The Red Dragon and the White Cross

The Chinese President Xi Jinping visited for Switzerland for the first time, stepping onto Swiss ground to attend the World Economic Forum WEF in Davos. But he used the chance for a state visit, stopping off in Berne to stroll past a Swiss honor guard with Swiss President Doris Leuthard. What brings that small European country and the world’s second largest economy together?

For starters, Switzerland is the only country in continental Europe with a free-trade agreement with China. More than that: It is a so-called dynamic FTA with different mechanisms geared at increasing the pace of economic cooperation between them. After the European Union and the United States, China is the third-largest business-partner of Switzerland. For Swiss small and medium enterprises, it even ranks second.

The alpine Confederation is eager to expand not only its economic ties but also its political relationships. After decades of concentrating on OECD-countries and the US, the paradigm is shifting. Both the OECD and the US have been raising the pressure on the Swiss, pressure that led the Swiss to give up bank secrecy and some of their tax-practices. On top of that, the relationship with the EU is turning more and more into a cluster-risk.

For all these reasons, the country of the white cross decided to diversify its foreign relations. It has pursued an openly amiable quest for China, India, Brazil and similar partnerships. Of which, China is the most successful and promising.

And the red dragon? What are its interests in the small European country? China needs a western friend. It needs a mediator that has global standing and at the same time does not interfere in domestic matters. Neutral Switzerland was among the first nations to recognize the People’s Republic of China. And it was also among the first to recognize it as a “free-market-economy”. That is a very important aspect in the World Trade Organization.

But Beijing has also economic goals when interacting with Switzerland. Chinese companies are eager to enter Europe via the alpine hub. Swiss technology and name – Swissness – can be bought through investment and cooperation. And if Chinese enterprises succeed in one of the toughest and most expensive markets worldwide, it can easily adapt to others. So goes the logic.

For China, this cooperation is also a strong signal against the US and the EU. If even the oldest functioning democracy on the planet – so they say – is friends with the Communist state, what legitimizes the others in criticizing Beijing?

Does this friendship pay off? At least on the economic level, it does. Chinese enterprises and capital are pouring into Switzerland. In April, the state-owned ChemChina paid US$43 billion to acquire the Swiss pharmaceuticals giant Sygenta, the alpine nation’s biggest-ever international investment.

Swiss investments in China are arguably better protected and Swiss companies better treated than others. Numbers, in as far as they speak, speak for themselves with trade between these countries growing at 2.5 percent per year.

On the political level, the balance is less evident. The white cross is not the red dragon’s emissary. In turn, the mythical creature is not a noticeable bodyguard. But such expectations are too high anyway. Political symbolism remains symbolic. It is the practice of relationships that give them life. Not the other way around.

Henrique Schneider is chief economist of the Swiss Federation of Small and Medium Enterprises (sgv). He can be reached at hschneider@gmx.ch