Table.Briefing: China

Anti-espionage law + Direct investment

Dear reader,

Russian Deputy Foreign Minister Andrei Rudenko hurriedly flew to Beijing on Sunday. His colleague Qin Gang wanted to speak to him. Rudenko’s task then was to reassure their big ally after the Wagner rebellion.

An unstable Russia is a horrifying thought for China. The two countries share not only more than four thousand kilometers of border, but also political values as a counter-model to the USA. Did Rudenko’s explanations reassure Qin? The Foreign Ministry is keeping quiet about that. What is certain, however, is that China’s interest in a quick end to the disastrous invasion is growing.

Getting information and reviewing companies’ business reports – this is part of the core task of consulting firms in China as well. After all, it is the only way to evaluate how safe it is to do business with individual companies. But with the tightening of the so-called anti-espionage law, Chinese authorities can arbitrarily criminalize any gathering of information. A first taste of this already occurred in May, when Chinese authorities raided the offices of renowned international consultancies such as Bain & Company and the New York-based Mintz Group.

“Any form of information gathering on the part of companies can now be construed as espionage,” says ex-journalist Peter Humphrey, who ran a consulting firm in Shanghai and has already had bad experiences with Chinese criminal law himself, in an interview with Marcel Grzanna. On 1 July, the stricter anti-espionage law comes into force.

A look at China’s trade figures alone shows that the German economy is not doing so well. In 2022, China sold more goods worth 88 billion euros to Germany than vice versa. But can it be concluded that German goods are less popular in China than Chinese goods are in Germany?

No, because many German companies actually produce for the Chinese market in China. If there were a domestic production report in addition to the trade figures, it would be clearly in favor of the German industry, analyzes China correspondent Frank Sieren.

However, this does not exactly bode well for Germany as a production location. In terms of competition, Germany is slipping further and further down the rankings, and Chinese investors have also long since preferred other Western countries. So there is still a lot to do.

Your
Felix Lee
Image of Felix  Lee

Feature

‘This law makes due diligence virtually impossible’

Peter Humphrey was arrested while working as a business investigator in China in 2018 along with his wife – before the tightening of the anti-espionage law.

Because of your experience, you recently talked to EU parliamentarians in Brussels as a speaker. What did you achieve with your visit?

I was able to present a letter from a prisoner in a Chinese prison. The writer had hidden the letter in a product he had packaged. It was then found in a shop in Europe. It said that he and others had to work twelve hours a day, seven days a week. Several more such letters were found. My visit to Brussels was to help advance EU legislation on corporate due diligence in their supply chains and a ban on imports of prison labor products.

In China, the amendment to the anti-espionage law will apply from July 1. What does this mean for companies’ due diligence on their supply chains?

This law makes due diligence virtually impossible. Any form of information gathering on the part of companies can now be construed as espionage if arbitrarily defined by investigators as a threat to national security. Previously, such activities could only be prosecuted as “illegal acquisition of personal information”. That then meant a few years in prison, as in my case. Now, in comparable cases, life imprisonment or even death sentences are threatened.

With your company Chinawhys, you successfully gathered information in the country for many years. What exactly did you do there?

We examined the founding documents and annual financial statements of companies that are publicly available in most countries. Plus the curricula vitae of individual shareholders, ownership records of companies and individuals, and anything else that was available online. We combined this data to assess whether it was safe to do business with a particular company or whether the risks were too high.

Did you also collect non-publicly available information?

Of course. For example, we counted trucks that drove through entrance gates of factory sites to be able to calculate production quantities. Or we spoke discreetly with people who possessed information. There is no doubt that this form of research will fall under the new law in the future.

What marked the downfall for you and your wife?

One of our clients allowed our investigation report on a certain person to fall into that person’s hands. She was very influential and activated her powerful contacts to get us arrested. The secret police accused us of spying but we fought back and we were charged with illegally acquiring personal information.

Were your former clients aware of the risks that already existed at that time?

There were those who were careful and asked us how we would collect information and asked us not to do anything illegal. Others tried to push us to go beyond the limits of what was allowed. But we always operated by legal means. Nevertheless, we were arrested.

What options are left for the industry to operate in China in the future? Are VPN tunnels of any use in covering up tracks of one’s own investigations?

I would advise against using such technical tricks. VPNs are illegal in China. That would make things even worse.

What then?

The only safe thing is to do investigations from outside the country. And I warn against choosing Hong Kong as a location. Information gathering there is now no longer safe either.

And what do the clients of these service providers do? They are supplied with the procured information.

If you think this through to the end, it means for them that they should not store their investigation reports, about potential business partners for example, inside China. To be on the safe side, the research results would have to be transmitted exclusively outside China and stored only outside China and in the managers’ heads. The reduced level of information that is safely obtainable now will mean that in the future foreign companies will be flying blind in their business operations.

How should foreign companies behave under these circumstances in accordance with EU legislation?

It is a dilemma. Companies will have to abandon some business projects in order not to violate EU due diligence regulations. But Chinese companies will suffer when business projects are canceled, and China may then realize that this is not in the country’s interest if domestic companies also earn less money. Access to Western technologies will also be reduced as a result. This may put pressure on Beijing to allow commercial due diligence in its own interest. But under Xi things are not likely to improve in this way.

Peter Humphrey is a former Reuters correspondent and spent 15 years as a fraud investigator in China for Western companies. He is currently an external research partner at Harvard University’s Fairbank Center for Chinese Studies and a mentor to families of foreigners wrongfully detained in China.

Statisticians neglect local production

Production hall of the German company Festo in Shanghai.

Germany’s economic dependence on China is a big issue in connection with Germany’s upcoming China strategy. However, some figures for assessing dependency are difficult to obtain, despite being essential for evaluating Sino-German economic relations.

One example of this is the revenue of German companies in China. They are at least as important as the trade figures, yet curiously they are hardly ever published and discussed. And this is despite the fact that they are what give trade figures their meaning in the first place.

