It was not too long ago that I visited Alibaba’s headquarters in Hangzhou. The foreign journalists were proudly shown the company’s achievements, current projects and ideas for the future. It was all very impressive, Alibaba’s success with all its sub-companies like Ant Financial. And almost every sentence had one name in it: Jack Ma. Behind every success, behind every innovation at Alibaba was supposedly the company founder and boss himself.
But all this seems like something from a different age: Jack Ma has just announced his complete withdrawal from the company. And what would have been tantamount to the downfall of the corporate empire during my visit is now seen as liberation. Xi Jinping has sent the former superstar of the tech industry to the sidelines. In his analysis, Finn Mayer-Kuckuk shows how Ma became one of the most prominent victims of the Xi Doctrine – and why this should also give German investors food for thought.
In our second analysis, we look at the China-dominated Asian Infrastructure Investment Bank. It is only too keen to become a serious alternative to existing financial institutions, especially as a counterpart to the US-led World Bank. To achieve this, the AIIB advertises its high lending standards. With success: Germany is also a member of the AIIB and holds the largest voting rights after China, Russia and India, with around four percent.
Marcel Grzanna has taken a look at the supposedly high standards in a specific case in Cambodia – and found out: In practice, the supposedly high AIIB standards are astonishingly flexibly interpreted. The German government now also wants to investigate the accusations.
Jack Ma is visiting Thailand, according to social media, after reporters last identified Tokyo as his home. This means he is staying in neighboring countries – not in China. In Tokyo, he is apparently busy collecting art and spending much of his time at the yacht club or on his ship. Ma conspicuously stays away from Alibaba – the company he founded and stood for.
Jack Ma’s behavior fits with his formal withdrawal from control of Ant Group, Alibaba’s financial arm (China.Table reported). After making a critical speech in Shanghai in October 2020, the government has made life difficult for him and his companies. Things have been quiet around Jack Ma. In December, he stepped down from the presidency of the entrepreneurs association of Zhejiang. At the age of 59, he would be young enough to continue to provide impetus or actively manage his companies.
Ma’s withdrawal from the business world indicates that his name is now a burden on business in China. Ant is currently aiming for a second IPO attempt – and it seems to be working better without Ma. At the time of Alibaba’s IPO in New York in 2014, things were very different. Back then, the urbane, original Ma was a guarantee for international success.
Xi Jinping has asserted himself against the country’s tech barons. Ma’s speech in 2020 reportedly left him infuriated. Ma portrayed the country’s regulators as backward, the state banks as old-fashioned, the system as inflexible. He also quoted Xi and interpreted the quote in his own way. Instead of political control, he saw the future in the self-regulation of the technology industry. Such ideas are now taboo in China. The primacy of politics is cemented.
The developments around Ma are thus part of Xi Jinping’s turn away from prioritizing economic freedom. They fit into a larger picture. In terms of foreign policy, the clearer threats against Taiwan and the alliance with Russia are also part of this picture. All of this would have been too risky for previous leaders, as it calls trade and international cooperation into question.
Internally, Xi justifies the blow against the technology world with his idea of “common prosperity“; after all, the company founders are now billionaires. This is supposedly a return to socialist ideas. Ultimately, however, this is not really about communism either, but at best about a more social market economy, i.e., a rejection of the worst excesses of turbo-capitalism and rising inequality (China.Table reported). And in truth, behind this pretty-sounding phrase lies only the preservation of power.
There could have been common prosperity without silencing Jack Ma. Ma’s real mistake was his overly brash behavior toward the party. The other billionaire in the Chinese tech world with the same name, Tencent’s Pony Ma, recognized the signs of the new era better and willingly surrendered to the party. He became a model company founder.
Pony Ma accepted a seat as a deputy in China’s sham parliament, the People’s Congress, where he immediately demanded tougher regulation of the Internet industry. As a reward, the government did not dress Pony Ma down and only mildly regulated Tencent. Yet Tencent is similar in size and has a similarly strong financial arm.
