So much for de-risking: German corporations invested more in China in 2023 than ever before. This defied a powerful international trend, as overall direct investments in China plummeted to a three-decade low.
At first glance, this undermines the efforts of policymakers to reduce ties with China. However, Joern Petring provides a nuanced view of the numbers. It’s true that the middle class is actually withdrawing from China. It’s the large corporations that are pushing forward with their billion-dollar projects – often to address geopolitical risks.
In its ideal form, communism should reject private property. However, membership in the very real Communist Party of China pays off financially in a big way, writes Christiane Kuehl. A new study shows that each CCP member per household statistically makes it about one-fifth wealthier. At least income-poor members benefit the most from this effect.
Direct investments by German corporations in China reached a new high last year, contrary to the general trend. According to the Bundesbank, German investments rose by 4.3 percent to 11.9 billion euros.
In stark contrast, the figures released by the Chinese State Administration of Foreign Exchange (Safe) on Sunday paint a different picture. According to them, net direct investments flowing into China from around the world in 2023 amounted to only around 33 billion US dollars. This marks an 82 percent decrease from the previous year and the lowest value since 1993.
Simplistically, one could interpret from the data that the German economy, unlike many other countries, is not willing to be taught a lesson despite years of political debate about reducing dependence on China. However, Juergen Matthes, an economist at the Cologne Institute for Economic Research, analyzes the Bundesbank’s figures more nuancedly:
The data show that the German economy as a whole is not diversifying away from the Chinese market. Matthes argues that for this to happen, China’s share of total outward foreign direct investment flows would have had to decrease. However, the opposite is true. China’s share of total foreign direct investment by the German economy has surpassed the ten percent mark for the first time since 2014.
Meanwhile, Chinese state media are attempting to portray Safe’s data in a positive light. For instance, China Daily points out that despite pressure from interest rate hikes by foreign central banks, the net inflows of foreign investment remained positive. Higher interest rates in other markets led foreign companies to withdraw money from China to achieve higher returns elsewhere.
The argument further suggests that this should change this year as the US Federal Reserve slowly lowers interest rates. What is conveniently omitted is that the withdrawal of direct investments is primarily attributed by many experts to ongoing geopolitical tensions and uncertain economic conditions and only secondarily to monetary policy.
Nevertheless, direct investments could still recover significantly. There was already a slight relaxation in Safe’s data in the fourth quarter of 2023. Net direct investments from October to December amounted to 17.4 billion US dollars, which is more than half of the total annual value of 33 billion US dollars. In contrast, the data showed the first net outflow ever in the third quarter.
Economists have already noted that the wages and salaries of members of the Communist Party of China are, on average, higher than those of non-members. Now, for the first time, a study has also analyzed differences in wealth accumulation. Because party members not only earn more money but also have greater success in investment and possess more capital.
Households in which at least one member of the Communist Party lives are more than 20 percent wealthier in China than those without a party member, according to the study “The Impact of Communist Party Membership on Wealth Distribution and Accumulation in Urban China” by the ZEW-Leibniz Centre for European Economic Research and the Paris School of Economics (PSE), which is being presented today.
Party households in urban areas of the country had, during the study period from 1995 to 2017, a 21 to 24 percent higher net worth. The reason for the economic success of the Communists: a party card is the ticket to a career in administration or stable jobs in state-owned enterprises.
Li Yang from the ZEW research group “Inequality and Distribution Policy” and Matteo Targa from the University of Rome examined several government datasets, such as the “China Household Finance Survey” to get to the bottom of these differences. According to them, the wealth gap remained “considerable and constant” throughout the entire period.
This does not mean that non-members were completely left behind. Between 1995 and 2017, most Chinese people became significantly wealthier due to the rapid development of the country. Especially homeowners accumulated wealth in these years, as housing prices skyrocketed since the 2000s.
Those who already owned an apartment back then became rich without much effort. And that’s why the researchers could attribute the higher wealth of CCP members to a very specific reason: the higher ownership of real estate among party members.
According to the authors, the current wealth of many party members is still based on the advantages of housing privatization since the 1990s. Back then, Beijing reformed and streamlined the huge state-owned enterprises, extracting many residential blocks from the companies where their employees had lived for decades. The same happened with government agencies.
The apartments went to the employees of the public sector at favorable prices. There, the proportion of party members has always been larger than in the private sector – and thus also higher than in society as a whole. The authors describe the discounted sales of apartments as a “blanket wealth transfer” to state employees, many of whom were party members.
Until 1998, Beijing regarded these apartments as a kind of welfare benefit rather than merchandise; only then did a genuine private housing market emerge with the well-known consequences. For the recipients of the cheap company apartments, these became a windfall due to the exploding square meter prices.