The trade balance itself was negative, as it has been for the past few years – also in 2022 – and even reached an all-time low of 88 billion euros. This means the Chinese sold significantly more to Germany than the Germans did to China. This is not primarily because German products are no longer popular in China, but mainly because the Germans manufacture many products in China for the local market. On the one hand, politics has forced them to, and on the other hand, because it is cheaper to produce in China. In the trade statistics, they appear at most in the form of the occasional supplier product.

Germany is leading in local production

A 2020 study by the Mannheim-based Leibniz Centre for European Economic Research (ZEW) has tracked the revenues of the German economy in China up to 2017. It found that German companies generated revenue of almost a good 330 billion euros in China in 2017. The growth curve points steeply upwards. In 2000, it was only 25 billion.

If there were local production figures in addition to the trade balance, it would clearly be in Germany’s favor.

  • German companies in China: The 330 billion euros in revenue were generated in China by 800,000 employees in 2,700 companies.
  • Chinese companies in Germany: They generated 31 billion euros in turnover, a tenth of what Germans generate in China. The study calls their output “extremely modest.” Around 57,000 people were employed across 342 companies.

Highly relevant for the dependency debate

The revenue of 330 billion euros from local production in 2017 was already higher than the trade revenue between China and Germany in 2022, which exceeded the 300 billion euro mark for the first time.

As a rule of thumb, it can be said that the German economy’s dependence on China is about twice as high as the trade figures suggest at first glance. Often, the profits from these China sales are immediately reinvested in China. In other words, they do not flow back to Germany, but they do appear on the companies’ balance sheets.

Germany is the big loser in the business location competition

If politics and companies are frantically seeking alternatives to the Chinese market, they should not only focus on compensating for the trade business. Moreover, the figures do not support the widespread assumption that China is closing its market while the German market is leaving its doors wide open.

And Germany is not becoming more attractive. “Germany is the big loser in the location competition,” the ZEW notes in another early 2023 study. Germany’s location factors for family businesses could not compete with those in top Western locations in North America, Western Europe and Scandinavia.

Factories are difficult to relocate

Last year, Germany even dropped four places. It now ranks 18th out of 21 developed countries surveyed, including Japan as the only Asian country. Only Hungary, Spain and Italy score worse than Germany. The probability that Chinese companies will increase their investments in Germany in the next few years is thus low.

This leaves Germany more dependent on China than China is on Germany. This is because trade flows can be redirected more easily. German factories in China, on the other hand, cannot be easily relocated. Meanwhile, China is already actively diversifying. China’s trade with the Asean states in Southeast Asia grew twice as fast as its trade with Germany last year.

  • Economy
  • Investments

News

After Wagner rebellion: China gathers information on the situation

Russia’s Deputy Foreign Minister Andrei Rudenko and his host Qin Gang on Sunday.

Foreign Minister Qin Gang met with Russian Deputy Foreign Minister Andrei Rudenko in Beijing on Sunday. The leadership apparently wants to get a picture of the situation in the neighboring country. Qin asked for the meeting to “exchange views on Sino-Russian relations and international and regional issues of common concern,” according to the Chinese leadership.

The statement does not mention the rebellion of mercenary leader Yevgeny Prigozhin. But Rudenko specifically flew from Moscow to Beijing on Sunday – apparently to reassure their ally. A stable Russia is an important part of President Xi Jinping’s foreign policy strategy. That is why he is standing by his neighbor, even though the invasion had already become a disaster before the rebellion.

The rebellion of the Wagner mercenaries now seems alarming from Beijing’s perspective in several respects:

  • Should Putin lose control, the substantial political investment in the like-minded ruler would be lost. The stance of a successor government towards China would be uncertain.
  • The two countries share a 4,200-kilometer border. Chaos in Russia also affects China.
  • A permanently weakened or even divided Russia has exactly the opposite effect of what Xi intended with his support for Vladimir Putin. Instead of forming a threatening bloc against the US, China is left with fewer allies than before.

Therefore, Xi is very much interested in Putin bringing the situation back under control after Prigozhin’s departure. To prevent a further weakening, his interest in Russia ending the lengthy war quickly and in a face-saving way is likely to be just as high. fin

  • Geopolitics
  • Qin Gang
  • Russland

EU countries overtake China in battery investment

According to EU figures, member states put three and a half more resources into battery technology than China last year. “Our first estimate was that we should be able to cover 80 to 90 percent of the battery needs of the European automotive industry by the end of the decade, and that is still our target,” Maroš Šefčovič, Vice-President of the EU Commission, told German daily Welt am Sonntag.

The new BASF cathode material plant in the German state of Brandenburg closes a crucial gap in the European value chain, he said. Currently, about 30 large EV plants are planned in the EU, said Šefčovič. However, the production of active cathode and anode material has been lacking so far. He sees it as an opportunity for BASF to focus on precisely this bottleneck. fin

  • Autoindustrie
  • Batterien

Germany scales back investment guarantees

Government guarantees for investments by German companies in China have dropped significantly. “Without the change in the current federal government’s coverage practice, the federal government’s maximum liability for investments in China would be about five billion euros higher,” government circles in Berlin said on Friday. Since Economy Minister Robert Habeck took office, four applications from companies for coverage worth around 101 million euros had reportedly been rejected. Another four contracts worth 544 million euros have been refused to be extended.

New applications worth around four billion euros were immediately ruled out because they were above the cap of three billion euros per company and target country introduced in November 2022. Four other applications worth 282 million euros for projects in Xinjiang province were put on hold.

The federal government repeatedly emphasized that it did not want companies to decouple from China, but wanted to reduce risk. That is why, for example, fees for state protection of investments in countries with a “cluster risk” were increased from 0.5 to 0.55 percent of the investment volume, it said.

However, investment guarantees have been decreasing for years. While there were 33 approvals in 2012, the number dropped to 15 with the change of government in 2017 and to twelve when the current German government coalition took office in 2021. rtr

  • Technology
  • Trade

Harassment of human rights activists

Thirteen times in two months – that’s how many times human rights activist Wang Quanzhang has been forced to move. He now lives in a rented apartment in a Beijing suburb where the electricity is frequently cut off, he told AP. The news agency adds that another lawyer has left Beijing due to the harassment. A third lawyer claimed to have been prevented from leaving his home several times by men loitering outside. A fourth lawyer and his wife had reportedly been arrested.

