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Strategy here, strategy there. When dealing with the People’s Republic of China, a far-sighted course of action is essential, otherwise, the clever Chinese will take advantage of any contradiction. There is simply no one who can fool them. We should simply allow ourselves this concession in 2022.
This makes it all the more frustrating that German policymakers are still working on a stringent line, while Beijing has known for years exactly what it wants and what it is doing. At least the publication of Germany’s future China strategy is supposed to be imminent.
In today’s interview, the government security adviser Stefan Mair explains how important such a paper is and how important its implementation is in dealing with China. It is not just about China, but also about Germany’s general security strategy.
However, it makes sense that guidelines are not set in stone, but can be subject to necessary change. While the basic principles should not be tampered with, it is important to react flexibly to changes. Companies operating in China are well aware of this.
Adidas, for example. The sporting goods manufacturer sells significantly fewer running shoes and shirts than it did just a few years ago. A change of strategy is clearly needed. But hopefully the company won’t distance itself from its concern about forced labor in Xinjiang, which arguably contributed to plummeting sales. After all, this concern is one of the fundamental principles that Adidas cannot compromise.
Mr. Mair, the German government plans to present its national security strategy in early 2023. Let’s first clarify the term: What is a security strategy?
A strategy analyzes a country’s environment, what threats it must expect and what changes it must adapt to. It then answers the question of what the national goals are within the framework of a security strategy and tries to bring the two together: How can we achieve our goals in this environment, what instruments and means do we have for this, where do we set the priorities.
What distinguishes security strategy from military strategy?
Security policy is more than just defense and military policy. It claims to play a role in shaping large parts of foreign policy. This covers a wide field, including foreign climate policy. In principle, it is a foreign policy strategy rather than a security strategy.
What will be derived from this strategy? For example, I am thinking of the formation of the Bundeswehr or an arms export control law.
The formation of the Bundeswehr is derived more from the white paper. I assume that the Ministry of Defense will continue to present such a document in the future. The security strategy tends to set our foreign policy priorities and indicate by which means we intend to take them forward. It’s supposed to be a lean document; the task force is talking about 25 to 40 pages. You can’t go into too much detail in that. I see it more as an umbrella document for other strategies, such as the China strategy, which the German government is currently working on.
Other countries regularly present security strategies. Why has this not happened in Germany so far?
So far, this has failed in every coalition negotiation. The call for a security strategy has been around for a long time, for example in the Bundestag or the security policy community. I was pleased when the current coalition agreed to develop a foreign policy strategy.
Where were our previous security concepts written down?
They were reflected more in internal documents in the chancellery, foreign ministry and defense ministry. But there was no public debate about how we define security and where we set priorities. The closest we ever came to doing that was with the white paper.
You also personally advise the federal government on the strategy. Let us participate: Where do our national security interests lie?
The assumption that we are surrounded by friends and can reduce our military capabilities is no longer true. We again face an immediate military threat emanating from Russia. In addition, we must expect other threats, above all the systemic rivalry with China, which has not yet translated into a military conflict situation, but which cannot be ruled out in the Indo-Pacific. International terrorism still exists, and we cannot neglect volatile world regions that are not currently so much in focus, for example, the Sahel.
Why is the systemic conflict with China more dangerous than the current conflict with Russia?
Above all, because China, unlike Russia, has the economic means to sustain a prolonged conflict. This is also reflected in the recently published American security strategy. China has both a different concept of its social system and the world order, and it has the economic potential to play a central role in revising that order. Russia is a different story. It is standing on economic clay feet, is dependent on the export of raw materials, and is unable to generate sustainable growth.
What follows from your description of China for our security strategy?
We will maintain the triad in China policy. According to it, the country is an indispensable partner for mastering global challenges such as climate change, an economic and technological competitor, and a systemic rival, which is reflected in particular in human rights and regulatory issues.
Let us look at threats in a smaller dimension: The Russians allow the Israelis to fly over Syria to bomb Iranian arms shipments for Hezbollah. At the same time, the Israelis refrain from supporting Ukraine, even though they are a democracy. How can such ad hoc cross-alliances be accounted for in a security strategy?
Incredibly difficult. We have to get used to the idea of living in a very uncertain and confusing world, where exactly these kinds of strange alliances will emerge. We have to turn more to countries that cannot be assigned to one side or the other. And we have to learn to deal with them, reach out to them, and include them in our political approaches. We have neglected this in the past. The Chancellor has often visited China and the USA, but rarely other parts of the world.
Russia, the USA and other countries are again discussing the use of nuclear weapons. To what extent will nuclear weapons policy be part of our German security strategy?
Nuclear weapons are still a taboo issue. The German chancellor made it clear in his Zeitenwende speech that Germany will continue to participate in nuclear sharing, but if we see a new administration in the US in 2024, we will probably have to talk about a European nuclear shield of our own. Macron has made an offer to talk about this in 2020.
