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Stefan Sack: ‘Change through trade’ was a successful strategy for China

Stefan Sack, former Vice President of the European Chamber of Commerce in Shanghai.

Whenever German chancellors traveled to China, they always carried the wishful thinking of change through trade in their luggage. The logic behind it: Through intensified business relations between China and the West, the People’s Republic would gradually become more liberal, perhaps even democratic someday.

China would automatically join the winning system of liberal democracies and a rules-based world order after the economic liberalization under Deng Xiaoping and its unprecedented economic rise, it was believed.

And indeed, 20 years after China’s accession to the World Trade Organization, the principle of change through trade has come to fruition. But not in the way we had anticipated, but the other way around. Through trade with China, we Germans in particular have also begun to change.

We have bitterly awoken from our beautiful dream. The dependencies of our supply chains and the greed for new growth markets have maneuvered us into a situation in which we now adapt our behavior to Chinese sensitivities. Our dependencies on the Chinese market are now so great that Beijing is using them against us in a “divide et impera” process – divide and conquer. We must finally admit to ourselves and discuss the fact that we are now behaving in this way to avoid Chinese punishment.

We exercise caution whenever we post China-related comments on social media. Corporate bosses bite their tongues to avoid almost any public criticism of China. And even our government is extremely careful not to give Hong Kong human rights activists, exiled dissidents, or even the Dalai Lama too much of a stage, if any. We tolerate the fact that Western online platforms are blocked in China, while China’s propaganda machine here uses Twitter and the like to sway public opinion.

The confidence of the West in its own strength, which apparently grew immeasurably after the Cold War, seems to have blinded many. However, the fact that the People’s Republic has other things in mind than just buying Western goods and accepting Western values apparently did not occur to us. Since joining the WTO, China has perfectly managed to instrumentalize it for its benefit.

The Chinese dream, which President Xi Jinping has formulated as a vision, fuels pride in what has been, but also aspiration to the top. This is not inherently wrong. As the West, however, we must be clear that this Chinese dream is based on the rise of a collectivity that is founded on a different system of values instead of promoting individual freedom and personal development.

Could we have known on what foundation the Chinese dream would grow? It seems that omens such as Document No. 9, which lead to a seven-year prison sentence for journalist Gao Yu’s for publishing it, have been forgotten. Democracy and journalism on the Western model, a civil society, universal values such as human rights, the rule of law or democracy were just as clearly rejected in Document No. 9 as an economic system more characterized by private enterprise than socialism. A look at the Chinese constitution (Article 7), which states the primacy of the state economy, would also have been helpful.

Yes, we could have and should have known all this. We could have put more pressure on China to comply with a global framework of rules, instead of hoping for change through trade in the wake of growing interdependence. Without Western investment, China was and is still unable to deliver on the promise of bringing moderate prosperity to its vast population.

Instead, Western companies have accepted decades of access barriers to the Chinese market through joint venture requirements, forced knowledge transfers, or excluded industries, while Chinese companies have been allowed to acquire port facilities and power grids in Europe, or build highways and other infrastructure.

The hope that China would join the Government Procurement Agreement (GPA) has not yet been fulfilled, even after 20 years of WTO membership. The de facto impossibility of winning important tenders in China as a foreign company has been ignored for too long. It is only in the last few years that reciprocity seems to be part of our diction.

Too late. In the meantime, mega-corporations have emerged in China that have become powerful (not only, but also) through the transfer of foreign expertise and enjoy competitive advantages far beyond the Chinese market thanks to government support.

During my time at the European Chamber of Commerce, I have been criticized more than once for the use of the term reciprocity. Today it is clear that it is the right, rules-based foundation for peaceful coexistence and common development. Solving global problems also works in cooperation with China.

No player – not even the West, of course – should be allowed to cherry-pick regulations that promise unilateral advantages. But that is precisely what we have allowed China to do for decades. In our democratically constituted societies, we must therefore define what price we are willing to pay for growth and prosperity and draw appropriate lines. The war in Ukraine gives us a prime example of why we need and must assert such clear boundaries.

Stefan Sack, 54, used to work as a management consultant at McKinsey before moving to China in 2005. There, he held numerous senior positions at international companies. Between 2013 and 2016, he was Vice President of the European Chamber of Commerce in Shanghai. Sack has lived in Hamburg since the end of last year.

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