All four are members of a group known as 709 Lawyers – the name refers to the date of 9 July 2015 when Chinese authorities cracked down on independent legal services and arrested hundreds. The four lawyers now also had their licenses revoked. They have since only been able to act in an advisory capacity. flee

Ground temperatures above 70 degrees Celsius

In northern China, the thermometer has exceeded 40 degrees for the third consecutive day. In response, the highest heat warning level has been declared in the capital Beijing and parts of the nearby provinces of Hebei, Henan, Shandong, Inner Mongolia and Tianjin.

On Saturday, state media reported ground temperatures above 70 degrees in parts of Shandong province, China’s most populous province after Guangdong and a key area for grain farming. “Last year’s heatwave gives some sense of the risks to China’s food supply and the potential impact on prices,” an assessment by the analysis institute Capital Economics said.

Meteorologists expect the heat wave in northern China to subside by Monday before it may intensify once again later this week. rtr

  • Climate change
  • Environment
  • Heatwave

Opinion

The lost honor of the China ‘bridge builders’

By Thorsten Benner
Thorsten Brenner, Politologe, analysiert im China.Table die Kommunikation deutscher Unternehmen im Umgang mit China und dessen Zwangsarbeits-Vorwürfen.
Thorsten Benner is the Director of the Global Public Policy Institute (GPPi) in Berlin.

Well-meaning China bridge builders as victims of a journalism “that believes it can compensate for a lack of knowledge and expertise by adopting the right attitude.” This is the story that Michael Schumann, Chair of China Bruecke (China Bridge) and Chair German Federal Association for Economic Development and Foreign Trade (BWA), tells us. “Advocates of Sino-German cooperation are defamed and their reputations tarnished,” says Schumann, much like in Heinrich Boell’s “The Lost Honour of Katharina Blum.”

The sweeping attack against the work of journalists about China lacks any empirical basis. We are lucky to have some excellent and well-informed journalists working about and/or in China. The fact that many of them do not share Schumann’s undifferentiated enthusiasm for China is due to the real existing Chinese party state under Xi and is based on knowledge, expertise and personal experience.

Naturally, there are some poorly researched and argumentative stories critical of Beijing and irritating stereotypes up to stigmatization with racist overtones. And of course, due to the great demand, some journalists are writing about China issues today who do not have much experience with the topic. And, of course, not enough stories about the diversity of Chinese society find their way onto the front pages.

Instrument of the claim to power

Schumann, however, shifts the thematization of influence and infiltration by the Chinese party-state to the “deep-state” conspiracy talk. This is an untenable characterization of the empirical research on the United Front and political liaison work. The latter soberly documents these attempts as instruments of the Chinese party-state’s claim to power.

In addition to the book singled out by Schumann, “Hidden Hand,” there are numerous comprehensive studies or articles on this topic. The book “Spies and Lies” by Alex Joske also looks at the work of the Ministry of State Security, not least in the area of “elite capture,” the recruitment and integration of Western functionary elites for Beijing’s purposes.

It is clear to anyone who seriously studies these books that they are anything but conspiracy theories. They provide education in the best sense of the word and offer suggestions on how to better counter the party-state’s attempts to exert influence.

Certainly, not everyone who meets with agents of influence or participates in influence events is a collaborator of the party-state. But one has to put up with critical questions. It depends on the way it is done. Schumann courted the head of the Center for China and Globalisation (CCG) in a highly uncritical manner. But the Center’s vice-president, Victor Gao, for example, is spreading plans for the ethnic cleansing of Taiwan once Beijing has gained control of the island. Such an organization should not be rolled out the red carpet if one does not want to become an accessory to the legitimization of such policies.

Ego, money or conviction?

Regarding the founding of the China Bruecke, which he now chairs, Schumann writes: “The idea that there could be a circle of personalities from business, science, culture and politics who, out of their own conviction – without any inducement from Chinese state authorities – could advocate more channels of communication to and more constructive dealings with China was already beyond the imagination of many media representatives at the time”.

This imagination is worth testing. There are three main reasons for function elites to serve the interests of authoritarian systems: Ego, money, and persuasion. Is it conceivable that conviction from the kindness of their heart is by far the dominant motivation among individuals? Certainly. Example: Matthias Platzeck. The former head of the German Social Democratic Party (SPD) and prime minister of Brandenburg devoted himself to German-Russian bridge-building out of deep conviction. In the process, he became a pro-Kremlin voice, for example, in his function as chairman of the German-Russian Forum. But plausible candidates for this type of “convinced bridge-builder purely out of a good heart” tend to be few and far between.

Do Schumann and his associates in the China Bruecke and the BWA fall into this category? It might be that Schumann also spreads enthusiasm for Xi’s concept of a “Community of Common Destiny for Mankind” out of pure conviction or compares dependencies between Germany and China with dependencies within the family or a soccer team. But the fact that all of this also serves his interests as an adviser on China business probably helps. He is a bridge builder in the service of his own business.

China is ‘not a dictatorship’

The founding chair of the China Bruecke, Hans-Peter Friedrich, certainly appreciated the attention Beijing showed the ex-minister during the swan song of his career. Probably so much so that he faithfully went on record saying that China is not a dictatorship and that China Bruecke is equal to the Atlantic Bridge, notwithstanding that on the other side of China Bruecke is a totalitarian party-state and that this (despite all the flaws of US democracy) is a fundamental difference.

For the Chinese party-state, such blindness to the realities of dialogue and exchange with China is a stroke of luck. The party-state deliberately privileges a small number of “trustworthy” players such as the CCG as a hand-selected “civil society” in exchanges with foreign countries on the Chinese side, whereas regime-skeptical voices are completely excluded and not infrequently harassed.

The party-state also wants to control who participates in the dialogue on the German side and who organizes it. The Chinese NGO law codifies this claim to control. Unpleasant dialogue partners are denied visas, or are outright sanctioned. In spring 2021, for example, Beijing sanctioned the Mercator Institute for China Studies (Merics).