Will it not be too late if we only start thinking about this in 2024?
Yes, we should do it by 2024 at the latest. But I believe that there will be more comprehensive and intensive discussions on this next year.
The USA has just presented its National Security Strategy, France will follow shortly. These are Germany’s most important partners. To what extent were we involved in the development of these strategies?
I just came back from Washington, where I met one of the authors of the US security strategy. The Americans have had many discussions with their partners, including us. Conversely, we are doing the same with our European and American partners.
How long is a safety strategy valid?
I would like to see us adopt a rhythm similar to the US: with each new federal government, the security strategy would be revised or reformulated.
Stefan Mair holds a doctorate in political science and economics. Since 2020, he has been director of the German Institute for International and Security Affairs and executive chairman of the German Institute for International and Security Affairs SWP. The SWP advises the German parliament and government on foreign and security policy issues. Previously, Mair was a member of the executive board of the Federation of German Industries (BDI).
Bjoern Gulden has his work cut out for him. The long-time Puma boss will take over as CEO of Adidas in January. Adidas’ previous CEO, Kasper Rorsted, had to leave the company two weeks ago after six years at the helm. Rorsted was once celebrated for his business successes, but was lately considered a hapless corporate leader. Both have a lot to do with Adidas’ China business.
Sales in the important Chinese market once again slumped by 27 percent in the third quarter. According to Adidas, strict Covid measures are partly responsible for the weak performance. But domestic Chinese brands seem to suffer less. Most recently, for example, the Chinese company Anta became the largest sports brand in China for the first time.
Anta reported sales of 25.9 billion yuan (3.5 billion euros) for the first half of the year, a year-on-year increase of 13.8 percent. This was enough to overtake the previous industry leader Nike (China.Table reported). Adidas, on the other hand, slipped to fourth place in the ranking, as Li-Ning, the second major domestic brand in China, also sold more than the Germans.
For a long time, Adidas did really well in China. Between 2009 and 2019, the Group doubled its market share to more than 20 percent. But then the problems began. Like other Western companies, Adidas came under pressure after it was denounced as a member of the Better Cotton Initiative (BCI). In 2020, the BCI identified a rising risk of forced labor on cotton farms in the western Chinese region of Xinjiang in a study.
Numerous companies issued statements stating their concern about forced labor and that they would no longer source cotton from Xinjiang – or never did in the first place. What met with approval from Western human rights activists had the opposite effect in China: Companies that sell us shoes and clothing but do not even use our cotton have no business here, was the tenor in China’s state media (China.Table reported). Chinese manufacturers like Anta used this wave of nationalism to gain market share (China.Table reported).
However, the fact that Adidas even performs worse in direct comparison to Nike in China has other reasons, which the outgoing Rorsted also admitted recently in an interview with the German business newspaper Handelsblatt. “Of course we made mistakes in China,” the manager said (China.Table reported). At times, Adidas did not stock the right products for the market. “We were not good enough at understanding consumers,” Rorsted said. Local buyers, for example, wanted a “Chinese touch.”
Allison Malmsten from the consulting firm Daxue Consulting is also convinced: Nike suffers significantly less than Adidas on the Chinese market. “The reason for this seems to be that Adidas has a less clear market positioning in the eyes of Chinese consumers,” Malmsten told China.Table. For those who want affordable quality products, there are domestic brands. And Nike is clearly perceived as a premium brand, he adds. “Adidas is wedged between these two positions,” Malmsten says. She advises future company CEO Gulden to make Adidas more innovative again. Above all, she says, the group needs to strengthen its collaboration with Chinese designers and athletes.
At least Gulden does not have to face the challenges in China alone. He has Adrian Siu at his side as China boss. Siu knows both Adidas and the Chinese market very well. He worked his way through the ranks at Adidas in China until he left the company in 2019. Siu has been back since April and is considered a firefighter by industry insiders who already has made some right decisions. The personnel move is expected to help bring back better times for Adidas in China. Joern Petring
Partial lockdown in Guangzhou, more deaths in Beijing and the President as a contact: On Monday, the Covid situation in China deteriorated further. In particular, the Covid infection of Hong Kong’s chief executive John Lee is likely to be a topic of conversation in the coming days. After all, Lee sat next to China’s President Xi Jinping at the APEC summit in Thailand just a few hours before he tested positive – both without a mask.
Lee was tested at the airport on his return to Hong Kong on Sunday evening and immediately went into quarantine. Nothing had been announced on Monday about a possible infection of Xi, who sat about one and a half meters away from Lee during a closed meeting of the APEC countries. Xi had not left the People’s Republic for more than two years because of the pandemic, before traveling abroad again for the first time a few months ago. Shortly before the APEC summit, Xi met with numerous heads of government at the G20 meeting in Bali (China.Table reported).
