The proposals from the Federation of German Industries (BDI) offer a sign that Berlin and the EU are likely to gravitate toward a tougher position against Beijing after the departure of the more China-friendly U.K. from the 28-member bloc.<\/p>\n
\u201cThe Peoples Republic is establishing its own political, economic and social model,\u201d said BDI President Dieter Kempf. Politicians could no longer afford to \u201csimply ignore the challenges China poses to the EU and Germany,\u201d he added.<\/p>\n
\nA tougher line on China from Germany would align Berlin more closely with Paris.\n<\/p><\/blockquote>\n
\u201cA battle of economic models<\/a> is emerging,\u201d the BDI said in Thursdays paper.<\/p>\n
A tougher line on China from Germany would align Berlin more closely with Paris. It would, however, also revive charges of hypocrisy from countries such as Portugal and Greece<\/a>, which argue that Germany pushed them to sell off prized assets to the Chinese during the financial crisis. Germanys critics say Berlin has only recently woken up to the risks posed by strategic Chinese buy-outs in sectors with core know-how such as robotics.<\/p>\n
Battle of the systems<\/h3>\n
The BDI plan represents a major shift in the way German businesses think and talk about China, which American and French officials often criticized as na\u00efve.<\/p>\n
For many years, the Chinese economy was seen as largely complementary to Germanys: China produced cheap consumer goods and components, while Germany produced larger machines and hi-tech products.<\/p>\n
<\/p>\n
Chinas President Xi Jinping (R) meets German Chancellor Angela Merkel at the Great Hall of the People in Beijing, China, May 24, 2018 | Jason Lee \u2013 Pool photo\/Getty Images<\/p>\n
When the European solar cell industry was wiped out by subsidized Chinese competitors, the German economy ministry saw it as the price to be paid to maintain good relations with Beijing, which was more than offset by Germanys sales of luxury cars to the Middle Kingdom.<\/p>\n
But as China moves up the value chain, Chinese subsidies pose an increasing threat to the German model. Chinese producers have now entered into direct competition with many traditional German champions.<\/p>\n
As one of its lines of defense, the BDI on Thursday came out staunchly in favor of mergers that allow companies to bulk up into European champions. This is a subject of hot debate as Franco-German plans to merge Alstom and Siemens<\/a> into a rail champion are meeting fierce headwinds<\/a> over fears the two will form an uncompetitive behemoth<\/a> in the EU. The Germans argue that EU regulators should take a more global perspective when calculating the effects of merger concentrations, and not just look at the harm to consumers in Europe.<\/p>\n
\nFrance leads the charge for reciprocity but Britain and Sweden argue such measures would be counter-productive.\n<\/p><\/blockquote>\n
To fight Chinese subsidies, the BDI wants hard-hitting options on the table. EU state-aid rules only apply to European companies receiving subsidies, but the BDI wants these extended to cover \u201csubsidies outside the EU.\u201d The bloc should also consider creating a new mechanism for \u201csubsidy control\u201d to assess whether takeovers are financed with subsidies, the BDI argued.<\/p>\n
But the group also suggests fighting fire with fire. This could mean taking account of \u201creciprocity\u201d in tenders for big public procurement contracts like roads and railways. To date, France has led the charge for reciprocity, which means closing EU tenders to bids from companies based in (particularly Asian) countries that restrict European access to tenders on their soil. Free trading countries such as Britain and Sweden have long argued that such measures would be counter-productive and would close European markets to the best-value bids.<\/p>\n
Changing the focus on Chinese takeovers<\/h3>\n
The BDI also called on the EU to change its approach to the Chinese states influence in mergers and acquisitions.<\/p>\n
The European Commissions directorate-general for competition has long been under pressure to take a more holistic view of how it values the market power of Chinese enterprises owned or steered by the state. The EU often treats each state-owned company as a separate entity. This limits the perception by regulators that a company could be distorting competition by coordinating with other limbs of the Chinese state. The BDI is calling for updated rules that would allow the Commission to consider those companies as part of a bigger market player: China Inc. This would expand Brussels powers to crack down on buy-outs.<\/p>\n
European Commission Vice President Jyrki Katainen said on Wednesday that he was \u201copen \u2026 to look at the competition policy due to the changing market.\u201d<\/p>\n
\nMany EU countries have pledged to push for \u201cevolutions of the European rules applicable to competition and state aid.\u201d\n<\/p><\/blockquote>\n
In a little-noticed statement just before Christmas, 18 EU countries also called on the next Commission<\/a> to rethink its industrial policy, specifically calling for changes to competition rules.<\/p>\n
France, Austria, Croatia, Czech Republic, Estonia, Finland, Germany, Greece, Hungary, Italy, Latvia, Luxembourg, Malta, the Netherlands, Poland, Romania, Slovakia, Spain said they would push for \u201cpossible evolutions of the European rules applicable to competition and state aid\u201d particularly to \u201creview the state aid framework to \u2026 promote the competitiveness of European industry at international level.\u201d<\/p>\n
The countries also called for updating antitrust rules to \u201cbetter take into account international markets and competition in merger analysis.\u201d<\/p>\n
The BDI also stressed the value of so-called matching clauses, which have been overlooked as a potential weapon in EU state-aid policy. These clauses allow EU countries to offer state aid to investors to keep business in Europe, by matching the subsidies the companies are being offered by a rival such as China or Mexico.<\/p>\n
German industry says it wants the scope of these matching clauses to be ramped up. The BDI sees such subsidies as an interim measure until the EU works out how to export its anti-subsidy standards internationally.<\/p>\n
This article is from <\/em>POLITICO Pro: <\/em>POLITICOs premium policy service.<\/a> To discover why thousands of professionals rely on Pro every day, email pro@politico.eu for a complimentary trial.<\/em><\/p>\n
Read this next: Top EU legal adviser sides with Google in right to be forgotten case<\/a><\/em><\/h2>\n","protected":false},"excerpt":{"rendered":"
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