Organizations like the China Bruecke and the BWA are a gift to the party-state because they willingly play by Beijing’s rules. That pro-Beijing “bridge builders” are critically examined by journalists should be a matter of course in an open society. More transparency commitments could and should make this work easier. We need more investigative journalism on the magic combination of conviction, ego and business among German pro-Beijing function elites.

  • Geopolitik

Executive Moves

Anna Radjuk has taken over as EVP Industrialization HV Battery at Mercedes China. Previously, Radjuk worked for Daimler in Procurement & Supplier Chain Management.

Mike Groothoff has been Senior Manager & Head of MB Sales Planning & Reporting at Mercedes in China since June. For his new post, he is moving from Stuttgart to Beijing.

Is something changing in your organization? Let us know at heads@table.media!

So To Speak

Rolling competition

卷 – juǎn – rolling competition.

When you hear the word “rolling” in connection with China, do you primarily think of very thin dough patties, crispy Peking duck with strips of onion and cucumber, which are rolled up with spicy sauce into tasty wrap rolls? For Mandarin speakers, the topic of “rolling” (卷 juǎn) has been playing out in their heads in a completely different way for quite some time. In China, you don’t roll yourself; you get rolled – in the fierce competition in the densely populated empire, where coveted resources are scarce, for example, spots at prestigious universities.

Originally, the neologism 内卷 nèijuǎn entered the Chinese vocabulary a few years ago. It borrows a technical term from the social sciences to describe societies with limited resources and strong internal competition. China’s urban population picked up the term and found it a label for the current zeitgeist – the feeling that the young have to struggle ever harder just to achieve a lower quality of life than previous generations, be it in education, housing or marriage.

The word 内卷 nèijuǎn thus describes a kind of competition revolving around itself, a roll inward, so to speak, just as the term suggests, which literally means “to roll inward” (内 nèi “inward” + 卷 juǎn “roll / roll in / roll-up”). The end of the story is that everyone has to do more for the same result. Like a show on stage, where a few audience members stand up to get an even better view of the stage, which ends up with everyone present having to get up from their seats to get the same view of the spectacle as they had sitting down. In the meantime, the somewhat unwieldy 内卷 nèijuǎn has grinded down to the catchier everyday short version 卷 juǎn (as, for example, also in 卷袖子 juǎn xiùzi “to roll up the sleeves” or 卷裤腿 juǎn kùtuǐ “to roll up / roll up the pant legs”).

The buzzword is on everyone’s lips and can be used as a verb on the one hand. For example: 被新同事卷 bèi xīn tóngshì juǎn “to be rolled up by the new colleague” (i.e., to be drawn into a rivalry). On the other hand, it can also take on the role of an adjective: 新来的同事太卷了 xīn lái de tóngshì tài juǎn le “the new colleague / the new female colleague is all rolled up” (meaning: totally out for competition). In China, it is mainly urban parents who get caught up in the rolling maelstrom in the fight for the best possible future prospects for their offspring.

Because as we all know, the Chinese family gears revolve for many years around the successful passing of the infamous university entrance exam gaokao (高考 gāokǎo). And in this context, there are now quite a few roll-trigger words that make competitive moms’ and dads’ toenails curl up:

  • 学区房 xuéqūfáng – meaning apartments that are located in a neighborhood or district with popular schools and allow residents to attend them. A prime example is Beijing’s Haidian district (海淀区 Hǎidiànqū), home to famous universities such as Peking University (北京大学 Běijīng Dàxué) and Qinghua University (清华大学 Qīnghuá Dàxué). “Haidian parents” (海淀家长 Hǎidiàn jiāzhǎng) has become synonymous in China with competing guardians who push their offspring to excel.
  • 补习班 bǔxíbān are tutoring and extra courses designed to give students an advantage the classroom rivalry. However, if all the students take part in this knowledge race initiated by ambitious parents, the learning advantage in the grade comparison quickly disappears – a typical case of 内卷 nèijuǎn.
  • 鸡娃 jīwá – “to chick the offspring”: a neologism for pushing one’s children, derived from the idiom 打鸡血 dǎ jīxiě (literally, “to inject someone with chicken blood“), a metaphor for “being all fired up” or “like being on drugs.”
  • 不能让孩子输在起跑线上 – Bù néng ràng háizi shū zài qǐpǎoxiàn shàng “The child must not lose the race already at the starting line.” This well-known phrase is always used by “Neijuans” to justify “chickening” their own chicks. In the meantime, however, many moms and dads are sick of the saying.

The goal of the whole fuss, by the way, is to one day swim out of the Neijuan whirlpool and “get ashore” (上岸 shàng’àn). It is another popular expression that is the Chinese equivalent of the English “to feather one’s nest”. So once the chicks have successfully made it into the coop of the university of their dreams, the parents on the sidelines can finally take a breather, too. (At least until they start thinking about the career and choice of partner of the fledglings and then repeat the same cycle with the grandchildren…).

But many Chinese have now had enough of the struggle for the best spots. A change in thinking has already started in parts of society. As is well known, the often cited “lying flat” (躺平 tǎngpíng) has emerged as a countermovement, a kind of rejection attitude that has also been widely reported in Western media. The motto here is to wind down instead of constantly rolling up the competition: It’s better to roll up in your blankets than to continue to fill the role of the stressed-out success kid.

However, one must also be able to afford the lying-down lifestyle of a “tangpinger” first, which puts the younger generation in a dilemma. 卷又卷不动,躺又躺不平 (juǎn yòu juǎn bú dòng, tǎng yòu tǎng bù píng) they complain on the Internet: “no more urge to compete and unable to lie flat.” The solution many seek is to live at a 45-degree angle, called actually 45度人生 (sìshíwǔ dù rénshēng).

It’s a compromise between the vertical combat stance of the nèijuǎn (at a 90-degree angle) and the tǎngpíng refusal position in the horizontal (0 degrees). But perhaps the work-life balance will know other angles in the future? In any case, the search for them is in full swing in the Middle Kingdom.

Verena Menzel runs the online language school New Chinese in Beijing.