Meanwhile, the Chinese capital reported two more Covid-related deaths on Monday. According to reports, two very old persons, aged 88 and 91, have died. Over the weekend, Beijing authorities had already significantly tightened Covid measures in the city and closed numerous public facilities. (China.Table reported.)
In parts of Guangzhou in southern China, a Covid-related lockdown has been in effect again since Monday. In the city’s Baiyun district, the 3.7 million residents must present a negative PCR test whenever they want to leave the house. Public transportation is no longer running, and schools and universities have switched to distance learning. The measures will initially be in effect up to and including Friday. grz
The Chinese-led Asian Infrastructure Investment Bank (AIIB) sparked sharp criticism from human rights activists by granting a loan in Cambodia. Eight civil society organizations from Southeast Asia and Europe complained about the grant of 175 million US dollars to Cambodian microfinance institutions. The sector drew attention in Cambodia in recent years with unfair practices that deprived numerous microcredit borrowers of their livelihoods.
These loans were made this spring to two microfinance services whose practices have led to numerous debt-driven land sales by borrowers in the past. A study commissioned by the German Federal Ministry for Economic Cooperation and Development (BMZ) previously found an “alarmingly high” and “unacceptable” number of such land sales. In the past five years, 167,000 cases had been reported.
Cambodian microfinance providers often require land titles as collateral. This practice is considered unethical. “It is disappointing that the AIIB chose to begin investing in Cambodia’s microlending sector at a time of heightened scrutiny, as credible reports from CSOs, journalists and investor-funded research has found widespread land dispossession, loss of livelihood, health impacts, loss of land belonging to Indigenous Peoples, food insecurity, and child labor,” a joint statement from the human rights organizations said.
Germany is one of the founding members of the AIIB and has a voting share of just over four percent. The People’s Republic, as the bank’s founder, enjoys the greatest influence with a voting right of 26.5 percent. grz
The German Embassy in Beijing continues to abstain from self-censorship on Chinese social media. After it had already cleverly commemorated the Tiananmen Square massacre a few weeks ago, it now drew attention to the Nobel Peace Prize winner Liu Xiaobo, who died in Chinese custody.
The embassy uses the 50th anniversary of diplomatic relations for this purpose, recalling formative events in both countries from each of the past 50 years. In commemoration of 2012, the German representative office published two photos on Sunday. One shows Mo Yan becoming the first Chinese to be awarded the Nobel Prize for Literature ten years ago, despite being considered a writer loyal to the regime.
Next to it, the embassy placed a picture of Liu Xiaobo’s empty chair from his 2010 honor in Oslo. At the time, the chair symbolized the laureate’s absence due to imprisonment. “Two years earlier, when another Chinese writer was awarded the Nobel Peace Prize, his seat remained empty: Liu Xiaobo was not allowed to attend the award ceremony. In 2017, Liu Xiaobo died of liver cancer after many years in prison. In 2018, his wife was able to go to Germany for medical treatment after eight years of house arrest,” the embassy wrote. The post received over 2000 likes and more than 400 comments.
Liu was the initiator of Charter08, a political manifesto for constitutional change and democratization in the People’s Republic. Shortly before its publication, Liu was arrested and later sentenced to eleven years in prison.
Germany’s new ambassador in Beijing, Patricia Flor, explained in an interview with China.Table a few weeks back that she wanted to make greater use of social media as a communication channel. grz
The number of foreigners living in China is very low in international comparison and has further declined recently. In late 2020, there were only about 845,000 foreigners living in China, accounting for just 0.06 percent of its total population according to China’s 2020 Population Census. This is an exceptionally low share not only compared to Western countries such as the United States (15.4 percent), Germany (15.7 percent) or France (12.8 percent) but also compared to China’s East Asian neighbors Japan (2.0 percent) or South Korea (2.3 percent), or even compared to the similarly populous – but economically less developed – India (0.4 percent) (UNDESA, 2022).
In several Chinese provinces, including some of its most international ones like Beijing, and Shanghai, the number of foreigners has even been substantially lower in 2020 as compared to 2010. The number of foreigners living in Beijing, for example, halved from more than 91,000 persons to less than 45,000 persons, and the number of foreigners living in Shanghai also fell by almost a third. In China as a whole, the number of foreigners from economically more advanced countries has declined substantially over the same period. This is true in particular for foreigners coming from China’s East Asian neighbors South Korea (-51 percent) and Japan (-44 percent), but also for foreigners from Western countries such as France (-39 percent), the US (-23 percent) and Germany (-22 percent).
