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So check out Lenovo .com slash Legion Hello, welcome to World Business Report here on the BBC World Service.
My name's Ed Butler.
Today, ahead of German elections, I'm going to be asking, is the model on which Europe's biggest economy has built its strength now fundamentally beyond repair?
Also in the show, the row continues between Washington and Kyiv over its highly prized mineral assets, and a Chinese kids animated movie that's breaking box office records.
In China, they have censorship control.
Normal movie have to go through censorship, but this one is less political in a way.
More on that later in the show.
First though, let's look at Germany in more detail, the Mittelstand.
It's a term referring to Germany's famous small and medium -sized business sector, the backbone of an economy that has for decades been Europe's largest.
But this key manufacturing hub now appears to be pondering exactly what the future holds.
Ahead of the federal election in Germany, which takes place on Sunday, members of the business community have been telling the BBC what they want to see from the next Chancellor, whoever that person is.
Many are demanding less bureaucracy.
They want new investment to modernise and cheaper energy costs.
But will any of this be possible?
The BBC's Theo Leggett now reports.
Right now we are in the middle of our robotics prototype lab.
So this is a large hallway where all of our robotics prototypes are being fabricated by our teams, which looks a bit messy.
In his robotics lab, surrounded by half -built machines, sections of wiring and pieces of diving gear, I meet with Fabien Bernache.
he's head of evologics a family -owned firm that builds underwater robots the first thing he shows me looks remarkably like a penguin so this is i would say an artificial penguin robot we call it the quadroin quadroin because it's a robot with four propellers it's designed to do climate and environmental research
underwater evologics is a classic family -owned mittelstand firm At the moment, business is good and the company is expanding, but worries about the future are never far away.
So this is kind of high stakes for you and your family.
What are the greatest obstacles you face?
Some of the obstacles that we face is, of course, regulation.
So when it comes to artificial intelligence, when it comes to sensor technologies, when it comes to data handling, there's just lots of different obstacles.
But it's also the plain ways of doing business in Germany and in Europe with employment laws, with being able to hire talent, talent from outside the European Union, for instance.
What do you want to see?
What would a more business -friendly government for you look like?
If you ask me for a personal wish, I would say massive deregulation.
I would like to see for two, three weeks in a row, I would like to have the business news that we see from Argentina and to have them in Germany for a while.
It's about providing great economic conditions, deregulation, pragmatic decisions on economic policy.
The track record over the last 20, 25 years has been poor.
Fabienne Bernasch of Eva Logix.
Marie -Thérèse Housken is Deputy Head of Economics at the BVMW, the trade association that represents the Mittelstand.
Is it fair to say that the Mittelstand is in crisis at the moment?
It definitely is. If we look at the numbers, we do see that they're not doing well.
We do have rising insolvencies, which we're also seeing, especially amongst smaller companies.
And if this trend continues, what does it mean for Germany?
It's the backbone of the German economy.
We do see that we have a stagnating economy at the moment.
And then what usually happens is if the big ones stumble, like we're seeing, for example, with Volkswagen at the moment, or also BSAF, it sort of trickles down in the supply chain.
So it sort of has a spillover effect.
You've painted a pretty bleak picture of the state of the Mittelstand.
Do you think it can, with the right reforms, become prosperous again?
Because it sounds like a poor outlook for Germany if it doesn't.
It definitely can get better.
What we're also seeing from surveys is that a lot of SMEs do want to invest, especially if it comes to the energy transition or digitisation.
But because there is sort of a climate of insecurity at the moment, Nobody is investing.
So one big demand that we're also having is to actually be able to plan ahead again, because there were a lot of changes.
So companies aren't quite sure what's going to happen in the next year or two.
Stability and certainty, less bureaucracy, more investment and cheaper energy.
These are the kind of things Mittelstand firms told us they were looking for.
But meeting those demands looks like a harsh challenge.