The direct comparison with Tencent shows that the harsh treatment of Ma was primarily a matter of power. That does not mean, however, that the crackdown on the Internet industry over the past two and a half years was not also based on factual issues. With it, China has made a leap in the regulation of technology and finance.
The dominant position of Alipay and its competitor Tencent in the economic landscape would certainly have alerted politicians in other countries as well. Anyone who moves such vast amounts of money should be regulated like a bank. Tech regulation was also overdue: Companies that know so much about their customers’ habits must be transparent about them. It was also right to stop Ant Financial’s IPO: The company wanted to be listed as a tech firm, even though its business model includes lending and capital management.
These good reasons for the crackdown on Alibaba make it difficult to evaluate the events. Defenders of Chinese government action can always point to the fact that the country’s economy needed to become more social and required greater supervision. Critics see this as the end of the unconditional priority for wealth creation under leaders from Deng Xiaoping in the late 1970s to Hu Jintao in the early 2010s.
This point should be of more concern and receive more attention from the perspective of German business. Xi will not be satisfied with what he has achieved. The tech crackdown may have lost momentum; the primacy of party politics over all other concerns remains. As sensible as tech regulation is: In China, it changes nothing about the arbitrariness and irrationality of the ruling party. After all, the ruling party continues to be exempt from any efforts to become transparent.
The non-governmental organization Equitable Cambodia (EC) strongly pointed out extortions and threats in Cambodia’s microcredit sector. But it received no attention, as the delegation from the Chinese-dominated Asian Infrastructure Investment Bank (AIIB) traveled to the country in early October. “We were told we were not allowed to accompany the delegation for our own safety. Absolutely unbelievable,” EC Director Eang Vuthy told China.Table.
The bank investigated the allegations against possible recipients of substantial million-dollar loans from the AIIB on the ground: Accusations involved predatory lending and abusive debt collection practices. But instead of Vuthy and his team, who have been working intensively on the issue for years, the bank chose its own advisors to accompany them – whose safety it apparently did not see at risk.
The loans to two micro-finance institutions amounting to 100 million and 75 million US dollars have already been approved, although it has not yet been decided whether they will actually flow (China.Table reported) Also because non-governmental organizations have put pressure on the European shareholders of the AIIB and managed to arrange a review. However, the exclusion of Equitable Cambodia (EC) and other independent institutions such as the human rights organization Licadho raises questions.
Especially since other major investors are more critical. The German KfW banking group has already withdrawn, and the independent complaints body of the World Bank’s private sector arm (IFC) is also reviewing its involvement in the sector. “The AIIB appeals to its high lending standards. But now, where it really matters, its actions seem non-transparent and inconsistent,” says sinologist Nora Sausmikat, responsible for campaigns on multilateral financial institutions at the China desk of the Cologne-based nonprofit Urgewald. “Why doesn’t it take the concerns seriously?”
Sausmikat criticizes that the bank’s delegation that investigated the allegations against micro-donors during a visit to Cambodia from Sept. 27 to Oct. 5 appeared to have been very customer-friendly. “The fact is that they apparently used their argument of wanting to protect the organizations and those affected as an excuse for avoiding dialogue with those affected.”
When it was founded in 2015, the AIIB indeed closely followed the lending criteria of other multilateral investment banks. This was one of the reasons why Germany, for example, joined as a member. Germany holds the largest voting rights after China, Russia and India, with around four percent.
In practice, however, the AIIB standards on public access to information on environmental and social impacts are “so open and flexible in design that project managers have great freedom to arbitrarily decide when and what is made public,” criticized environmental economist Korinna Horta in a commentary on the state of affairs of the German Bundestag’s Scientific Services on the standards of the World Bank and the AIIB.
“The approval of these projects (in Cambodia) shows that the AIIB has not fulfilled its due diligence obligations,” reads a joint statement from eight civil society organizations. The question that arises is: What interest would the AIIB have in handing out loans whose recipients do not comply with human rights standards? It claims to be an alternative to other development banks and does not need any doubts about its integrity.