The decline in the number of foreigners living in China partly started already before the COVID-19 pandemic. And over the by now almost three years of the pandemic, with stringent travel restrictions and repeated strict lockdowns imposed by the Chinese government, the decline in the number of foreigners living in China has accelerated substantially and it is likely to continue even further. In a survey among foreigners in Shanghai carried out by That’s Shanghai Magazine during the strict and long lockdown of the municipality this April, 85 percent of the 950 respondents of the survey said that the lockdown has made them rethink their future in China, and 22 percent and 26 percent of respondents said they want to leave China as soon as possible or within 12 months, respectively. Only a minor share of 15 percent of respondents still planned to stay in China for the long haul.
Since the outbreak of the pandemic, related travel and entry restrictions and associated human resource challenges have been among the most pressing operational business challenges for Western companies active in China. In particular, the restrictions have significantly exacerbated the problems many Western companies in China face in attracting and retaining foreign talent and have thus led to a further reduction of the number of foreign staff employed by Western companies in China. The reasons for companies’ difficulties in attracting and retaining foreign employees actually go beyond the Covid-19-related restrictions, however. They include excessive salary expectations, high living cost, especially for families in cities, poor air quality, strict media censorship, increasing resentment of the Chinese population towards foreigners, and international political tensions.
Despite COVID-19-related restrictions and increasing difficulties in retaining and recruiting foreign professionals to support their business operations in China, many Western companies continue to view China as a key market and an important investment location. Foreign direct investment inflows into China continued to grow even during the years of the pandemic and reached a new record level of more than 180 billion dollars in 2021 (UNCTAD, 2022). Investment plans of many Western companies in China have recently become more cautious with the local Omicron outbreaks and following strict lockdowns in Shanghai and several other Chinese provinces in spring 2022, however. So far, many companies have responded to the challenges of the pandemic by further increasing their localization efforts rather than reducing their China investments. They further expanded local sourcing and local R&D activities, and transferred technical and operational know-how and decision-making power increasingly to their Chinese subsidiaries.
The replacement of foreign by local employees is in part a natural, efficiency-enhancing process, in which Western firms take advantage of the growing reservoir of highly qualified Chinese workers with well-established local connections to reduce (labor) costs and leverage the specific knowledge and connections of local workers. However, travel restrictions and significant difficulties in attracting and retaining foreign employees have forced many companies to accelerate this process beyond what they consider optimal. In this case, the (partially) forced replacement of foreign experts by local talent may lead to substantial efficiency losses, e.g., in terms of international coordination, knowledge transfer within the multinational company or the diversity of views in decision-making processes.
By lowering information and transaction costs, international migrants and in particular, migrant experts, promote the international exchange of goods, capital and knowledge. For China as a whole, the declining number of foreign experts thus means that the country may miss opportunities for beneficial foreign trade and investments as well as for technology transfer and innovation, leading to losses in growth and development potential. In several key technological areas, Chinese companies are currently still far from the technological leadership that the Chinese government is striving for. And for many specific, especially technologically and qualitatively demanding, intermediate inputs companies in China are currently still dependent on imports and suppliers from outside China. To achieve its ambitious growth and development goals, China will therefore continue to rely on foreign trade and investments and the transfer of foreign knowledge.
Due mainly to their impact on international trade and investment, the negative consequences of China’s shrinking foreign workforce and foreign population may well spill over to the world economy. Europe with its many companies operating in China and intensive trade and investment relations is likely to be affected particularly strongly. The “people-to-people decoupling” spurred by travel restrictions and the declining number of foreigners in China more generally could become another amplifier of the more general economic and technological decoupling tendencies between China and the West. And it will further reduce mutual understanding between China and the West not only in business but also in politics and society at large.
Frank Bickenbach is Deputy Head of Research Center “International Trade and Investment” and a Senior Researcher of Research Center “Innovation and International Competition”.
Wan-Hsin Liu is a Senior Researcher in the Research Centers “International Trade and Investment” and “Innovation and International Competition” at the Kiel Institute for the World Economy. She is also the Coordinator at the Kiel Centre for Globalization.
This article is a much abridged and updated version of Bickenbach and Liu (2022) published in Intereconomics. This contribution is prepared in the context of the event series “Global China Conversations” of the Kiel Institute for the World Economy (IfW). On Thursday (11 a.m.-12 p.m. CET), Maximilian Butek, Chief Representative of Delegation of German Industry and Commerce Shanghai, and Wan-Hsin Liu, Senior Researcher at the Kiel Institute for the World Economy will discuss the topic: “Foreigners Leaving China: What Consequences for Multinationals and the Chinese Economy?”. Finn Mayer-Kuckuk, Chief Editor at China.Table will moderate the event. China.Table is the media partner of this event series.
With numerous public light displays throughout the country, the People’s Republic of China honored International Children’s Rights Day last Saturday. The day commemorates November 20, 1989, when the UN Convention on the Rights of the Child was adopted. Here, a high-rise complex in Wuhan is aglow. The date is not to be confused with World Children’s Day, which is celebrated annually on September 20.