Theo Leggett, and you can hear more from Theo and his report from Germany in today's edition of Business Daily.
Do check that out. Let's get a couple more perspectives on this now.
I've been speaking about the issues facing Germany with Engelbert Stockhammer.
He's a German professor of international political economy based at King's College in London.
I began by asking him what he felt the main issues in the election campaign had been?
The election campaign has been dominated by issues of immigration more than issues of economics, I would say.
The German economy is in a recession, but that recession, if you want, is only the tip of the iceberg.
Now, the German economy is a quite structural problem in the sense that it's an export -oriented economy.
And in the current environment, we have tensions around trade on the one hand, and on the other hand, an energy price shock.
The German economy, as it's export -oriented, which means that it has a strong manufacturing sector, is energy -intensive.
And the German energy came in particular from Russia.
Germany has done a lot to shift its energy supplies, but it has been very expensive.
So German energy costs for industry are higher than in other countries.
It hurts competitiveness.
Right. So the stuff that Germany is selling is not as competitive as it used to be because of the costs, the input costs to producing those things.
Tell me what the main parties are promising in terms of economic solutions.
The main parties essentially align along a familiar centre -left, centre -right spectrum.
So the CDU, the Christian Democrats, promise tax cuts they do promise to increase defend expenditures and divine larger promising to keep the constitutional tax break in place the social democrats are more concerned about the sustainability and the level of social expenditures and do see a higher need
for investment in the German economy you mentioned there the constitutional break I mean that that is a very particular thing that Germany has, and I guess most listeners may not be familiar, that there is this limit, isn't there, on the amount that a German government is allowed constitutionally to
borrow in times of economic need.
Exactly. There is a strict limit on how much the German government can borrow.
There are some qualifications, depending on how the economy performs, but it is a constitutional break that is much stricter than the policy that, for example, the British government is.
From my perspective, this is a major problem for the German government because it essentially restricts the ability of the government to respond to crisis.
And as a matter of fact, we have, or we are close to having, three crises.
One is a standard economic recession that's amplified because of structural issues in Germany.
But there's also the challenge of climate change, which does require an upgrade of the electricity system, in particular, the network.
In Germany, even more so, it requires a shift away from, in particular, the liquid gas that Germany used to receive from Russia.
But we also have geopolitical issues with the Ukraine crisis.
crisis, it's clear that Germany, as well as other European economies, will have to spend a lot more on defense than they used to in the past.
And in these circumstances, a constitutional debt break runs the danger of condemning the government essentially to inactivity.
Yeah, all it can do is cut, right, because it can't borrow more to cover the costs of that extra defense spending.
to reduce other expenditure if it wants to strengthen its military, it would have to reduce other expenditures if it wanted to decarbonise the economy and upgrade the electricity system.
I mean, these are both types of expenditures that clearly over a longer time horizon have a high social return.
In a nutshell, then, do you see any of the main party's responses to the economic challenges as adequate, given the problems that Germany is facing?
From my perspective, it's certainly not.
Short and sweet there from Professor Inglebert Stockhammer.
I'm joined now by David Marsh.
He's chairman of the Official Monetary and Financial Institutions Forum, which is a think tank.
Hi, David. Do you agree that the German economic model is broken, as some are claiming right now?
It's certainly seriously fractured.
We've been talking for about the last 40 or 50 years from time to time about big problems for the social and economic model, and each time it comes back again and tries to get some reinforcement from various sources.
I think this time it really is different.
There's been four or five things that have happened at once.
The previous speakers have mentioned some of them.
The rise in energy price is possibly the most profound because Germany has managed to refocus itself away from Russian imports of oil and gas, but it has been at a great price.
But then you see the falling out of love with China and you see the whole technological issues that German car manufacturers, for example, have not been good enough in matching up to the latest technological advances from China.
So you've got four or five things all at once, which means that the five or six really top industries in Germany are all in crisis at once.
And we've never had that since the Second World War.
