Beijing's High-Tech Ambitions: The Dangers of Germany's Dependence on China

Germany largely has China to thank for its current economic upswing, given the Asian powerhouse's demand for German machine tools and other such products. But many German industrialists are asking themselves how long the symbiotic relationship can go on, given Beijing's ambition to become a high-tech economy itself. By SPIEGEL Staff.

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It's a humid Friday afternoon in Beijing, where German Chancellor Angela Merkel is addressing a friendly crowd of 80 students from the Central Party School, the Chinese Communist Party's highest training institution for its officials. A banner on the wall behind her reads: "Welcome, Chancellor Merkel."

But on this day Merkel doesn't have much time for niceties. Of course she admires the country's economic vitality, she says, and is impressed by how quickly China has overcome the financial crisis. But, she adds, it's also important to address the country's deficits -- which she then proceeds to do.

China's protections for intellectual property are not up to Western standards, says Merkel. Besides, she adds, Chinese companies have the bad habit of siphoning off technical expertise from their German partners.

At the end of her speech, the German chancellor hands the future elite of the Chinese Communist Party a few lessons in democracy. There are currently five parties in the German parliament, she says, and although this can be vexing at times, it's also productive, because the multiparty system ensures that every issue and every cause finds a voice. "This is why we ask ourselves: Can one party achieve as much as five parties achieve in our country?"

Merkel's open words in the heart of a one-party dictatorship clearly illustrate how the chancellor -- all diplomatic niceties aside -- feels about Germany's East Asian trading partner. She is well aware of the opportunities in the world's largest market, which is home to 1.3 billion people. But Merkel also knows that business leaders in Germany are starting to feel uneasy about the unstoppable rise of Chinese industry.

Some are already wondering whether the supposedly lucrative China connection will turn out in a few years' time to have been a pact with the devil.

Dependent on Each Other

Germany, more than most other Western industrialized countries, is currently tying its economic well-being to China's recovery. Trade with Beijing is the most important driving force behind the current German upswing. It also explains why economists also foresee a bright future for the German economy in the medium term.

With its luxury cars, machine tools and power plant turbines, German industry offers precisely the products the giant East Asian country desperately wants or needs. But the jubilant mood at German industrial giants like Siemens and BASF has recently been somewhat marred by worried questions. What is the significance of the Chinese starting to compete in more and more high-tech markets? What will be the consequences if the fates of entire industrial sectors are decided in the back rooms of Beijing's party bureaucracy in the future?

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And what happens if growth in China proves to be an illusion? The government in Beijing, using the tools of a state-controlled economy, is already trying to prevent the next big bubble from bursting in its real estate market.

"I am aware that a growing portion of the company is dependent on this country," says Dieter Zetsche, the CEO of German automaker Daimler. And that relation of dependency applies both in good times and in bad.

Uninterested in Human Rights

At the end of last week, the human rights organization Südwind revealed that German companies like Aldi, Adidas and Metro, as well as their suppliers in the People's Republic, have some of the worst records when it comes to overtime and exploitation of workers. But the leaders of these and other companies pay little heed to such accusations.

They are also uninterested in the fact that China still imprisons hundreds of thousands of critics of the regime in reeducation camps. But what really keeps German company bosses awake at night is the fear that they themselves could eventually fall victim to Chinese power politics.

Beijing tends to react very sensitively to any form of criticism, as it demonstrated once again last week, when the United States Defense Department issued a report concluding that China is pursuing an expansionist military strategy in Asia. The Chinese state-owned press promptly rejected the report as "aggressive."

Beijing was equally reluctant to accept new statistics indicating that China will surpass Japan this year as the world's second-largest economy. The Chinese leadership announced that the news should not lead anyone to conclude that the country should lose its status as a developing nation -- a status from which Beijing derives financial benefits.

On Its Own Terms

China is seeking to engage with the West, but on its own terms. German companies are beginning to feel the effects of this policy. For instance, they note with concern that there is a growing tendency among the Chinese to blatantly demand the divulgence of industrial know-how in return for the right to do business in China. They are vexed by the country's tight control over access to domestic raw materials while it simultaneous seeks to secure exclusive rights to strategic energy reserves in Africa and Asia. And it irritates them that China is treating traditional German industrial domains as strategic business fields.

Some German entrepreneurs and executives consider it a polite understatement when German Economics Minister Rainer Brüderle complains that China is "not always an easy partner." And some Asia experts even predict that Germany's China connection could trigger the long-term demise of many icons of German industry. They warn that German companies that accept China's embrace could quickly find themselves being squeezed too tightly for their own good.