Strategy here, strategy there. When dealing with the People’s Republic of China, a far-sighted course of action is essential, otherwise, the clever Chinese will take advantage of any contradiction. There is simply no one who can fool them. We should simply allow ourselves this concession in 2022.
This makes it all the more frustrating that German policymakers are still working on a stringent line, while Beijing has known for years exactly what it wants and what it is doing. At least the publication of Germany’s future China strategy is supposed to be imminent.
In today’s interview, the government security adviser Stefan Mair explains how important such a paper is and how important its implementation is in dealing with China. It is not just about China, but also about Germany’s general security strategy.
However, it makes sense that guidelines are not set in stone, but can be subject to necessary change. While the basic principles should not be tampered with, it is important to react flexibly to changes. Companies operating in China are well aware of this.
Adidas, for example. The sporting goods manufacturer sells significantly fewer running shoes and shirts than it did just a few years ago. A change of strategy is clearly needed. But hopefully the company won’t distance itself from its concern about forced labor in Xinjiang, which arguably contributed to plummeting sales. After all, this concern is one of the fundamental principles that Adidas cannot compromise.
Mr. Mair, the German government plans to present its national security strategy in early 2023. Let’s first clarify the term: What is a security strategy?
A strategy analyzes a country’s environment, what threats it must expect and what changes it must adapt to. It then answers the question of what the national goals are within the framework of a security strategy and tries to bring the two together: How can we achieve our goals in this environment, what instruments and means do we have for this, where do we set the priorities.
What distinguishes security strategy from military strategy?
Security policy is more than just defense and military policy. It claims to play a role in shaping large parts of foreign policy. This covers a wide field, including foreign climate policy. In principle, it is a foreign policy strategy rather than a security strategy.
What will be derived from this strategy? For example, I am thinking of the formation of the Bundeswehr or an arms export control law.
The formation of the Bundeswehr is derived more from the white paper. I assume that the Ministry of Defense will continue to present such a document in the future. The security strategy tends to set our foreign policy priorities and indicate by which means we intend to take them forward. It’s supposed to be a lean document; the task force is talking about 25 to 40 pages. You can’t go into too much detail in that. I see it more as an umbrella document for other strategies, such as the China strategy, which the German government is currently working on.
Other countries regularly present security strategies. Why has this not happened in Germany so far?
So far, this has failed in every coalition negotiation. The call for a security strategy has been around for a long time, for example in the Bundestag or the security policy community. I was pleased when the current coalition agreed to develop a foreign policy strategy.
Where were our previous security concepts written down?
They were reflected more in internal documents in the chancellery, foreign ministry and defense ministry. But there was no public debate about how we define security and where we set priorities. The closest we ever came to doing that was with the white paper.
You also personally advise the federal government on the strategy. Let us participate: Where do our national security interests lie?
The assumption that we are surrounded by friends and can reduce our military capabilities is no longer true. We again face an immediate military threat emanating from Russia. In addition, we must expect other threats, above all the systemic rivalry with China, which has not yet translated into a military conflict situation, but which cannot be ruled out in the Indo-Pacific. International terrorism still exists, and we cannot neglect volatile world regions that are not currently so much in focus, for example, the Sahel.
Why is the systemic conflict with China more dangerous than the current conflict with Russia?
Above all, because China, unlike Russia, has the economic means to sustain a prolonged conflict. This is also reflected in the recently published American security strategy. China has both a different concept of its social system and the world order, and it has the economic potential to play a central role in revising that order. Russia is a different story. It is standing on economic clay feet, is dependent on the export of raw materials, and is unable to generate sustainable growth.
What follows from your description of China for our security strategy?
We will maintain the triad in China policy. According to it, the country is an indispensable partner for mastering global challenges such as climate change, an economic and technological competitor, and a systemic rival, which is reflected in particular in human rights and regulatory issues.
Let us look at threats in a smaller dimension: The Russians allow the Israelis to fly over Syria to bomb Iranian arms shipments for Hezbollah. At the same time, the Israelis refrain from supporting Ukraine, even though they are a democracy. How can such ad hoc cross-alliances be accounted for in a security strategy?
Incredibly difficult. We have to get used to the idea of living in a very uncertain and confusing world, where exactly these kinds of strange alliances will emerge. We have to turn more to countries that cannot be assigned to one side or the other. And we have to learn to deal with them, reach out to them, and include them in our political approaches. We have neglected this in the past. The Chancellor has often visited China and the USA, but rarely other parts of the world.
Russia, the USA and other countries are again discussing the use of nuclear weapons. To what extent will nuclear weapons policy be part of our German security strategy?
Nuclear weapons are still a taboo issue. The German chancellor made it clear in his Zeitenwende speech that Germany will continue to participate in nuclear sharing, but if we see a new administration in the US in 2024, we will probably have to talk about a European nuclear shield of our own. Macron has made an offer to talk about this in 2020.