So if you add in Mr.
Trump and his antics and the about turn that we've seen on Putin, which may or may not be a good thing for Germany, we can talk about that in a moment, this is not just economically but also geopolitically the most serious position that Germany has been in since the end of the Second World War.
And in a moment, I'm in a word or two, we've mentioned the debt thing.
And that, you know, it could be subject to constitutional change, right?
There could be a limit or lifting of this debt limit, potentially for a new chancellor.
You don't see that as possible.
I think it is more than possible.
These are technicalities.
If Mr. Mayer, the likely new chancellor, wants to borrow more, he will find ways of doing it.
Yes, the CDU is well ahead of the polls.
This is the ironic thing about this election.
We've never had an election, really, since 1949, where it's been so clear -cut who the new Chancellor will be.
But on the other hand, it's never been so opaque exactly what kind of government he'll have and exactly what type of policies will follow because of the fact that the AFD, the far -right party, will have a very big nuisance value because they'll have 20 % of the votes and they'll have a lot of seats in Parliament
and nobody wants to deal with them, you see.
So they are really like the odd man out there, which will make the business of governing profoundly difficult for whatever coalition we have.
But where there's a will, there's a way.
And I think the parties either through some constitutional change or some messing around with some of the technical rules or by going to European borrowing, will find a way of piling on a little bit more debt onto Germany.
Germany can certainly afford it.
It's got a very strong balance sheet, but he's got the strongest balance sheet of any European countries.
And the Germans keep telling us that the reason why they've been quite parsimonious in the last few years is to allow leeway at times of crisis.
So, one way or the other, I think the Germans are going to borrow more money.
David Marsh, thank you very much indeed.
You're with World Business Report from the BBC World Service.
Now, the Trump administration is setting up its push to get a deal from Ukraine over its mineral rights.
You may have heard about this argument already.
The rights are thought to be worth hundreds of billions of dollars.
Last week, you may remember President Trump had this to say about why the U .S.
deserved better access to Ukraine's mineral resources.
I told them that I want the equivalent, like $500 billion worth of rare earth, and they've essentially agreed to do that, so at least we don't feel stupid.
Well, did they agree?
Ukraine's President Vladimir Zelensky is standing firm.
No deal, he says, on the terms being offered.
Here's how he characterised the US offer that's being made.
You will write down some guarantees and we will write a memorandum with some percentages.
I was told only 50%.
I said, OK, no. No.
So, clearly unimpressed.
These arguments have been rumbling for days, escalating into a war of words between Kiev and Washington.
it seems Trump ally Elon Musk has echoed the president's negative view of Mr Zelensky saying that the Ukrainian leader was despised by his people, despite recent polling suggesting relatively high popularity ratings.
Well, now I'm joined by Gracelyn Baskaran, she's director of the Critical Mineral Security Program at the Centre for Strategic and International Studies in the US.
Hi, Gracelyn. So remind us briefly then what Ukraine is thought to have under the ground.
Ukraine has a significant basket of resources.
You have a country that occupies, you know, less than a half a percent of the world's land, but is estimated to have up to five percent of the world's resources.
However, these resources range from things like coal and oil and gas, but then they go move into our more strategic materials.
Uranium, for example, graphite, rare earths, titanium, which is vital for defense, scandium, neobium.
However, the challenge that we have across all of these resources is that the majority of mapping that was done was done 30 to 60 years ago by the Soviet Union, which means we don't really have up -to -date reserve data in terms of are they economically viable deposits that the private sector would want
to go mine? How deep are they?
What are the byproducts?
So that is a binding limitation in terms of the fact that we know that it's rich in resources.
However, we don't really know if many of these resources are economically attractive to mine.
Exactly. And it would be tough, wouldn't it, to sign an economic contract as well when some of those resources are currently under Russian control.
I mean, they're in the Donbass, they're in the bit that Russia is currently occupying.
and ahead of any peace deal, Ukraine cannot know, well, nobody knows exactly who is going to be custodian of these resources.