  • Society

China.Table editorial office

CHINA.TABLE EDITORIAL OFFICE

Licenses:
    Dear reader,

    Russian Deputy Foreign Minister Andrei Rudenko hurriedly flew to Beijing on Sunday. His colleague Qin Gang wanted to speak to him. Rudenko’s task then was to reassure their big ally after the Wagner rebellion.

    An unstable Russia is a horrifying thought for China. The two countries share not only more than four thousand kilometers of border, but also political values as a counter-model to the USA. Did Rudenko’s explanations reassure Qin? The Foreign Ministry is keeping quiet about that. What is certain, however, is that China’s interest in a quick end to the disastrous invasion is growing.

    Getting information and reviewing companies’ business reports – this is part of the core task of consulting firms in China as well. After all, it is the only way to evaluate how safe it is to do business with individual companies. But with the tightening of the so-called anti-espionage law, Chinese authorities can arbitrarily criminalize any gathering of information. A first taste of this already occurred in May, when Chinese authorities raided the offices of renowned international consultancies such as Bain & Company and the New York-based Mintz Group.

    “Any form of information gathering on the part of companies can now be construed as espionage,” says ex-journalist Peter Humphrey, who ran a consulting firm in Shanghai and has already had bad experiences with Chinese criminal law himself, in an interview with Marcel Grzanna. On 1 July, the stricter anti-espionage law comes into force.

    A look at China’s trade figures alone shows that the German economy is not doing so well. In 2022, China sold more goods worth 88 billion euros to Germany than vice versa. But can it be concluded that German goods are less popular in China than Chinese goods are in Germany?

    No, because many German companies actually produce for the Chinese market in China. If there were a domestic production report in addition to the trade figures, it would be clearly in favor of the German industry, analyzes China correspondent Frank Sieren.

    However, this does not exactly bode well for Germany as a production location. In terms of competition, Germany is slipping further and further down the rankings, and Chinese investors have also long since preferred other Western countries. So there is still a lot to do.

    Your
    Felix Lee
    Image of Felix  Lee

    Feature

    ‘This law makes due diligence virtually impossible’

    Peter Humphrey was arrested while working as a business investigator in China in 2018 along with his wife – before the tightening of the anti-espionage law.

    Because of your experience, you recently talked to EU parliamentarians in Brussels as a speaker. What did you achieve with your visit?

    I was able to present a letter from a prisoner in a Chinese prison. The writer had hidden the letter in a product he had packaged. It was then found in a shop in Europe. It said that he and others had to work twelve hours a day, seven days a week. Several more such letters were found. My visit to Brussels was to help advance EU legislation on corporate due diligence in their supply chains and a ban on imports of prison labor products.

    In China, the amendment to the anti-espionage law will apply from July 1. What does this mean for companies’ due diligence on their supply chains?

    This law makes due diligence virtually impossible. Any form of information gathering on the part of companies can now be construed as espionage if arbitrarily defined by investigators as a threat to national security. Previously, such activities could only be prosecuted as “illegal acquisition of personal information”. That then meant a few years in prison, as in my case. Now, in comparable cases, life imprisonment or even death sentences are threatened.

    With your company Chinawhys, you successfully gathered information in the country for many years. What exactly did you do there?

    We examined the founding documents and annual financial statements of companies that are publicly available in most countries. Plus the curricula vitae of individual shareholders, ownership records of companies and individuals, and anything else that was available online. We combined this data to assess whether it was safe to do business with a particular company or whether the risks were too high.

    Did you also collect non-publicly available information?

    Of course. For example, we counted trucks that drove through entrance gates of factory sites to be able to calculate production quantities. Or we spoke discreetly with people who possessed information. There is no doubt that this form of research will fall under the new law in the future.

    What marked the downfall for you and your wife?

    One of our clients allowed our investigation report on a certain person to fall into that person’s hands. She was very influential and activated her powerful contacts to get us arrested. The secret police accused us of spying but we fought back and we were charged with illegally acquiring personal information.

    Were your former clients aware of the risks that already existed at that time?

    There were those who were careful and asked us how we would collect information and asked us not to do anything illegal. Others tried to push us to go beyond the limits of what was allowed. But we always operated by legal means. Nevertheless, we were arrested.

    What options are left for the industry to operate in China in the future? Are VPN tunnels of any use in covering up tracks of one’s own investigations?

    I would advise against using such technical tricks. VPNs are illegal in China. That would make things even worse.

    What then?

    The only safe thing is to do investigations from outside the country. And I warn against choosing Hong Kong as a location. Information gathering there is now no longer safe either.

    And what do the clients of these service providers do? They are supplied with the procured information.

    If you think this through to the end, it means for them that they should not store their investigation reports, about potential business partners for example, inside China. To be on the safe side, the research results would have to be transmitted exclusively outside China and stored only outside China and in the managers’ heads. The reduced level of information that is safely obtainable now will mean that in the future foreign companies will be flying blind in their business operations.

    How should foreign companies behave under these circumstances in accordance with EU legislation?

    It is a dilemma. Companies will have to abandon some business projects in order not to violate EU due diligence regulations. But Chinese companies will suffer when business projects are canceled, and China may then realize that this is not in the country’s interest if domestic companies also earn less money. Access to Western technologies will also be reduced as a result. This may put pressure on Beijing to allow commercial due diligence in its own interest. But under Xi things are not likely to improve in this way.

    Peter Humphrey is a former Reuters correspondent and spent 15 years as a fraud investigator in China for Western companies. He is currently an external research partner at Harvard University’s Fairbank Center for Chinese Studies and a mentor to families of foreigners wrongfully detained in China.

    Statisticians neglect local production

    Production hall of the German company Festo in Shanghai.

    Germany’s economic dependence on China is a big issue in connection with Germany’s upcoming China strategy. However, some figures for assessing dependency are difficult to obtain, despite being essential for evaluating Sino-German economic relations.

    One example of this is the revenue of German companies in China. They are at least as important as the trade figures, yet curiously they are hardly ever published and discussed. And this is despite the fact that they are what give trade figures their meaning in the first place.

    The trade balance itself was negative, as it has been for the past few years – also in 2022 – and even reached an all-time low of 88 billion euros. This means the Chinese sold significantly more to Germany than the Germans did to China. This is not primarily because German products are no longer popular in China, but mainly because the Germans manufacture many products in China for the local market. On the one hand, politics has forced them to, and on the other hand, because it is cheaper to produce in China. In the trade statistics, they appear at most in the form of the occasional supplier product.