Will it not be too late if we only start thinking about this in 2024?
Yes, we should do it by 2024 at the latest. But I believe that there will be more comprehensive and intensive discussions on this next year.
The USA has just presented its National Security Strategy, France will follow shortly. These are Germany’s most important partners. To what extent were we involved in the development of these strategies?
I just came back from Washington, where I met one of the authors of the US security strategy. The Americans have had many discussions with their partners, including us. Conversely, we are doing the same with our European and American partners.
How long is a safety strategy valid?
I would like to see us adopt a rhythm similar to the US: with each new federal government, the security strategy would be revised or reformulated.
Stefan Mair holds a doctorate in political science and economics. Since 2020, he has been director of the German Institute for International and Security Affairs and executive chairman of the German Institute for International and Security Affairs SWP. The SWP advises the German parliament and government on foreign and security policy issues. Previously, Mair was a member of the executive board of the Federation of German Industries (BDI).
Bjoern Gulden has his work cut out for him. The long-time Puma boss will take over as CEO of Adidas in January. Adidas’ previous CEO, Kasper Rorsted, had to leave the company two weeks ago after six years at the helm. Rorsted was once celebrated for his business successes, but was lately considered a hapless corporate leader. Both have a lot to do with Adidas’ China business.
Sales in the important Chinese market once again slumped by 27 percent in the third quarter. According to Adidas, strict Covid measures are partly responsible for the weak performance. But domestic Chinese brands seem to suffer less. Most recently, for example, the Chinese company Anta became the largest sports brand in China for the first time.
Anta reported sales of 25.9 billion yuan (3.5 billion euros) for the first half of the year, a year-on-year increase of 13.8 percent. This was enough to overtake the previous industry leader Nike (China.Table reported). Adidas, on the other hand, slipped to fourth place in the ranking, as Li-Ning, the second major domestic brand in China, also sold more than the Germans.
For a long time, Adidas did really well in China. Between 2009 and 2019, the Group doubled its market share to more than 20 percent. But then the problems began. Like other Western companies, Adidas came under pressure after it was denounced as a member of the Better Cotton Initiative (BCI). In 2020, the BCI identified a rising risk of forced labor on cotton farms in the western Chinese region of Xinjiang in a study.
Numerous companies issued statements stating their concern about forced labor and that they would no longer source cotton from Xinjiang – or never did in the first place. What met with approval from Western human rights activists had the opposite effect in China: Companies that sell us shoes and clothing but do not even use our cotton have no business here, was the tenor in China’s state media (China.Table reported). Chinese manufacturers like Anta used this wave of nationalism to gain market share (China.Table reported).
However, the fact that Adidas even performs worse in direct comparison to Nike in China has other reasons, which the outgoing Rorsted also admitted recently in an interview with the German business newspaper Handelsblatt. “Of course we made mistakes in China,” the manager said (China.Table reported). At times, Adidas did not stock the right products for the market. “We were not good enough at understanding consumers,” Rorsted said. Local buyers, for example, wanted a “Chinese touch.”
Allison Malmsten from the consulting firm Daxue Consulting is also convinced: Nike suffers significantly less than Adidas on the Chinese market. “The reason for this seems to be that Adidas has a less clear market positioning in the eyes of Chinese consumers,” Malmsten told China.Table. For those who want affordable quality products, there are domestic brands. And Nike is clearly perceived as a premium brand, he adds. “Adidas is wedged between these two positions,” Malmsten says. She advises future company CEO Gulden to make Adidas more innovative again. Above all, she says, the group needs to strengthen its collaboration with Chinese designers and athletes.
At least Gulden does not have to face the challenges in China alone. He has Adrian Siu at his side as China boss. Siu knows both Adidas and the Chinese market very well. He worked his way through the ranks at Adidas in China until he left the company in 2019. Siu has been back since April and is considered a firefighter by industry insiders who already has made some right decisions. The personnel move is expected to help bring back better times for Adidas in China. Joern Petring
Partial lockdown in Guangzhou, more deaths in Beijing and the President as a contact: On Monday, the Covid situation in China deteriorated further. In particular, the Covid infection of Hong Kong’s chief executive John Lee is likely to be a topic of conversation in the coming days. After all, Lee sat next to China’s President Xi Jinping at the APEC summit in Thailand just a few hours before he tested positive – both without a mask.
Lee was tested at the airport on his return to Hong Kong on Sunday evening and immediately went into quarantine. Nothing had been announced on Monday about a possible infection of Xi, who sat about one and a half meters away from Lee during a closed meeting of the APEC countries. Xi had not left the People’s Republic for more than two years because of the pandemic, before traveling abroad again for the first time a few months ago. Shortly before the APEC summit, Xi met with numerous heads of government at the G20 meeting in Bali (China.Table reported).