“Emerging markets are looking for international quality standards at the AIIB. These are also important for cooperation with other international financial partners,” Ludger Schuknecht, the German vice president of the AIIB, recently emphasized in an interview with China.Table. At the bank, much emphasis would be placed on consensus among all members. At the same time, the statutes grant the AIIB president, the Chinese national Jin Liqun, considerable freedoms. He has the authority to single-handedly grant loans to the private sector of up to 100 million US dollars and to public applicants of up to 200 million US dollars. His decisions do not require formal consensus.
Although each of the twelve members of the board of directors can demand individual decisions to be reviewed by the board, this would be made more difficult by the problematic information rules, stresses Urgewald. In general, the aim is for the board of directors to take care of the “big picture,” while leaving the day-to-day business to the president and his management. This does not ensure adequate oversight by the board of directors.
It is said that the German government takes the concerns expressed very seriously. The management has been asked about the concerns expressed. They said to have taken note of the concerns, but no decision had yet been made on the further course of action. “The German government will continue to closely monitor the projects in question and work to ensure that the AIIB’s high credit standards are implemented in accordance with the bank’s regulations,” a spokeswoman told China.Table.
China’s ambassador to Berlin expressed his outrage at the way Germany wants to revamp its China policy. “The paper gives the impression that it is guided primarily by ideology. To me, this smells suspiciously of a Cold War mentality,” Ken Wu said in an interview with the German newspaper Handelsblatt. Currently, drafts of a China strategy are available from the Federal Foreign Office and Ministry for Economic Affairs and Climate Action (China.Table reported).
Wu criticized that the German deliberations “hyped up” competition and a confrontation between China and Germany to such an extent that it no longer had anything to do with reality. China’s ambassador fears that the German government could lose its independence and completely follow the China policy of the United States. “And these, as we know, aim at suppressing and containing China,” Wu said.
He also disagrees with the introduction of mandatory Covid testing for travelers from the People’s Republic (China.Table reported). “It seems to me that there is discrimination involved,” Wu complained. However, China itself insists on testing when entering the People’s Republic, including PCR tests. rad
The first drafts of the future China strategy of the Federal Foreign Office and the Ministry of Economics have been leaked to the public. What is known does not bode well for our country and especially for our economy. Its propagated “values-based foreign and trade policy” quickly leads to ideological bigotry. Nor does it do any justice to the historically evolved complexity of the world and the real balance of power. The G7 countries account for just ten percent of the global population and 45 percent of global income, both with a downward trend.
An interest-based foreign and trade policy, on the other hand, does not focus on what separates us, but on the benefits of joint exchange from the perspective of German – national and economic – interests. This in no way means relativizing the value of human rights and peace. But it does require recognizing the limitations of the available means and pursuing a policy of sound judgment and proportionality within the framework of a balanced overall strategy. Moral indignation is no substitute for rational policy.
The draft from the Foreign Office assumes that Germany is in a “systemic competition” with China. In contrast, leading representatives of large German multinational corporations emphasized economic competition and partnership with China in their recently made public statement in the German newspaper Frankfurter Allgemeine Zeitung. Incidentally, in a recent article for Foreign Affairs, the German chancellor speaks of “competing models of government” and rightly emphasizes, in Germany’s interest, that China’s rise cannot be a justification for isolating the country from the West.
The realization that China is an authoritarian party state is not new. As is well known, the successful economic reform and opening policy launched by Deng Xiaoping in 1978 has not changed this, not even during Deng’s time. Despite his distinctly autocratic leadership style, economic prosperity remains the dominant basis of legitimacy for the ruling party under Xi Jinping. This is an important difference from other autocracies. Not least, the recent radical change of course in Covid policy can be taken as an indication of this.
The paper from the Federal Ministry for Economic Affairs and Climate Action focuses on economic “dependence” on China. A narrative that has been in vogue, especially since Russia’s invasion of Ukraine. However, Germany’s economic relations with China cannot be compared, qualitatively or quantitatively, with its completely one-sided dependence on Russian gas. The factual situation is clearly different.