Some of them. That's absolutely right.
We don't know who will be the custodian of these resources.
And additionally, given just the threat that sits on the other end of the border, there are few investments that are as easy to expropriate as a mine.
I'm putting tens of millions of dollars minimum into developing something that can be taken.
So the long term security of saying, you know, this is the way we agreed on land distribution is not necessarily how it will stay.
So that does create an additional layer of hesitancy.
This has been characterized in rather different ways in the media and by different political characters around this.
The White House, of course, thinks of it as a kind of payback for the hundreds of billions that have already been provided to the Ukrainians for their war effort, as well as security guarantees that it hopes to offer in the future.
Others call it blank mail.
Sign this or you're high and dry as far as Washington's concerned.
I mean, it's tough, isn't it?
The language is escalated very high, and it's hard to see how companies could go in and make something work in this kind of febrile political environment.
Absolutely. President Zelensky is backed up against a wall right now.
The security and the aid is absolutely vital for Ukraine to continue standing on its feet.
However, it's essentially being held up over a Minerals deal, which is a very difficult position to be in, there's no doubt.
We saw this coming.
We saw that the Republicans in general over the last two years have kind of started to resist the whole notion of aid.
And with the new administration, we did expect it to become more transactional.
However, the acceleration of how quickly it became transactional was a bit surprising, and it's a bit unprecedented.
China has historically engaged in these kind of resource for aid swaps.
It did the same thing in the Democratic Republic of Congo 25 years ago.
It gave them $3 billion of infrastructure support in exchange to access for $93 billion of resources, but it's not a historical US place.
So it's a little bit new for us.
Okay. Gracelyn Baskaran is director of the Critical Mineral Security Programme at the CSIS.
Now, Shanty Kellerman is with us.
She's the chief investment officer at M &G Wealth in the States, looking at the markets.
Let's start with Italy.
Their competition watchdog is investigating electric vehicle makers.
Tell us about this.
Yeah. So they're investigating some of the claims around the range it provides, how long the battery will last and the performance.
And it is a hard one because we all know that those can be different based on weather conditions and where you drive.
And probably something I guess most consumers who own those vehicles will be familiar with.
But we haven't really seen much of a share price reaction.
We'll see where that investigation goes.
Yeah, and with electric vehicles, there seems to be so much up in the air.
Volkswagen is struggling.
It's one of those car companies under pressure, isn't it?
When companies, these cars are only, we're discovering what they are and are not capable of over a period of time.
Yeah, and one of the hopes, you know, tying it back to the German election is a lot of those companies are also struggling with having targets for phasing out combustion engines.
But customer demand for combustion engines remains there because there's still, you know, issues with some EV, you know, ranges and also just the charging network.
So one of the things he's saying is with Germany, we could get something where there's changes in the dates for phasing out combustion engines as well with the new election, depending on who wins.
Okay, sticking with one of those car makers as well, Elon Musk and Tesla, he has rebuffed the idea that his company could put money into the struggling Japanese car maker Nissan.
What's going on here exactly?
I mean, the Japanese group had been seeking help, hadn't it, from Tesla, we understood?
Yeah, so they had been exploring a tie -up with Honda, which is probably in a stronger financial position than Nissan is.
That fell through fairly recently.
The talk in this rumor was that Nissan would potentially sell some of its automotive production sites in the US to Tesla.
That could give Tesla more US production, maybe look at it a bit more favorably.
That would be difficult for Tesla though because their factories are incredibly customized so with an automobile factory you can't just you know buy one and start making a different vehicle in it they're they're built exactly for how that specific vehicle be produced so you know may not really provide
that much benefit to just take another car manufacturer's factory okay and Elon Musk seems to be ruling it out anyway so that seems to be that okay Shanti Kellerman chief Investment Officer at M &G Wealth.
Thank you very much for that.