Meanwhile, the Chinese capital reported two more Covid-related deaths on Monday. According to reports, two very old persons, aged 88 and 91, have died. Over the weekend, Beijing authorities had already significantly tightened Covid measures in the city and closed numerous public facilities. (China.Table reported.)
In parts of Guangzhou in southern China, a Covid-related lockdown has been in effect again since Monday. In the city’s Baiyun district, the 3.7 million residents must present a negative PCR test whenever they want to leave the house. Public transportation is no longer running, and schools and universities have switched to distance learning. The measures will initially be in effect up to and including Friday. grz
The Chinese-led Asian Infrastructure Investment Bank (AIIB) sparked sharp criticism from human rights activists by granting a loan in Cambodia. Eight civil society organizations from Southeast Asia and Europe complained about the grant of 175 million US dollars to Cambodian microfinance institutions. The sector drew attention in Cambodia in recent years with unfair practices that deprived numerous microcredit borrowers of their livelihoods.
These loans were made this spring to two microfinance services whose practices have led to numerous debt-driven land sales by borrowers in the past. A study commissioned by the German Federal Ministry for Economic Cooperation and Development (BMZ) previously found an “alarmingly high” and “unacceptable” number of such land sales. In the past five years, 167,000 cases had been reported.
Cambodian microfinance providers often require land titles as collateral. This practice is considered unethical. “It is disappointing that the AIIB chose to begin investing in Cambodia’s microlending sector at a time of heightened scrutiny, as credible reports from CSOs, journalists and investor-funded research has found widespread land dispossession, loss of livelihood, health impacts, loss of land belonging to Indigenous Peoples, food insecurity, and child labor,” a joint statement from the human rights organizations said.
Germany is one of the founding members of the AIIB and has a voting share of just over four percent. The People’s Republic, as the bank’s founder, enjoys the greatest influence with a voting right of 26.5 percent. grz
The German Embassy in Beijing continues to abstain from self-censorship on Chinese social media. After it had already cleverly commemorated the Tiananmen Square massacre a few weeks ago, it now drew attention to the Nobel Peace Prize winner Liu Xiaobo, who died in Chinese custody.
The embassy uses the 50th anniversary of diplomatic relations for this purpose, recalling formative events in both countries from each of the past 50 years. In commemoration of 2012, the German representative office published two photos on Sunday. One shows Mo Yan becoming the first Chinese to be awarded the Nobel Prize for Literature ten years ago, despite being considered a writer loyal to the regime.
Next to it, the embassy placed a picture of Liu Xiaobo’s empty chair from his 2010 honor in Oslo. At the time, the chair symbolized the laureate’s absence due to imprisonment. “Two years earlier, when another Chinese writer was awarded the Nobel Peace Prize, his seat remained empty: Liu Xiaobo was not allowed to attend the award ceremony. In 2017, Liu Xiaobo died of liver cancer after many years in prison. In 2018, his wife was able to go to Germany for medical treatment after eight years of house arrest,” the embassy wrote. The post received over 2000 likes and more than 400 comments.
Liu was the initiator of Charter08, a political manifesto for constitutional change and democratization in the People’s Republic. Shortly before its publication, Liu was arrested and later sentenced to eleven years in prison.
Germany’s new ambassador in Beijing, Patricia Flor, explained in an interview with China.Table a few weeks back that she wanted to make greater use of social media as a communication channel. grz
The number of foreigners living in China is very low in international comparison and has further declined recently. In late 2020, there were only about 845,000 foreigners living in China, accounting for just 0.06 percent of its total population according to China’s 2020 Population Census. This is an exceptionally low share not only compared to Western countries such as the United States (15.4 percent), Germany (15.7 percent) or France (12.8 percent) but also compared to China’s East Asian neighbors Japan (2.0 percent) or South Korea (2.3 percent), or even compared to the similarly populous – but economically less developed – India (0.4 percent) (UNDESA, 2022).
In several Chinese provinces, including some of its most international ones like Beijing, and Shanghai, the number of foreigners has even been substantially lower in 2020 as compared to 2010. The number of foreigners living in Beijing, for example, halved from more than 91,000 persons to less than 45,000 persons, and the number of foreigners living in Shanghai also fell by almost a third. In China as a whole, the number of foreigners from economically more advanced countries has declined substantially over the same period. This is true in particular for foreigners coming from China’s East Asian neighbors South Korea (-51 percent) and Japan (-44 percent), but also for foreigners from Western countries such as France (-39 percent), the US (-23 percent) and Germany (-22 percent).
