People’s Congress in Beijing: “There is a lot at stake for Switzerland in China”

The Chinese people expect the current People’s Congress, the annual session of the Chinese Parliament, to provide information on how things will get better. Blick spoke with two experts about the consequences of the crisis in China for the world and Switzerland and the possible recovery prospects.

Jörg Wuttke was President of the EU Chamber of Commerce in China until last year and has lived in the country for decades. Stefan Legge is an expert in international business and works in St. He is a lecturer at the University of St. Gallen.

China is Switzerland’s third most important export and second most important import partner. Legge says that the development of the Chinese economy has therefore been noticed here as well. “For the first time in more than a decade, Swiss exports to China have fallen.” Swiss companies felt that demand was weakening.

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Wuttke from Beijing confirmed that the mood of the Chinese people was bad. “People see that China’s stock markets and real estate are deteriorating, and they wonder what the government is doing about it.” This is important because Chinese families secure their retirement opportunities with such investments. “Two-thirds of household assets are invested in real estate and the rest in stocks.”

But it’s not just medium-sized businesses that need to tighten their belts. “Rich people are also more cautious,” Wuttke says. The truly wealthy now mostly lived abroad, for example in Tokyo. “There is a rumor in Beijing that a million Chinese people have moved to Japan.” While this may be a problem for China, it won’t be such a problem for Swiss luxury goods manufacturers: These people will continue to buy watches, jewelry and other luxury goods; but they are no longer in China.

While China has lost its appeal for the financial sector due to its weak stock market, the country remains important for industrial companies. Companies such as ABB, Hilti or European car suppliers can continue to make money in the country. “China is definitely struggling in terms of consumption, but mass and innovative strength is enough to keep the market interesting,” Wuttke says.

The high growth target is not a surprise, but it is not a big deal. “In the short term, the Chinese state can stimulate the economy and thus achieve the goal,” says Legge. But the era of structurally high economic growth is over. “Demographic development is acting like a block in the leg, and some of the drivers of growth in the past have been exhausted.”

Wuttke says people expect economic expectations from the People’s Congress. “People want to know what’s going to happen to real estate and stocks.” Reducing excess capacity is also crucial, a problem that has long plagued the Chinese economy.

While the importance of the People’s Congress as a decision-making body is small and waning, its messages are being heard in the country. The positive for Wuttke so far this year has been the government’s reluctance to commit to expensive stimulus that would result in higher debt for the economy.

“I don’t see any migration of European industrial companies,” says Wuttke. China is not only an important market, but also an “inspiration”: “You have to imagine China as a ‘fitness centre’ where we learn how to produce cars today, for example,” says Wuttke. “Only in China can you learn how to survive against China’s competition from third countries.”

Wuttke said that although consumption in exports to China has decreased, Swiss companies can still be very successful if they produce in China for the Chinese market or for export markets. This is also due to the large pool of excellent engineers in China as well as the shortage of skilled workers in Europe. However, this is less advantageous in terms of job creation in Switzerland.

St. Legge of the University of St. Gallen also notes that almost no one in Europe is talking about “decoupling” from the Chinese economy anymore. “Leaving China is very expensive, so the primary goal is to reduce dependencies,” says Legge. This alone is difficult and expensive enough. “China is irreplaceable as a trading partner.”

There are already sanctions against Chinese companies for human rights violations and exploitation of forced labor in Xinjiang. There are also measures against Chinese companies doing business in Russia. Wuttke says this is especially a problem for mid-sized companies because it is very difficult for them to control their supply chains.

But today’s sanctions are nothing compared to what would happen if China attacked Taiwan. “The potential damage from such a development would be much greater than, for example, Russia’s invasion of Ukraine,” says Legge. Taiwanese chipmaker TSMC has almost no alternative as a high-end chip supplier. In addition, a serious deterioration in China’s relations with the West would cause major economic turmoil on both sides. “There is a lot at stake for Switzerland.”

Wuttke is clear that even a proposed blockade of Taiwan or the Taiwan Strait, through which 18 percent of world trade flows, would throw capital markets around the world into chaos.

“A blockade of Taiwan would effectively cripple the high-tech sector worldwide, and a war would be absolutely disastrous for global trade,” Wuttke says. China will also be severely affected because the country itself is dependent on TSMC’s chips.

“China has nothing to do with this, and so I don’t think Xi Jinping is considering starting a war,” Wuttke says. “I think the likelihood of a Taiwan war happening this decade is extremely low.”