Switzerland, China and Germany’s mistakes

Dear reader,

I recently had the opportunity to speak with Yanmei Xie. Yanmei publishes analyses and forecasts on China’s political economy and its relations with the US and the EU. She is currently examining Switzerland’s role in global trade – she was in Switzerland at the invitation of the Asia Society Switzerland.

Above all, I wanted to ask Yanmei for her views on the recently revised free trade agreement between Switzerland and China. This will effectively remove almost all tariffs between the two countries. It is worth noting that this comes at a time when Switzerland’s largest trading partner by far – the EU – is seeking to take a tougher stance towards China. The EU countries aim to protect their industrial base in this way.

Yanmei drew parallels with Germany’s situation 15 to 20 years ago. Germany was able to import labour-intensive, simple products from China and, in return, export capital-intensive, highly specialised products. This was regarded as a complementary and highly efficient relationship from which both countries benefited for a long time.

In the meantime, however, China has consistently pursued its industrial policy and significantly upgraded its value chains in several sectors. Many of these now compete directly with the economic backbone of Germany. For example, Germany is now importing more and more machinery from China.

I asked Yanmei whether Switzerland could avoid Germany’s fate and retain its position in the high-end segment. In particular, will it be able to protect the numerous highly specialised SMEs – in other words, the economic middle class?

Yanmei Xie believes that Swiss policymakers should assume that economic relations with China will become more competitive and less complementary in future. Part of China’s industrial policy involves creating an ecosystem of “small giants”, modelled on the German Mittelstand or Swiss SMEs. She advises Swiss policymakers not only to look ahead and calculate potential trade gains, but also to look back: what can Switzerland do differently from what Germany did? This is how potential risks can be identified.

For while centrally controlled industrial policy continues to be driven forward in China, the backlash in Germany is growing ever louder. Can Switzerland avoid the mistakes of its neighbour?

How should Switzerland engage with the major power that is China? As always, you can write to me at [e-mail]

Best regards,
Giannis Mavris

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