The apartments did not specifically go to CCP members. However, due to their high proportion in the public sector, people with party membership, according to the study, “disproportionately benefited from the reform”. They still benefit from the homeownership acquired back then. In alleys and residential blocks, red brass signs with the characters 党员 (dangyuan/party member) often adorn their doors.
But not only leading employees received apartments at that time, but also many ordinary employees – these also had a disproportionately high proportion of party membership in the state sector. “Party membership benefits mainly poor Chinese people,” the authors concluded. In 2017, they observed the greatest wealth differences between CCP and non-CCP households in the poorer half of the population.
Since the housing reform, the net worth of poorer households has been increasing more rapidly than that of wealthier ones, according to the press release for the study. This is because many poorer households also acquired apartments. “This shift is largely due to the fact that among poorer households, those who belong to the CCP more often own real estate,” says author Li Yang.
The CCP effect weakens as households become wealthier overall. According to the study, party membership makes no discernible difference for the wealthiest seven percent. Because those who successfully advance in a private company during the research period could also afford an apartment.
In China, over 90 million people have a party card. This was nearly nine percent of the adult population as of the end of June 2023. Millions of Chinese people apply for membership every year. But only between five and ten percent of applicants are accepted. The CCP is a cadre party that selects its members itself. Outstanding students, for example, are approached while still in university. For many new members, it is not ideology that drives their membership but the opportunities that come with the party card. The study confirms this assessment.
But before the benefits come years of hardship. Applicants must, according to an infographic from the Merics Institute for China Studies, provide social contacts and their family background, attend ideological courses at the Central Party School, and submit regular reports. If the applicants pass the interview with a committee of CCP members, they become members on probation for a year. They are officially admitted if they do not violate party discipline during this time.
Wealthy officials who flaunt their influence and wealth do encounter criticism in China, particularly on social media. Party leader Xi Jinping has urged his cadres to lead a modest lifestyle since 2012. He also abolished some perks of party membership. However, CCP members are allowed to keep their apartments from the era of reform.
Research policymakers of the coalition government are advocating for a stronger emphasis on and institutionalization of “science diplomacy” in German foreign policy. As reported by Table.Media in conversations with government party reporters, parliamentarians are concerned that in the current foreign policy of their own government, long-term, institutionalized scientific collaborations play only a minor role. They specifically pointed to relations with China.
During an expert hearing in the research committee, committee chairman Kai Gehring (Green Party) emphasized on Wednesday that major challenges, “such as the climate crisis, biodiversity loss or health risks,” could be better addressed “if science worldwide collaborates to develop solutions. The rapid developments in the multipolar world with its geopolitical tensions do not leave science untouched“.
It is important for the federal government and states to better protect universities and research institutions from hostile attacks and know-how espionage, said Gehring. “In recent years, security risks have emerged primarily in cooperation with Chinese research institutions. To counteract this, we have embarked on expanding Asian and China expertise, and with the current budget, we have included Merics as a nationwide competence center in the institutional funding of the Foreign Office.”
German universities are inconceivable as institutions without internationalization, said Katrin Kinzelbach, a political scientist at Friedrich-Alexander University Erlangen-Nürnberg. Even in autocratic regimes, scientific excellence can be found. “I think the de-risking advocated by the German government, including in its China strategy, is correct. However, we have so far inadequately clarified how exactly we can advance this idea,” said Kinzelbach. There needs to be more “autocracy competence” in the German scientific system.
“We are pleased if German foreign policy adopts our suggestions for a foreign science realpolitik,” said Kai Sicks, Secretary-General of the German Academic Exchange Service, referring to the DAAD’s China paper from earlier this year. “Points such as the expansion of China expertise, the strengthening of protection programs for threatened students and researchers, or the deepening of European university cooperation are of great importance to us.”
Sicks, similar to the Pact for Innovation and Research, called for more predictability for German science and mediation organizations such as the DAAD or the Goethe Institutes: “We need adequate resource allocation. In recent years, our institutional funding has increased by almost three percent. We need continuity at this level, not a reversal.”
EU Research Commissioner Iliana Ivanova emphasized in an interview with Table.Media that the significance of the issue is also recognized in Brussels. Research security is becoming increasingly important as potential risks become apparent. “There is a danger of research results being misused. Can a clear separation between civilian and military research be maintained?” said Ivanova, without directly addressing China. “Many member states have urged the European Union to present some common guidelines so that they can better prepare for potential risks. This is the background to our recommendations on research security, which we have developed as part of a larger package on economic security.” tm/ari
Winter Wonderland in Beijing: The Chinese capital was blanketed in snow at the beginning of the week. Along with the evening lights, it created a fairy-tale-like scene. In other parts of the country, traffic chaos ensued due to icy roads.