An example of this is Germany’s foreign trade with China. China is an important, but not a dominant, trading partner for Germany. It is roughly the same size as with the USA and is significantly lower than the trade volume with EU countries.
The situation is similar for direct investment. Chinese investments in Germany amounted to just under 50 billion euros in 2020, which is five percent of all Chinese foreign direct investment. They are thus not only, as the Bundestag’s scientific service writes, “at the lower end” of all Chinese foreign investment, but also rank only 11th among all foreign direct investment in Germany. So-called critical infrastructure is hardly affected.
A different assessment must be made of the partially high import ratio from China of 70 percent and more, especially for electronics supplies to selected German entrepreneurs in the electrical and automotive industries. Overall, around one-third of all German electronics imports in 2021 came from China. A similar picture can be seen in the import ratio for critical raw materials, in particular graphite, magnesium and rare earth elements.
In these cases, diversification is certainly indicated. However, this is only possible on condition that a core element of the German prosperity model of recent decades – low-cost imports that enable exports with high domestic value added – is not damaged in the long term. Greater economic independence cannot be an end in itself, nor can it be bought by restricting trade to so-called value partners.
A similar situation applies to the cluster risk of German companies in China, above all in the automotive industry. Here, too, diversification makes sense once alternative sales markets have been found. Otherwise, the one-sided reduction of dependency only means a loss of prosperity for German companies and employees.
A very open economy like Germany’s, where the sum of exports and imports accounts for around 80 percent of gross domestic product, must have a very strong interest in the continuation of globalization. We share this interest with China, which, as an economy four times the size of Germany, still has a degree of openness of around 50 percent, while that of the USA is only around 30 percent. It is no wonder that the importance of globalization is viewed differently, regardless of the political system.
In contrast, the foreign and economic ministries cultivate an image of China that judges China mainly on the basis of human rights violations against the Uyghurs in Xinjiang, Beijing’s rigid actions against Hong Kong and sabre-rattling on the Taiwan issue. But this is too short-sighted and shows a lack of understanding of China’s actual development over the past four decades. Not only China’s economic progress, but above all its related social progress, tells a different story.
In the past 40 years, China has lifted around 800 million people out of abject poverty. Life expectancy today – as in the USA – is 77 years and has more than doubled in the aforementioned period. Average per capita income has increased 35-fold over the same period, and infant mortality is only slightly higher than in Germany. Consequently, no country can boast a greater leap in development in the Human Development Index than China: From rank 103 in 1990 to rank 79 today.
These astonishing successes, which are unparalleled in economic history, raise the interesting question of how an autocratic party state with a controlled, state-capitalist economy managed to achieve this. Perhaps the fundamental answer lies in the fact that China’s development path does not follow the West’s historical patterns of a far-reaching simultaneity of market economy and democracy.
The convergence thesis has always been an arrogance and illusion cultivated by the West. There is much to suggest that China’s economic reform process has been successful because it is linked to the continuity of Chinese civilization and institutions of an authoritarian elite society with a high level of competition, and because it has left behind the Maoist chaos with its egalitarianism.
Rolf D. Cremer was Dean and Vice President of the China Europe International Business School in Shanghai for many years.
Horst Loechel is a Professor of Economics and Head of the Sino-German Center at the Frankfurt School of Finance and Management.
The Year of the Rabbit is just around the corner. In many Asian countries, preparations for the Chinese New Year are already underway. The man in the photo is working on a lantern in Bandung, Indonesia, under the anticipatory gaze of a horde of rabbits. Chinese New Year begins on January 22 and ushers in the Year of the Water Rabbit.
In China.Table of January 9, 2023, we misquoted an obituary on the website of the Chinese Academy of Engineering. The translation was based on the German version of the text and named “inadequate medical treatment” as the cause of death of a civil engineer. In fact, it merely stated 因病医治无效, the usual phrase for deaths due to illness, literally “due to illness for which treatment did not help (anymore).” However, it is correct that the academy laments a large number of deaths related to the Covid wave.