The decline in the number of foreigners living in China partly started already before the COVID-19 pandemic. And over the by now almost three years of the pandemic, with stringent travel restrictions and repeated strict lockdowns imposed by the Chinese government, the decline in the number of foreigners living in China has accelerated substantially and it is likely to continue even further. In a survey among foreigners in Shanghai carried out by That’s Shanghai Magazine during the strict and long lockdown of the municipality this April, 85 percent of the 950 respondents of the survey said that the lockdown has made them rethink their future in China, and 22 percent and 26 percent of respondents said they want to leave China as soon as possible or within 12 months, respectively. Only a minor share of 15 percent of respondents still planned to stay in China for the long haul.
Since the outbreak of the pandemic, related travel and entry restrictions and associated human resource challenges have been among the most pressing operational business challenges for Western companies active in China. In particular, the restrictions have significantly exacerbated the problems many Western companies in China face in attracting and retaining foreign talent and have thus led to a further reduction of the number of foreign staff employed by Western companies in China. The reasons for companies’ difficulties in attracting and retaining foreign employees actually go beyond the Covid-19-related restrictions, however. They include excessive salary expectations, high living cost, especially for families in cities, poor air quality, strict media censorship, increasing resentment of the Chinese population towards foreigners, and international political tensions.
Despite COVID-19-related restrictions and increasing difficulties in retaining and recruiting foreign professionals to support their business operations in China, many Western companies continue to view China as a key market and an important investment location. Foreign direct investment inflows into China continued to grow even during the years of the pandemic and reached a new record level of more than 180 billion dollars in 2021 (UNCTAD, 2022). Investment plans of many Western companies in China have recently become more cautious with the local Omicron outbreaks and following strict lockdowns in Shanghai and several other Chinese provinces in spring 2022, however. So far, many companies have responded to the challenges of the pandemic by further increasing their localization efforts rather than reducing their China investments. They further expanded local sourcing and local R&D activities, and transferred technical and operational know-how and decision-making power increasingly to their Chinese subsidiaries.
The replacement of foreign by local employees is in part a natural, efficiency-enhancing process, in which Western firms take advantage of the growing reservoir of highly qualified Chinese workers with well-established local connections to reduce (labor) costs and leverage the specific knowledge and connections of local workers. However, travel restrictions and significant difficulties in attracting and retaining foreign employees have forced many companies to accelerate this process beyond what they consider optimal. In this case, the (partially) forced replacement of foreign experts by local talent may lead to substantial efficiency losses, e.g., in terms of international coordination, knowledge transfer within the multinational company or the diversity of views in decision-making processes.
By lowering information and transaction costs, international migrants and in particular, migrant experts, promote the international exchange of goods, capital and knowledge. For China as a whole, the declining number of foreign experts thus means that the country may miss opportunities for beneficial foreign trade and investments as well as for technology transfer and innovation, leading to losses in growth and development potential. In several key technological areas, Chinese companies are currently still far from the technological leadership that the Chinese government is striving for. And for many specific, especially technologically and qualitatively demanding, intermediate inputs companies in China are currently still dependent on imports and suppliers from outside China. To achieve its ambitious growth and development goals, China will therefore continue to rely on foreign trade and investments and the transfer of foreign knowledge.
Due mainly to their impact on international trade and investment, the negative consequences of China’s shrinking foreign workforce and foreign population may well spill over to the world economy. Europe with its many companies operating in China and intensive trade and investment relations is likely to be affected particularly strongly. The “people-to-people decoupling” spurred by travel restrictions and the declining number of foreigners in China more generally could become another amplifier of the more general economic and technological decoupling tendencies between China and the West. And it will further reduce mutual understanding between China and the West not only in business but also in politics and society at large.
Frank Bickenbach is Deputy Head of Research Center “International Trade and Investment” and a Senior Researcher of Research Center “Innovation and International Competition”.
Wan-Hsin Liu is a Senior Researcher in the Research Centers “International Trade and Investment” and “Innovation and International Competition” at the Kiel Institute for the World Economy. She is also the Coordinator at the Kiel Centre for Globalization.
This article is a much abridged and updated version of Bickenbach and Liu (2022) published in Intereconomics. This contribution is prepared in the context of the event series “Global China Conversations” of the Kiel Institute for the World Economy (IfW). On Thursday (11 a.m.-12 p.m. CET), Maximilian Butek, Chief Representative of Delegation of German Industry and Commerce Shanghai, and Wan-Hsin Liu, Senior Researcher at the Kiel Institute for the World Economy will discuss the topic: “Foreigners Leaving China: What Consequences for Multinationals and the Chinese Economy?”. Finn Mayer-Kuckuk, Chief Editor at China.Table will moderate the event. China.Table is the media partner of this event series.
With numerous public light displays throughout the country, the People’s Republic of China honored International Children’s Rights Day last Saturday. The day commemorates November 20, 1989, when the UN Convention on the Rights of the Child was adopted. Here, a high-rise complex in Wuhan is aglow. The date is not to be confused with World Children’s Day, which is celebrated annually on September 20.