So much for de-risking: German corporations invested more in China in 2023 than ever before. This defied a powerful international trend, as overall direct investments in China plummeted to a three-decade low.
At first glance, this undermines the efforts of policymakers to reduce ties with China. However, Joern Petring provides a nuanced view of the numbers. It’s true that the middle class is actually withdrawing from China. It’s the large corporations that are pushing forward with their billion-dollar projects – often to address geopolitical risks.
In its ideal form, communism should reject private property. However, membership in the very real Communist Party of China pays off financially in a big way, writes Christiane Kuehl. A new study shows that each CCP member per household statistically makes it about one-fifth wealthier. At least income-poor members benefit the most from this effect.
Direct investments by German corporations in China reached a new high last year, contrary to the general trend. According to the Bundesbank, German investments rose by 4.3 percent to 11.9 billion euros.
In stark contrast, the figures released by the Chinese State Administration of Foreign Exchange (Safe) on Sunday paint a different picture. According to them, net direct investments flowing into China from around the world in 2023 amounted to only around 33 billion US dollars. This marks an 82 percent decrease from the previous year and the lowest value since 1993.
Simplistically, one could interpret from the data that the German economy, unlike many other countries, is not willing to be taught a lesson despite years of political debate about reducing dependence on China. However, Juergen Matthes, an economist at the Cologne Institute for Economic Research, analyzes the Bundesbank’s figures more nuancedly:
The data show that the German economy as a whole is not diversifying away from the Chinese market. Matthes argues that for this to happen, China’s share of total outward foreign direct investment flows would have had to decrease. However, the opposite is true. China’s share of total foreign direct investment by the German economy has surpassed the ten percent mark for the first time since 2014.
Meanwhile, Chinese state media are attempting to portray Safe’s data in a positive light. For instance, China Daily points out that despite pressure from interest rate hikes by foreign central banks, the net inflows of foreign investment remained positive. Higher interest rates in other markets led foreign companies to withdraw money from China to achieve higher returns elsewhere.
The argument further suggests that this should change this year as the US Federal Reserve slowly lowers interest rates. What is conveniently omitted is that the withdrawal of direct investments is primarily attributed by many experts to ongoing geopolitical tensions and uncertain economic conditions and only secondarily to monetary policy.
Nevertheless, direct investments could still recover significantly. There was already a slight relaxation in Safe’s data in the fourth quarter of 2023. Net direct investments from October to December amounted to 17.4 billion US dollars, which is more than half of the total annual value of 33 billion US dollars. In contrast, the data showed the first net outflow ever in the third quarter.
Economists have already noted that the wages and salaries of members of the Communist Party of China are, on average, higher than those of non-members. Now, for the first time, a study has also analyzed differences in wealth accumulation. Because party members not only earn more money but also have greater success in investment and possess more capital.
Households in which at least one member of the Communist Party lives are more than 20 percent wealthier in China than those without a party member, according to the study “The Impact of Communist Party Membership on Wealth Distribution and Accumulation in Urban China” by the ZEW-Leibniz Centre for European Economic Research and the Paris School of Economics (PSE), which is being presented today.
Party households in urban areas of the country had, during the study period from 1995 to 2017, a 21 to 24 percent higher net worth. The reason for the economic success of the Communists: a party card is the ticket to a career in administration or stable jobs in state-owned enterprises.
Li Yang from the ZEW research group “Inequality and Distribution Policy” and Matteo Targa from the University of Rome examined several government datasets, such as the “China Household Finance Survey” to get to the bottom of these differences. According to them, the wealth gap remained “considerable and constant” throughout the entire period.
This does not mean that non-members were completely left behind. Between 1995 and 2017, most Chinese people became significantly wealthier due to the rapid development of the country. Especially homeowners accumulated wealth in these years, as housing prices skyrocketed since the 2000s.
Those who already owned an apartment back then became rich without much effort. And that’s why the researchers could attribute the higher wealth of CCP members to a very specific reason: the higher ownership of real estate among party members.
According to the authors, the current wealth of many party members is still based on the advantages of housing privatization since the 1990s. Back then, Beijing reformed and streamlined the huge state-owned enterprises, extracting many residential blocks from the companies where their employees had lived for decades. The same happened with government agencies.
The apartments went to the employees of the public sector at favorable prices. There, the proportion of party members has always been larger than in the private sector – and thus also higher than in society as a whole. The authors describe the discounted sales of apartments as a “blanket wealth transfer” to state employees, many of whom were party members.
Until 1998, Beijing regarded these apartments as a kind of welfare benefit rather than merchandise; only then did a genuine private housing market emerge with the well-known consequences. For the recipients of the cheap company apartments, these became a windfall due to the exploding square meter prices.