It was not too long ago that I visited Alibaba’s headquarters in Hangzhou. The foreign journalists were proudly shown the company’s achievements, current projects and ideas for the future. It was all very impressive, Alibaba’s success with all its sub-companies like Ant Financial. And almost every sentence had one name in it: Jack Ma. Behind every success, behind every innovation at Alibaba was supposedly the company founder and boss himself.
But all this seems like something from a different age: Jack Ma has just announced his complete withdrawal from the company. And what would have been tantamount to the downfall of the corporate empire during my visit is now seen as liberation. Xi Jinping has sent the former superstar of the tech industry to the sidelines. In his analysis, Finn Mayer-Kuckuk shows how Ma became one of the most prominent victims of the Xi Doctrine – and why this should also give German investors food for thought.
In our second analysis, we look at the China-dominated Asian Infrastructure Investment Bank. It is only too keen to become a serious alternative to existing financial institutions, especially as a counterpart to the US-led World Bank. To achieve this, the AIIB advertises its high lending standards. With success: Germany is also a member of the AIIB and holds the largest voting rights after China, Russia and India, with around four percent.
Marcel Grzanna has taken a look at the supposedly high standards in a specific case in Cambodia – and found out: In practice, the supposedly high AIIB standards are astonishingly flexibly interpreted. The German government now also wants to investigate the accusations.
Jack Ma is visiting Thailand, according to social media, after reporters last identified Tokyo as his home. This means he is staying in neighboring countries – not in China. In Tokyo, he is apparently busy collecting art and spending much of his time at the yacht club or on his ship. Ma conspicuously stays away from Alibaba – the company he founded and stood for.
Jack Ma’s behavior fits with his formal withdrawal from control of Ant Group, Alibaba’s financial arm (China.Table reported). After making a critical speech in Shanghai in October 2020, the government has made life difficult for him and his companies. Things have been quiet around Jack Ma. In December, he stepped down from the presidency of the entrepreneurs association of Zhejiang. At the age of 59, he would be young enough to continue to provide impetus or actively manage his companies.
Ma’s withdrawal from the business world indicates that his name is now a burden on business in China. Ant is currently aiming for a second IPO attempt – and it seems to be working better without Ma. At the time of Alibaba’s IPO in New York in 2014, things were very different. Back then, the urbane, original Ma was a guarantee for international success.
Xi Jinping has asserted himself against the country’s tech barons. Ma’s speech in 2020 reportedly left him infuriated. Ma portrayed the country’s regulators as backward, the state banks as old-fashioned, the system as inflexible. He also quoted Xi and interpreted the quote in his own way. Instead of political control, he saw the future in the self-regulation of the technology industry. Such ideas are now taboo in China. The primacy of politics is cemented.
The developments around Ma are thus part of Xi Jinping’s turn away from prioritizing economic freedom. They fit into a larger picture. In terms of foreign policy, the clearer threats against Taiwan and the alliance with Russia are also part of this picture. All of this would have been too risky for previous leaders, as it calls trade and international cooperation into question.
Internally, Xi justifies the blow against the technology world with his idea of “common prosperity“; after all, the company founders are now billionaires. This is supposedly a return to socialist ideas. Ultimately, however, this is not really about communism either, but at best about a more social market economy, i.e., a rejection of the worst excesses of turbo-capitalism and rising inequality (China.Table reported). And in truth, behind this pretty-sounding phrase lies only the preservation of power.
There could have been common prosperity without silencing Jack Ma. Ma’s real mistake was his overly brash behavior toward the party. The other billionaire in the Chinese tech world with the same name, Tencent’s Pony Ma, recognized the signs of the new era better and willingly surrendered to the party. He became a model company founder.
Pony Ma accepted a seat as a deputy in China’s sham parliament, the People’s Congress, where he immediately demanded tougher regulation of the Internet industry. As a reward, the government did not dress Pony Ma down and only mildly regulated Tencent. Yet Tencent is similar in size and has a similarly strong financial arm.