    Germany is leading in local production

    A 2020 study by the Mannheim-based Leibniz Centre for European Economic Research (ZEW) has tracked the revenues of the German economy in China up to 2017. It found that German companies generated revenue of almost a good 330 billion euros in China in 2017. The growth curve points steeply upwards. In 2000, it was only 25 billion.

    If there were local production figures in addition to the trade balance, it would clearly be in Germany’s favor.

    • German companies in China: The 330 billion euros in revenue were generated in China by 800,000 employees in 2,700 companies.
    • Chinese companies in Germany: They generated 31 billion euros in turnover, a tenth of what Germans generate in China. The study calls their output “extremely modest.” Around 57,000 people were employed across 342 companies.

    Highly relevant for the dependency debate

    The revenue of 330 billion euros from local production in 2017 was already higher than the trade revenue between China and Germany in 2022, which exceeded the 300 billion euro mark for the first time.

    As a rule of thumb, it can be said that the German economy’s dependence on China is about twice as high as the trade figures suggest at first glance. Often, the profits from these China sales are immediately reinvested in China. In other words, they do not flow back to Germany, but they do appear on the companies’ balance sheets.

    Germany is the big loser in the business location competition

    If politics and companies are frantically seeking alternatives to the Chinese market, they should not only focus on compensating for the trade business. Moreover, the figures do not support the widespread assumption that China is closing its market while the German market is leaving its doors wide open.

    And Germany is not becoming more attractive. “Germany is the big loser in the location competition,” the ZEW notes in another early 2023 study. Germany’s location factors for family businesses could not compete with those in top Western locations in North America, Western Europe and Scandinavia.

    Factories are difficult to relocate

    Last year, Germany even dropped four places. It now ranks 18th out of 21 developed countries surveyed, including Japan as the only Asian country. Only Hungary, Spain and Italy score worse than Germany. The probability that Chinese companies will increase their investments in Germany in the next few years is thus low.

    This leaves Germany more dependent on China than China is on Germany. This is because trade flows can be redirected more easily. German factories in China, on the other hand, cannot be easily relocated. Meanwhile, China is already actively diversifying. China’s trade with the Asean states in Southeast Asia grew twice as fast as its trade with Germany last year.

    • Economy
    • Investments

    News

    After Wagner rebellion: China gathers information on the situation

    Russia’s Deputy Foreign Minister Andrei Rudenko and his host Qin Gang on Sunday.

    Foreign Minister Qin Gang met with Russian Deputy Foreign Minister Andrei Rudenko in Beijing on Sunday. The leadership apparently wants to get a picture of the situation in the neighboring country. Qin asked for the meeting to “exchange views on Sino-Russian relations and international and regional issues of common concern,” according to the Chinese leadership.

    The statement does not mention the rebellion of mercenary leader Yevgeny Prigozhin. But Rudenko specifically flew from Moscow to Beijing on Sunday – apparently to reassure their ally. A stable Russia is an important part of President Xi Jinping’s foreign policy strategy. That is why he is standing by his neighbor, even though the invasion had already become a disaster before the rebellion.

    The rebellion of the Wagner mercenaries now seems alarming from Beijing’s perspective in several respects:

    • Should Putin lose control, the substantial political investment in the like-minded ruler would be lost. The stance of a successor government towards China would be uncertain.
    • The two countries share a 4,200-kilometer border. Chaos in Russia also affects China.
    • A permanently weakened or even divided Russia has exactly the opposite effect of what Xi intended with his support for Vladimir Putin. Instead of forming a threatening bloc against the US, China is left with fewer allies than before.

    Therefore, Xi is very much interested in Putin bringing the situation back under control after Prigozhin’s departure. To prevent a further weakening, his interest in Russia ending the lengthy war quickly and in a face-saving way is likely to be just as high. fin

    • Geopolitics
    • Qin Gang
    • Russland

    EU countries overtake China in battery investment

    According to EU figures, member states put three and a half more resources into battery technology than China last year. “Our first estimate was that we should be able to cover 80 to 90 percent of the battery needs of the European automotive industry by the end of the decade, and that is still our target,” Maroš Šefčovič, Vice-President of the EU Commission, told German daily Welt am Sonntag.

    The new BASF cathode material plant in the German state of Brandenburg closes a crucial gap in the European value chain, he said. Currently, about 30 large EV plants are planned in the EU, said Šefčovič. However, the production of active cathode and anode material has been lacking so far. He sees it as an opportunity for BASF to focus on precisely this bottleneck. fin

    • Autoindustrie
    • Batterien

    Germany scales back investment guarantees

    Government guarantees for investments by German companies in China have dropped significantly. “Without the change in the current federal government’s coverage practice, the federal government’s maximum liability for investments in China would be about five billion euros higher,” government circles in Berlin said on Friday. Since Economy Minister Robert Habeck took office, four applications from companies for coverage worth around 101 million euros had reportedly been rejected. Another four contracts worth 544 million euros have been refused to be extended.

    New applications worth around four billion euros were immediately ruled out because they were above the cap of three billion euros per company and target country introduced in November 2022. Four other applications worth 282 million euros for projects in Xinjiang province were put on hold.

    The federal government repeatedly emphasized that it did not want companies to decouple from China, but wanted to reduce risk. That is why, for example, fees for state protection of investments in countries with a “cluster risk” were increased from 0.5 to 0.55 percent of the investment volume, it said.

    However, investment guarantees have been decreasing for years. While there were 33 approvals in 2012, the number dropped to 15 with the change of government in 2017 and to twelve when the current German government coalition took office in 2021. rtr

    • Technology
    • Trade

    Harassment of human rights activists

    Thirteen times in two months – that’s how many times human rights activist Wang Quanzhang has been forced to move. He now lives in a rented apartment in a Beijing suburb where the electricity is frequently cut off, he told AP. The news agency adds that another lawyer has left Beijing due to the harassment. A third lawyer claimed to have been prevented from leaving his home several times by men loitering outside. A fourth lawyer and his wife had reportedly been arrested.