The apartments did not specifically go to CCP members. However, due to their high proportion in the public sector, people with party membership, according to the study, “disproportionately benefited from the reform”. They still benefit from the homeownership acquired back then. In alleys and residential blocks, red brass signs with the characters 党员 (dangyuan/party member) often adorn their doors.
But not only leading employees received apartments at that time, but also many ordinary employees – these also had a disproportionately high proportion of party membership in the state sector. “Party membership benefits mainly poor Chinese people,” the authors concluded. In 2017, they observed the greatest wealth differences between CCP and non-CCP households in the poorer half of the population.
Since the housing reform, the net worth of poorer households has been increasing more rapidly than that of wealthier ones, according to the press release for the study. This is because many poorer households also acquired apartments. “This shift is largely due to the fact that among poorer households, those who belong to the CCP more often own real estate,” says author Li Yang.
The CCP effect weakens as households become wealthier overall. According to the study, party membership makes no discernible difference for the wealthiest seven percent. Because those who successfully advance in a private company during the research period could also afford an apartment.
In China, over 90 million people have a party card. This was nearly nine percent of the adult population as of the end of June 2023. Millions of Chinese people apply for membership every year. But only between five and ten percent of applicants are accepted. The CCP is a cadre party that selects its members itself. Outstanding students, for example, are approached while still in university. For many new members, it is not ideology that drives their membership but the opportunities that come with the party card. The study confirms this assessment.
But before the benefits come years of hardship. Applicants must, according to an infographic from the Merics Institute for China Studies, provide social contacts and their family background, attend ideological courses at the Central Party School, and submit regular reports. If the applicants pass the interview with a committee of CCP members, they become members on probation for a year. They are officially admitted if they do not violate party discipline during this time.
Wealthy officials who flaunt their influence and wealth do encounter criticism in China, particularly on social media. Party leader Xi Jinping has urged his cadres to lead a modest lifestyle since 2012. He also abolished some perks of party membership. However, CCP members are allowed to keep their apartments from the era of reform.
Research policymakers of the coalition government are advocating for a stronger emphasis on and institutionalization of “science diplomacy” in German foreign policy. As reported by Table.Media in conversations with government party reporters, parliamentarians are concerned that in the current foreign policy of their own government, long-term, institutionalized scientific collaborations play only a minor role. They specifically pointed to relations with China.
During an expert hearing in the research committee, committee chairman Kai Gehring (Green Party) emphasized on Wednesday that major challenges, “such as the climate crisis, biodiversity loss or health risks,” could be better addressed “if science worldwide collaborates to develop solutions. The rapid developments in the multipolar world with its geopolitical tensions do not leave science untouched“.
It is important for the federal government and states to better protect universities and research institutions from hostile attacks and know-how espionage, said Gehring. “In recent years, security risks have emerged primarily in cooperation with Chinese research institutions. To counteract this, we have embarked on expanding Asian and China expertise, and with the current budget, we have included Merics as a nationwide competence center in the institutional funding of the Foreign Office.”
German universities are inconceivable as institutions without internationalization, said Katrin Kinzelbach, a political scientist at Friedrich-Alexander University Erlangen-Nürnberg. Even in autocratic regimes, scientific excellence can be found. “I think the de-risking advocated by the German government, including in its China strategy, is correct. However, we have so far inadequately clarified how exactly we can advance this idea,” said Kinzelbach. There needs to be more “autocracy competence” in the German scientific system.
“We are pleased if German foreign policy adopts our suggestions for a foreign science realpolitik,” said Kai Sicks, Secretary-General of the German Academic Exchange Service, referring to the DAAD’s China paper from earlier this year. “Points such as the expansion of China expertise, the strengthening of protection programs for threatened students and researchers, or the deepening of European university cooperation are of great importance to us.”
Sicks, similar to the Pact for Innovation and Research, called for more predictability for German science and mediation organizations such as the DAAD or the Goethe Institutes: “We need adequate resource allocation. In recent years, our institutional funding has increased by almost three percent. We need continuity at this level, not a reversal.”
EU Research Commissioner Iliana Ivanova emphasized in an interview with Table.Media that the significance of the issue is also recognized in Brussels. Research security is becoming increasingly important as potential risks become apparent. “There is a danger of research results being misused. Can a clear separation between civilian and military research be maintained?” said Ivanova, without directly addressing China. “Many member states have urged the European Union to present some common guidelines so that they can better prepare for potential risks. This is the background to our recommendations on research security, which we have developed as part of a larger package on economic security.” tm/ari
Winter Wonderland in Beijing: The Chinese capital was blanketed in snow at the beginning of the week. Along with the evening lights, it created a fairy-tale-like scene. In other parts of the country, traffic chaos ensued due to icy roads.