The direct comparison with Tencent shows that the harsh treatment of Ma was primarily a matter of power. That does not mean, however, that the crackdown on the Internet industry over the past two and a half years was not also based on factual issues. With it, China has made a leap in the regulation of technology and finance.
The dominant position of Alipay and its competitor Tencent in the economic landscape would certainly have alerted politicians in other countries as well. Anyone who moves such vast amounts of money should be regulated like a bank. Tech regulation was also overdue: Companies that know so much about their customers’ habits must be transparent about them. It was also right to stop Ant Financial’s IPO: The company wanted to be listed as a tech firm, even though its business model includes lending and capital management.
These good reasons for the crackdown on Alibaba make it difficult to evaluate the events. Defenders of Chinese government action can always point to the fact that the country’s economy needed to become more social and required greater supervision. Critics see this as the end of the unconditional priority for wealth creation under leaders from Deng Xiaoping in the late 1970s to Hu Jintao in the early 2010s.
This point should be of more concern and receive more attention from the perspective of German business. Xi will not be satisfied with what he has achieved. The tech crackdown may have lost momentum; the primacy of party politics over all other concerns remains. As sensible as tech regulation is: In China, it changes nothing about the arbitrariness and irrationality of the ruling party. After all, the ruling party continues to be exempt from any efforts to become transparent.
The non-governmental organization Equitable Cambodia (EC) strongly pointed out extortions and threats in Cambodia’s microcredit sector. But it received no attention, as the delegation from the Chinese-dominated Asian Infrastructure Investment Bank (AIIB) traveled to the country in early October. “We were told we were not allowed to accompany the delegation for our own safety. Absolutely unbelievable,” EC Director Eang Vuthy told China.Table.
The bank investigated the allegations against possible recipients of substantial million-dollar loans from the AIIB on the ground: Accusations involved predatory lending and abusive debt collection practices. But instead of Vuthy and his team, who have been working intensively on the issue for years, the bank chose its own advisors to accompany them – whose safety it apparently did not see at risk.
The loans to two micro-finance institutions amounting to 100 million and 75 million US dollars have already been approved, although it has not yet been decided whether they will actually flow (China.Table reported) Also because non-governmental organizations have put pressure on the European shareholders of the AIIB and managed to arrange a review. However, the exclusion of Equitable Cambodia (EC) and other independent institutions such as the human rights organization Licadho raises questions.
Especially since other major investors are more critical. The German KfW banking group has already withdrawn, and the independent complaints body of the World Bank’s private sector arm (IFC) is also reviewing its involvement in the sector. “The AIIB appeals to its high lending standards. But now, where it really matters, its actions seem non-transparent and inconsistent,” says sinologist Nora Sausmikat, responsible for campaigns on multilateral financial institutions at the China desk of the Cologne-based nonprofit Urgewald. “Why doesn’t it take the concerns seriously?”
Sausmikat criticizes that the bank’s delegation that investigated the allegations against micro-donors during a visit to Cambodia from Sept. 27 to Oct. 5 appeared to have been very customer-friendly. “The fact is that they apparently used their argument of wanting to protect the organizations and those affected as an excuse for avoiding dialogue with those affected.”
When it was founded in 2015, the AIIB indeed closely followed the lending criteria of other multilateral investment banks. This was one of the reasons why Germany, for example, joined as a member. Germany holds the largest voting rights after China, Russia and India, with around four percent.
In practice, however, the AIIB standards on public access to information on environmental and social impacts are “so open and flexible in design that project managers have great freedom to arbitrarily decide when and what is made public,” criticized environmental economist Korinna Horta in a commentary on the state of affairs of the German Bundestag’s Scientific Services on the standards of the World Bank and the AIIB.
“The approval of these projects (in Cambodia) shows that the AIIB has not fulfilled its due diligence obligations,” reads a joint statement from eight civil society organizations. The question that arises is: What interest would the AIIB have in handing out loans whose recipients do not comply with human rights standards? It claims to be an alternative to other development banks and does not need any doubts about its integrity.
