Brighter Sino-German ties could stabilize global economy

Since 2015, the China-Germany High Level Financial Dialogue has become a key platform for bilateral communication and policy coordination on strategic, overarching, and long-term issues in the fiscal and financial fields.

Chinese Vice-Premier Liu He and German Vice-Chancellor and Minister of Finance Olaf Scholz successfully co-chaired the second dialogue in Beijing on Jan 18, 2019.

They had in-depth exchanges on promoting cooperation and coordination in the areas of macroeconomic landscape, global economic governance, financial industry and its regulation, as well as monetary and fiscal policy.

The dialogue sent a most positive message of China and Germany committed to jointly safeguard multilateralism and economic globalization.

Over the past year, steady progress was made by both China and Germany to consolidate outcomes of the dialogue, contributing to the development of bilateral economic relationship and global economic governance. With financial cooperation being the key among all outcomes from the dialogue, China is further opening up its financial sector, encouraging German-funded financial institutions to conduct business in China with multiple measures introduced.

To list a few: the China Banking and Insurance Regulatory Commission signed a letter of intent during the dialogue to strengthen banking regulatory cooperation with Germany; after the dialogue, the China Securities Regulatory Commission also signed a memorandum on derivatives regulatory cooperation and information exchange with the German Federal Financial Supervisory Authority, to strengthen financial regulation and market cooperation.

New policies issued in July 2019 allowed qualified foreign institutions to obtain "Class A" panda bond lead underwriting license, which has a wider business scope compared with the "Class B" license. Last September, Deutsche Bank received the "Class A" lead underwriting license in China's inter-bank bond market under the new policy.

Germany also attaches great importance to the connectivity of the capital markets between the two countries, providing more investment and financing opportunities for German institutions and individuals, promoting the transformation of the German financial system and the construction of the European capital market alliance.

The China Europe International Exchange and Eurorex have set up a joint working group to support the launch of China A-share index derivatives in Frankfurt.

The two countries are preparing for a potential Shanghai-Germany Stock Connect program, which aims to strengthen the interconnection of the Chinese and German stock markets, and promote the German "blue chip" listed companies to issue Chinese depository receipts on the Shanghai Stock Exchange. It will also support qualified Chinese listed companies, especially the manufacturing companies, to issue global depository receipts in the Frankfurt stock market.

China-Germany cooperation in cross-border renminbi business has made extraordinary progress. In the past year, three German institutions including Deutsche Asset Management, have been approved as RMB-qualified foreign institutional or RQFII investors, which accumulated an overall quota of 10.54 billion yuan ($1.51 billion).

The internationalization of RMB will allow China to expand its macroeconomic policy space, improve its ability to participate in global financial governance, and help build a more competitive and sustainable international monetary system.

The successful experience of Germany's economic and social reconstruction after the World War II could be utilized by China as an important inspiration in terms of deepening reform, promoting the modernization of national governance system and governance capacity. Germany, which has close ties with China in economy and trade, will further enjoy the development dividend of China's reform and opening-up.

With the bilateral dialogue, the two sides are further deepening cooperation in areas including structural reform centered around sound and transparent public finance. Stable macroeconomic policies, housing policies, innovative financing mechanisms for small and medium-sized enterprises, fintech, tax reform, anti-money laundering and anti-terrorism financing, green finance, and sustainable finance... all these fields are tipped to benefit.

China and Germany, as countries with significant influence, both bear compelling obligations on world economic development and financial governance. The two countries shall promote China-EU interconnection platform, by linking the Belt and Road Initiative with the EU-Asia Connectivity Strategy and the European Infrastructure Plans. In 2019, the major financial institutions from China and Germany maintained close communication on the BRI and the third-market cooperation, contributing to the development of both economies, as well as the third-party countries participating in the BRI.

Both China and Germany are major trading nations. For years, China has been the largest trading partner of Germany, and Germany has been China's biggest trade destination among EU countries. Germany is also the EU country with the largest investment in China.

In recent years, Chinese enterprises have largely increased the amount as well as the efficiency of their investment in Germany, showing that trade and investment between the two countries are complementary and mutually beneficial.

From January to September last year, bilateral trade reached $138.43 billion. China's investment in Germany rose by $1.25 billion, up nearly 23 percent year-on-year. Germany's investment in China also rose by $1.38 billion.

Both sides recognized that a non-discriminatory, open market access and a stable institutional framework are prerequisites to boosting bilateral trade. Both countries are expected to lower existing barriers to market access and investment, improve business environment for foreign enterprises, and further strengthen bilateral economic and financial ties.

We need to recognize that global uncertainties continue to exist. Economic nationalism is on the rise. But, as the major economies of Asia and Europe, China and Germany could help improve matters.

Bilateral communication and cooperation under the high level financial dialogue mechanism will not only reinforce and deepen economic and financial ties between the two economies and bring sustainable economic and social development to the two countries, but also impart tremendous momentum to the development of international monetary system, and global economic and financial governance, boost global development and help avoid imbalances in development during the process.

In this regard, the steady advancing cooperation between China and Germany makes a perfect model of mutually beneficial cooperation, and most certainly will play an increasingly important role in global economy with an unlimited future ahead.

Hu Kun is the deputy director of the Economic Research Office at the Institute of European Studies. The IES is part of the Chinese Academy of Social Sciences. He is also the secretary general and deputy researcher at the China-Germany Cooperation Center.