Doing business in China has already brought about deep-seated changes in German companies. Some small and mid-sized companies -- Germany's famous Mittelstand -- already do more than half of their business in East Asia, and the number of German-Chinese joint ventures continues to grow. Chinese executives have already advanced into the ranks of senior management in a number of German companies. There is hardly a company listed on Germany's blue-chip DAX index that hasn't absorbed a part of the People's Republic -- or perhaps it is the other way around.

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1. German People Should Learn from American People
lakechamplainer 08/28/2010
The German people should learn from what the relationship between China's rulers and America's elites have brought the vast majority of Americans: Goods of all types of low quality, and a vastly reduced industrial base. Germany is a country rightly known for the quality of its goods - quality of goods made in China will inevitably be of poorer quality than those made in Germany. Also, the German people will find German firms fighting amongst themselves to take advantage of China's cheap(some would say slave) labor, which will lead to shuttered factories in Germany. Many times when I go shopping, I hear a voice in my head saying: Cheat me on the price, not the quality.
2. China is not a danger, it is an opportunity with one caveat,
Norberto_Tyr 08/30/2010
China is not a danger, it is an opportunity with one caveat, you must understand the principle of regionalism. Contrary to what is intended with the cacophonic euro system, a contradiction in terms, China is implementing a regional organizational structure in a pragmatic rather than a deliberate manner. If we turn the TV off and we put-on our common sense glasses we would be able to clearly see where China stands and what her principles are regarding foreign policy. In the first place China demands security like everyone else. Now security is a relative term since it is relative to threats. The threats for China are immense: 1- USA-UK-Israel (NATO by extension albeit not a rational one); 2- India-Israel; 3- Japan-USA; 4- Russia (a region in itself since regionalization not always means aggregation, sometimes means the opposite) In the second place we must understand her major strategic foreign problems: 1- Taiwan; 2- India; 3- Korea (USA's intervention). Now, by REGIONAL organization I mean two cardinal principles granted to your neighbors: 1- sovereignty; 2- jurisdiction and one condition: territorial contiguity (neighbors). China, Latin America, Middle Eastern Asian and African countries perceive that USA-UK-Israel (to some extent NATO members) violate these two principles fundamental to REGIONALISM. This force, in my view, will shape the world in the XXI century. Why REGIONALISM will rule the XXI century world ? In the first place the vast majority of territorial disputes have been solved, despite of some more or less small adjustments (for example Taiwan, Gibraltar, Malvinas, and others), most countries broadly accept the territorial 2010 status quo. On the other hand, regional (in the broad sense of the word) artificial entities such as the European Union I do not consider as ‘regional’ in the proper sense since they violate the principle of jurisdiction between neighbors; and of course, the UN, the most extravagantly global, ineffectual and the most ignored organization of all constitute the paradigm of the anti-region. Regionalism, contrary to the euro experiment, is spontaneous and natural, it is taking shape in South America and South East Asia in force, to a lesser extent in the Middle East and in Africa it is in its infancy but growing. Regionalism opposes globalization; it exposes a soft political coupling between nations rather than a tight coupling as in the artificial EU system. Regionalism does not impose political systems to regional nations, much less that entity the ‘west’ calls democracy, in reality ‘representative democracy’ (lets be precise, a sea-lion is not a lion) tightly coupled with a monopolized mass media apparatus violating every single nation’s sovereignty. For example, South America accepted the idea of Venezuela ‘Chavista’ despite of USA’s rhetoric’s regarding the ‘purity of democracy’ in the REGION, not USA’s region though; USA is becoming more and more antagonistic and alienated in the true region; for example consider the recent racist laws in Arizona, not very ‘region sensitive’ to say the least. The South American region, without much fanfare, recently made the Colombian and Venezuelan Presidents to shake hands. The region, contrary to the ineffectual global apparatus ruing from New York or Brussels, works behind the scenes in the same way hormones control our body. Now, is anyone expecting China to change her political system in the near future? Are any of her neighbors attempting to impose a change on China’s political system apart from the alienated regional South Korea which is considered by her neighbors a traitor for inviting predator powers into the region, a regional anathema ? Why would they ? Most Chinese politicians are engineers; they know what they are talking about, while most ‘western’ politicians are either lawyers (“poor the countries that fall in the hands of the lawyers” Lee Iacocca) or are nothing at all, mere entertainers and charlatans, or even expert ‘public relationists’ (‘relacionistas publicos’, yes as bad as it sounds in any language, as I read in an Argentinean yellow press publication, La Nacion) Regionalism implies that regional countries have the right to choose their type of government, and that government can be any or a combination of the three ideal forms of government identified by Aristotle: aristocracy, monarchy and democracy (principle of sovereignty), regional nations do not have the power to interfere within the territory (and electromagnetic space) of their neighbors (principle of jurisdiction). Regionalism is the implicit Chinese approach that the ‘western’ media complains about regarding investment in Africa, for example. Norberto