Sticking with one other piece of business news today, we are seeing that Alibaba, the big Chinese tech giant, its shares have been surging.
Some 15%, is it? Yesterday, where before markets closed there in Hong Kong, Heron Lim is an economist at Moody's Analytics based in Hong Kong.
This wave of investments into AI by Chinese companies, particularly since the development of DIVSIC and the public role of DIVSIC has really incentivized a good number of companies in China to really brush up its efforts on AI.
And this comes as really across the world, many countries looking towards AI investments, particularly in the US.
But I think China is definitely wanting to be part of the conversation as well and do not want to be late to the game.
And hence, we are seeing that benefit coming through with different companies rolling out with different announcements.
And if that kind of generates excitement in the stock market, it's unsurprising.
And it also comes just days, doesn't it?
after Xi Jinping met with various tech leaders and other leading industrial companies, private companies in Beijing.
Yes, indeed. So these areas are extremely important for the Chinese economy as they are looking towards these tech companies to lead China to the promised land of really being able to rely on their own technology instead of relying on others.
The self -reliance drive had been a big theme for China in recent years and has been before as well.
So this return towards a bit more of that self -reliance with Chinese tech companies actually being world leaders and world beaters in a certain way, I think that definitely is one way that the Chinese leadership is looking towards where they seek to revitalise the private segment.
Heron Lim there of Moody Analytics.
A dramatic moment there from Nijia, a new movie released from China that is breaking box office records.
The film has grown some $1 .7 billion since its release last month, making it the highest -grossing animation of all time, we understand.
I've been speaking to Professor Ying Zhu.
He's director at Australia Centre for Asian Business at the University of South Australia.
I asked him to explain what he thought about the film's success.
It is a surprise. I think that the audience was targeting Chinese, in a way, but coming to overseas, I went to the cinema in Australia, in Adelaide, and the majority are Australian local people.
The tickets were fully booked.
It's very busy. They didn't realise it's very popular overseas.
I don't think they expected that, actually.
Describe what the film is about.
The film is about a young boy initially being very weak and gradually becoming very powerful.
Like a monkey king, it's like a rebel against the authority, against the dominant power, in a way.
The initial story was different historically, But this one is modified with a twist of a current situation globally, probably.
But historically, Yuhuang Da Di is like a god controlled the universe.
And this Naja was making trouble for that.
And what do you think the message of the film is?
Well, it can be interpreted in a different way.
Young people like that.
Particularly, they don't want to be constrained.
They want to have a free way of doing.
I mean, certainly a certain way of anti -authority, anti -established order.
anti -power. The figures indicate though, don't they, that Chinese animated films, well, perhaps most Chinese movies struggle usually to reach overseas audiences.
They depend heavily on the domestic market usually.
Yeah, I think there are two reasons.
One is political reason.
As you know, in China, they have censorship control.
Normal moving have to go through censorship examination or evaluation in order to make a production.
But this one is less political in a way.
So the normal Chinese movie maybe is hard to go to overseas to attract audience unless some kind of critical movies, some kind of independent movie makers can make things, go to Paris, go to Berlin, go to Venice, whatever, but not mainstream movies.
On the other hand, I think that this one is more entertaining with design, with all of this kind of new technology involvement, young people like it.
Is Nezhar available in English?
I mean, has it been revoiced with foreign languages?
So it's subtitled at the moment.
And eventually, I will think that if it's so popular in overseas, they'll have to convert it into English, probably.
So despite some reports of the decline of the great Chinese movie investment model, which was an idea, wasn't it, a few years ago, China would build its own equivalent of Hollywood.
You still think that the Chinese film industry has got power to go in terms of how it sells globally?
It's hard to say. I think as a normal production, you still have censorship control.
On the other hand, this kind of animation or less political -oriented things, entertaining -oriented production, could be available and commercialise these things as good.
Professor Ying Zhu, and that's your World Business Report.
