on the European continent, such as certain medicines. And the state also occasionally blocks takeovers of key companies by Chinese investors.

We didn’t hear much of this during Olaf Scholz’s visit to China.