    All four are members of a group known as 709 Lawyers – the name refers to the date of 9 July 2015 when Chinese authorities cracked down on independent legal services and arrested hundreds. The four lawyers now also had their licenses revoked. They have since only been able to act in an advisory capacity. flee

    Ground temperatures above 70 degrees Celsius

    In northern China, the thermometer has exceeded 40 degrees for the third consecutive day. In response, the highest heat warning level has been declared in the capital Beijing and parts of the nearby provinces of Hebei, Henan, Shandong, Inner Mongolia and Tianjin.

    On Saturday, state media reported ground temperatures above 70 degrees in parts of Shandong province, China’s most populous province after Guangdong and a key area for grain farming. “Last year’s heatwave gives some sense of the risks to China’s food supply and the potential impact on prices,” an assessment by the analysis institute Capital Economics said.

    Meteorologists expect the heat wave in northern China to subside by Monday before it may intensify once again later this week. rtr

    • Climate change
    • Environment
    • Heatwave

    Opinion

    The lost honor of the China ‘bridge builders’

    By Thorsten Benner
    Thorsten Brenner, Politologe, analysiert im China.Table die Kommunikation deutscher Unternehmen im Umgang mit China und dessen Zwangsarbeits-Vorwürfen.
    Thorsten Benner is the Director of the Global Public Policy Institute (GPPi) in Berlin.

    Well-meaning China bridge builders as victims of a journalism “that believes it can compensate for a lack of knowledge and expertise by adopting the right attitude.” This is the story that Michael Schumann, Chair of China Bruecke (China Bridge) and Chair German Federal Association for Economic Development and Foreign Trade (BWA), tells us. “Advocates of Sino-German cooperation are defamed and their reputations tarnished,” says Schumann, much like in Heinrich Boell’s “The Lost Honour of Katharina Blum.”

    The sweeping attack against the work of journalists about China lacks any empirical basis. We are lucky to have some excellent and well-informed journalists working about and/or in China. The fact that many of them do not share Schumann’s undifferentiated enthusiasm for China is due to the real existing Chinese party state under Xi and is based on knowledge, expertise and personal experience.

    Naturally, there are some poorly researched and argumentative stories critical of Beijing and irritating stereotypes up to stigmatization with racist overtones. And of course, due to the great demand, some journalists are writing about China issues today who do not have much experience with the topic. And, of course, not enough stories about the diversity of Chinese society find their way onto the front pages.

    Instrument of the claim to power

    Schumann, however, shifts the thematization of influence and infiltration by the Chinese party-state to the “deep-state” conspiracy talk. This is an untenable characterization of the empirical research on the United Front and political liaison work. The latter soberly documents these attempts as instruments of the Chinese party-state’s claim to power.

    In addition to the book singled out by Schumann, “Hidden Hand,” there are numerous comprehensive studies or articles on this topic. The book “Spies and Lies” by Alex Joske also looks at the work of the Ministry of State Security, not least in the area of “elite capture,” the recruitment and integration of Western functionary elites for Beijing’s purposes.

    It is clear to anyone who seriously studies these books that they are anything but conspiracy theories. They provide education in the best sense of the word and offer suggestions on how to better counter the party-state’s attempts to exert influence.

    Certainly, not everyone who meets with agents of influence or participates in influence events is a collaborator of the party-state. But one has to put up with critical questions. It depends on the way it is done. Schumann courted the head of the Center for China and Globalisation (CCG) in a highly uncritical manner. But the Center’s vice-president, Victor Gao, for example, is spreading plans for the ethnic cleansing of Taiwan once Beijing has gained control of the island. Such an organization should not be rolled out the red carpet if one does not want to become an accessory to the legitimization of such policies.

    Ego, money or conviction?

    Regarding the founding of the China Bruecke, which he now chairs, Schumann writes: “The idea that there could be a circle of personalities from business, science, culture and politics who, out of their own conviction – without any inducement from Chinese state authorities – could advocate more channels of communication to and more constructive dealings with China was already beyond the imagination of many media representatives at the time”.

    This imagination is worth testing. There are three main reasons for function elites to serve the interests of authoritarian systems: Ego, money, and persuasion. Is it conceivable that conviction from the kindness of their heart is by far the dominant motivation among individuals? Certainly. Example: Matthias Platzeck. The former head of the German Social Democratic Party (SPD) and prime minister of Brandenburg devoted himself to German-Russian bridge-building out of deep conviction. In the process, he became a pro-Kremlin voice, for example, in his function as chairman of the German-Russian Forum. But plausible candidates for this type of “convinced bridge-builder purely out of a good heart” tend to be few and far between.

    Do Schumann and his associates in the China Bruecke and the BWA fall into this category? It might be that Schumann also spreads enthusiasm for Xi’s concept of a “Community of Common Destiny for Mankind” out of pure conviction or compares dependencies between Germany and China with dependencies within the family or a soccer team. But the fact that all of this also serves his interests as an adviser on China business probably helps. He is a bridge builder in the service of his own business.

    China is ‘not a dictatorship’

    The founding chair of the China Bruecke, Hans-Peter Friedrich, certainly appreciated the attention Beijing showed the ex-minister during the swan song of his career. Probably so much so that he faithfully went on record saying that China is not a dictatorship and that China Bruecke is equal to the Atlantic Bridge, notwithstanding that on the other side of China Bruecke is a totalitarian party-state and that this (despite all the flaws of US democracy) is a fundamental difference.

    For the Chinese party-state, such blindness to the realities of dialogue and exchange with China is a stroke of luck. The party-state deliberately privileges a small number of “trustworthy” players such as the CCG as a hand-selected “civil society” in exchanges with foreign countries on the Chinese side, whereas regime-skeptical voices are completely excluded and not infrequently harassed.

    The party-state also wants to control who participates in the dialogue on the German side and who organizes it. The Chinese NGO law codifies this claim to control. Unpleasant dialogue partners are denied visas, or are outright sanctioned. In spring 2021, for example, Beijing sanctioned the Mercator Institute for China Studies (Merics).