3. China is implementing a regional organizational structure in a pragmatic manner
Norberto_Tyr 08/30/2010
Get used to it, it will happen more often, none wants foreign powers lecturing or imposing conditions on commercial deals, besides, ‘charity’ or ‘aid’ will decline precisely due to the ‘regionalization’ phenomenon (neighbors will help their neighbors as Germany does in Greece even against the euro law), therefore, one of the last weasel tricks to help infiltration and indoctrination, pseudo charities, will disappear. Lets think about, imagine selling cars only to people that attend mass every week just because you are Catholic, does this make any sense ? Well, keep on complaining, since this is going to be the future world’s political organization you like it or not, this is natural, is evolutional it is unstoppable, waste your energy or join the trend. Off course, by now you must have noticed that is the opposite of ‘globalization’, yes, artificial entities relying on globalization will perish, no doubt about that. Now, regions are going to be eternal like Roma ? No, lest talk about that when we reach the XXII century. Region organization will be good or bad in the very long run ? We do not know but it is certain that they are here with US right now. Nations will rely on their regional neighbors for their survival in the near future, not on abstruse artificial agreements, the one without regional neighbors will be in trouble, nations will form tightly coupled economic structures, and in some cases financial as well, as will happen in the Far East region when China start utilizing her reserves. Other regions might take longer, such as South America, due to the interference from competing internationalizing entities embedded in the social fabric attempting to break the natural and unstoppable political evolution. Are there some organizations incompatible with regionalization ? Yes, they are, but that proves how artificial and weak they are, but true nations will not perish. Summarizing, under this framework, namely the world regionalization under two loosely coupling political principles: 1- sovereignty; and 2- jurisdiction, China is so unstoppable that even Japan and Taiwan realized that they belong to the same region. Turkey is another country 'regional alert', while USA, Israel, South Korea and perhaps Vietnam, they are not, at their own peril, of course. Corollary: I can predict, based on above facts, the dismissal of both giant and miniature dinosaurs crushed by the law of evolution, you can believe it or not, nevertheless, whatever you might think wont change the situation a bit. Norberto
4. technology transfer
brunom 08/31/2010
I used to live in Germany in the 70's and the picture of Helmut Kohl meeting Deng Xiao Ping in 1984 struck a chord with me! Deng's famous quote about the colour of the cat can be interpreted in the following way: In order for China to become a "superpower" it has to go through an economic and technological "Great Leap Forward". Deng wanted technology transfer from the West Russian communism wasn't helping the Chinese economy too much!) Well, in the 90's, many people in the West (especially CEO's and people on Wall Street in the US) are so naive that they thought they can make a "quick buck" out of the huge Chinese market and labour force, but look, who's got all the US T-bonds now, China! That's actually not the main thing for China. What they really wanted was technology transfer and they got it big time (through cheap manufacturing). Perhaps they would have gotten that (by hook or by crook) someday anyway, but the faulty economic and political decisions made in the West expedited those Chinese goals. China is a very big and ambitious dragon and we will have to wait and see what the economic, political and environmental effects will be of this immense amount of technology transfer for the rest of the world, including Germany. After giving away valuable and fundamental know-how and technology for short term gains (for little nano-blips in the stock market), it is hard for the capitalists in the West to complain that the Chinese are now capable of cloning any high-tech product (including weapons) from the West!
5.
BTraven 09/02/2010
Zitat von lakechamplainerThe German people should learn from what the relationship between China's rulers and America's elites have brought the vast majority of Americans: Goods of all types of low quality, and a vastly reduced industrial base. Germany is a country rightly known for the quality of its goods - quality of goods made in China will inevitably be of poorer quality than those made in Germany. Also, the German people will find German firms fighting amongst themselves to take advantage of China's cheap(some would say slave) labor, which will lead to shuttered factories in Germany. Many times when I go shopping, I hear a voice in my head saying: Cheat me on the price, not the quality.
Even Apple let assemble its products in China therefore I can not reflect your that most of the goods produced there would be of low quality. I think it’s a pity that so many workers lost their jobs because of the relocation of production to countries which cheaper labour costs. It is not good for the soul of a country when school leavers have only the choice between studying in order to work later in the service sector or working there just after the end of their school time. It’s a fairy tale that they could all take creative jobs or could work in the researching departments of big companies.
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