China seeks more industrial co-operation with Germany, EU trade deal
Relationship with Merkel seen as as key factor in navigating through 2020
10 Jun 2020 | Michael Marray

AS the European Union moves towards greater self-sufficiency in areas such as auto battery manufacturing, pharmaceuticals and medical equipment manufacturing, China is stepping up industrial co-operation as a way of avoiding being shut out of the EU market.

The good relationship between Chinese President Xi Jinping and German Chancellor Angela Merkel is being used as an important channel.

Merkel will not stand at the next federal election, which is likely to be held in September or October 2021. But whereas only six months ago Merkel was being viewed as a lame duck, her strong showing in the Covid-19 crisis, together with the poor performance of some of her rivals positioning themselves for the top job, has allowed her to re-assert her authority.

On July 1 Germany takes over the revolving six-month presidency of the European Union, and China sees its relationship with Merkel as a key factor in navigating its way through 2020, at a time when it is under attack from many directions over its handling of Covid-19 or the Hong Kong protests.

Thus far, Germany and the EU have stood back from getting involved too much in the Hong Kong dispute. Meanwhile the UK has already formally left the EU, and is now involved in fractious negotiations with Brussels over a post-Brexit trade and market access deal. The transition period ends on December 31, and the talks appear to be going badly, with a hard Brexit back on the agenda. 

Against this background, the Beijing-Berlin relationship has assumed even more importance, and President Xi and Chancellor Merkel have spoken on the phone three times since the outbreak of the Covid-19 crisis.

On a June 3 call Merkel and Xi agreed that the corona pandemic means the European Union-China summit planned to be held in Leipzig on September 14 cannot take place. Merkel also held a call on the issue with EU Council President Charles Michel.

The same day, China Daily reported a Ministry of Commerce spokesman as saying that China and the European Union have not changed their goal of concluding talks regarding the EU-China Comprehensive Agreement on Investment in 2020, a timetable set out during the 21st China-EU leaders' meeting in Brussels last year.

Ministry of Commerce spokesman Gao Feng said China and the EU hope an agreement will benefit companies and investors from both sides, especially in the context of the impact of the Covid-19 epidemic on the global economy.

Official Chinese media are currently carrying many positive stories about EU-China cooperation.

Official media reported Xi as telling Merkel during the phone call that China will stay committed to further opening up to and expanding cooperation with the rest of the world, and continue to create a favourable environment for German enterprises to increase investment in China.

The recently launched China-Germany "fast track" arrangement will help enterprises in both countries to speed up business resumption, and maintain the stability of international industrial and supply chains, he said. The fast track is designed to speed up the return of German personnel to their companies in China.  

Xi said that he is confident that China-Germany cooperation will play its due role in helping pull the world out of the economic recession at an early date. With China and Germany maintaining a stable and sound cooperative relationship, China stands ready to continue dialogue and exchanges with Germany.

Noting that Germany is to take over the rotating presidency of the EU for the second half of this year, he added that China appreciates Germany's willingness to actively promote the development of China-EU ties.

One important recent deal involving Chinese and German companies involves Volkswagen, which on May 29 announced that it plans to increase its share in JAC Volkswagen, its joint venture for e-mobility in Anhui Province.

Letters of intent were co-signed by Volkswagen (China) Investment Co Ltd and the government of Anhui province for Volkswagen to raise its stake from 50% to 75% within the JAC Volkswagen joint venture via a capital increase. To make this possible, Volkswagen will also be taking a 50% stake in the Anhui government-owned entity JAG, the parent company of JAC. The parties intend to close the 1-billion-euro (US$1.12 billion) deal by the end of the year, subject to customary regulatory approvals.

Founded in 2017, the JAC Volkswagen joint venture is an all-electric company which develops, produces and sells electric vehicles. A portfolio expansion of up to 5 additional BEV models by 2025 is planned, as well as building a full-scale e-model factory, and finishing the Research & Development centre in Hefei.

Volkswagen said that, by gaining management control, it is paving the way for more electric models and infrastructure.

In addition, Volkswagen will acquire a 26% stake in battery manufacturer Gotion High-Tech Co for around 1.1 billion euros, becoming the company’s largest shareholder. Volkswagen is the first global automaker to invest directly in a Chinese battery supplier. The deal is planned to be completed by the end of the year, subject to customary regulatory approvals.

Gotion maintains various current and future projects over the entire battery value chain from sourcing, development and production to recycling. The company is in the process of becoming a certified Volkswagen Group battery supplier in China, including supplies for local MEB vehicles. The MEB is the new modular electric vehicle platform of the Volkswagen Group.

"The electric cars segment is growing rapidly and offers a great deal of potential for JAC Volkswagen. We are actively driving forward the development of battery cells in China through our strategic investment in Gotion," says Herbert Diess, CEO of Volkswagen.

Stephan Wöllenstein, CEO of Volkswagen Group China, noted that Volkswagen is taking a strategic role in a state-owned company for the first time, as well as investing direct in a Chinese battery supplier. These investments shape the character of Volkswagen in China, making it a more localized, more sustainability-focused mobility company.

In 2025, around 1.5 million new electric vehicles are planned for delivery to VW customers across the country. China is the world´s biggest market for e-mobility.

The VW move comes at a time when the EU Battery Alliance is committed to supporting large scale investment in auto batteries, in order to secure future marketshare in a fast-growing industry, as well as addressing concerns about economic independence.

German automakers have said that they will continue to partner with battery manufacturers in China, but the ambitious plans from Brussels to build up the battery industry will mean that the EU will no longer be so heavily reliant on Asian suppliers.

However, as the VW deal illustrates, there is plenty of scope for co-operation between European and Chinese battery producers in the coming years, even given the plans to dramatically increase manufacturing capacity within EU borders.

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