    Organizations like the China Bruecke and the BWA are a gift to the party-state because they willingly play by Beijing’s rules. That pro-Beijing “bridge builders” are critically examined by journalists should be a matter of course in an open society. More transparency commitments could and should make this work easier. We need more investigative journalism on the magic combination of conviction, ego and business among German pro-Beijing function elites.

    • Geopolitik

    Executive Moves

    Anna Radjuk has taken over as EVP Industrialization HV Battery at Mercedes China. Previously, Radjuk worked for Daimler in Procurement & Supplier Chain Management.

    Mike Groothoff has been Senior Manager & Head of MB Sales Planning & Reporting at Mercedes in China since June. For his new post, he is moving from Stuttgart to Beijing.

    Is something changing in your organization? Let us know at heads@table.media!

    So To Speak

    Rolling competition

    卷 – juǎn – rolling competition.

    When you hear the word “rolling” in connection with China, do you primarily think of very thin dough patties, crispy Peking duck with strips of onion and cucumber, which are rolled up with spicy sauce into tasty wrap rolls? For Mandarin speakers, the topic of “rolling” (卷 juǎn) has been playing out in their heads in a completely different way for quite some time. In China, you don’t roll yourself; you get rolled – in the fierce competition in the densely populated empire, where coveted resources are scarce, for example, spots at prestigious universities.

    Originally, the neologism 内卷 nèijuǎn entered the Chinese vocabulary a few years ago. It borrows a technical term from the social sciences to describe societies with limited resources and strong internal competition. China’s urban population picked up the term and found it a label for the current zeitgeist – the feeling that the young have to struggle ever harder just to achieve a lower quality of life than previous generations, be it in education, housing or marriage.

    The word 内卷 nèijuǎn thus describes a kind of competition revolving around itself, a roll inward, so to speak, just as the term suggests, which literally means “to roll inward” (内 nèi “inward” + 卷 juǎn “roll / roll in / roll-up”). The end of the story is that everyone has to do more for the same result. Like a show on stage, where a few audience members stand up to get an even better view of the stage, which ends up with everyone present having to get up from their seats to get the same view of the spectacle as they had sitting down. In the meantime, the somewhat unwieldy 内卷 nèijuǎn has grinded down to the catchier everyday short version 卷 juǎn (as, for example, also in 卷袖子 juǎn xiùzi “to roll up the sleeves” or 卷裤腿 juǎn kùtuǐ “to roll up / roll up the pant legs”).

    The buzzword is on everyone’s lips and can be used as a verb on the one hand. For example: 被新同事卷 bèi xīn tóngshì juǎn “to be rolled up by the new colleague” (i.e., to be drawn into a rivalry). On the other hand, it can also take on the role of an adjective: 新来的同事太卷了 xīn lái de tóngshì tài juǎn le “the new colleague / the new female colleague is all rolled up” (meaning: totally out for competition). In China, it is mainly urban parents who get caught up in the rolling maelstrom in the fight for the best possible future prospects for their offspring.

    Because as we all know, the Chinese family gears revolve for many years around the successful passing of the infamous university entrance exam gaokao (高考 gāokǎo). And in this context, there are now quite a few roll-trigger words that make competitive moms’ and dads’ toenails curl up:

    • 学区房 xuéqūfáng – meaning apartments that are located in a neighborhood or district with popular schools and allow residents to attend them. A prime example is Beijing’s Haidian district (海淀区 Hǎidiànqū), home to famous universities such as Peking University (北京大学 Běijīng Dàxué) and Qinghua University (清华大学 Qīnghuá Dàxué). “Haidian parents” (海淀家长 Hǎidiàn jiāzhǎng) has become synonymous in China with competing guardians who push their offspring to excel.
    • 补习班 bǔxíbān are tutoring and extra courses designed to give students an advantage the classroom rivalry. However, if all the students take part in this knowledge race initiated by ambitious parents, the learning advantage in the grade comparison quickly disappears – a typical case of 内卷 nèijuǎn.
    • 鸡娃 jīwá – “to chick the offspring”: a neologism for pushing one’s children, derived from the idiom 打鸡血 dǎ jīxiě (literally, “to inject someone with chicken blood“), a metaphor for “being all fired up” or “like being on drugs.”
    • 不能让孩子输在起跑线上 – Bù néng ràng háizi shū zài qǐpǎoxiàn shàng “The child must not lose the race already at the starting line.” This well-known phrase is always used by “Neijuans” to justify “chickening” their own chicks. In the meantime, however, many moms and dads are sick of the saying.

    The goal of the whole fuss, by the way, is to one day swim out of the Neijuan whirlpool and “get ashore” (上岸 shàng’àn). It is another popular expression that is the Chinese equivalent of the English “to feather one’s nest”. So once the chicks have successfully made it into the coop of the university of their dreams, the parents on the sidelines can finally take a breather, too. (At least until they start thinking about the career and choice of partner of the fledglings and then repeat the same cycle with the grandchildren…).

    But many Chinese have now had enough of the struggle for the best spots. A change in thinking has already started in parts of society. As is well known, the often cited “lying flat” (躺平 tǎngpíng) has emerged as a countermovement, a kind of rejection attitude that has also been widely reported in Western media. The motto here is to wind down instead of constantly rolling up the competition: It’s better to roll up in your blankets than to continue to fill the role of the stressed-out success kid.

    However, one must also be able to afford the lying-down lifestyle of a “tangpinger” first, which puts the younger generation in a dilemma. 卷又卷不动,躺又躺不平 (juǎn yòu juǎn bú dòng, tǎng yòu tǎng bù píng) they complain on the Internet: “no more urge to compete and unable to lie flat.” The solution many seek is to live at a 45-degree angle, called actually 45度人生 (sìshíwǔ dù rénshēng).

    It’s a compromise between the vertical combat stance of the nèijuǎn (at a 90-degree angle) and the tǎngpíng refusal position in the horizontal (0 degrees). But perhaps the work-life balance will know other angles in the future? In any case, the search for them is in full swing in the Middle Kingdom.

    Verena Menzel runs the online language school New Chinese in Beijing.

    • Society

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