“Emerging markets are looking for international quality standards at the AIIB. These are also important for cooperation with other international financial partners,” Ludger Schuknecht, the German vice president of the AIIB, recently emphasized in an interview with China.Table. At the bank, much emphasis would be placed on consensus among all members. At the same time, the statutes grant the AIIB president, the Chinese national Jin Liqun, considerable freedoms. He has the authority to single-handedly grant loans to the private sector of up to 100 million US dollars and to public applicants of up to 200 million US dollars. His decisions do not require formal consensus.
Although each of the twelve members of the board of directors can demand individual decisions to be reviewed by the board, this would be made more difficult by the problematic information rules, stresses Urgewald. In general, the aim is for the board of directors to take care of the “big picture,” while leaving the day-to-day business to the president and his management. This does not ensure adequate oversight by the board of directors.
It is said that the German government takes the concerns expressed very seriously. The management has been asked about the concerns expressed. They said to have taken note of the concerns, but no decision had yet been made on the further course of action. “The German government will continue to closely monitor the projects in question and work to ensure that the AIIB’s high credit standards are implemented in accordance with the bank’s regulations,” a spokeswoman told China.Table.
China’s ambassador to Berlin expressed his outrage at the way Germany wants to revamp its China policy. “The paper gives the impression that it is guided primarily by ideology. To me, this smells suspiciously of a Cold War mentality,” Ken Wu said in an interview with the German newspaper Handelsblatt. Currently, drafts of a China strategy are available from the Federal Foreign Office and Ministry for Economic Affairs and Climate Action (China.Table reported).
Wu criticized that the German deliberations “hyped up” competition and a confrontation between China and Germany to such an extent that it no longer had anything to do with reality. China’s ambassador fears that the German government could lose its independence and completely follow the China policy of the United States. “And these, as we know, aim at suppressing and containing China,” Wu said.
He also disagrees with the introduction of mandatory Covid testing for travelers from the People’s Republic (China.Table reported). “It seems to me that there is discrimination involved,” Wu complained. However, China itself insists on testing when entering the People’s Republic, including PCR tests. rad
The first drafts of the future China strategy of the Federal Foreign Office and the Ministry of Economics have been leaked to the public. What is known does not bode well for our country and especially for our economy. Its propagated “values-based foreign and trade policy” quickly leads to ideological bigotry. Nor does it do any justice to the historically evolved complexity of the world and the real balance of power. The G7 countries account for just ten percent of the global population and 45 percent of global income, both with a downward trend.
An interest-based foreign and trade policy, on the other hand, does not focus on what separates us, but on the benefits of joint exchange from the perspective of German – national and economic – interests. This in no way means relativizing the value of human rights and peace. But it does require recognizing the limitations of the available means and pursuing a policy of sound judgment and proportionality within the framework of a balanced overall strategy. Moral indignation is no substitute for rational policy.
The draft from the Foreign Office assumes that Germany is in a “systemic competition” with China. In contrast, leading representatives of large German multinational corporations emphasized economic competition and partnership with China in their recently made public statement in the German newspaper Frankfurter Allgemeine Zeitung. Incidentally, in a recent article for Foreign Affairs, the German chancellor speaks of “competing models of government” and rightly emphasizes, in Germany’s interest, that China’s rise cannot be a justification for isolating the country from the West.
The realization that China is an authoritarian party state is not new. As is well known, the successful economic reform and opening policy launched by Deng Xiaoping in 1978 has not changed this, not even during Deng’s time. Despite his distinctly autocratic leadership style, economic prosperity remains the dominant basis of legitimacy for the ruling party under Xi Jinping. This is an important difference from other autocracies. Not least, the recent radical change of course in Covid policy can be taken as an indication of this.
The paper from the Federal Ministry for Economic Affairs and Climate Action focuses on economic “dependence” on China. A narrative that has been in vogue, especially since Russia’s invasion of Ukraine. However, Germany’s economic relations with China cannot be compared, qualitatively or quantitatively, with its completely one-sided dependence on Russian gas. The factual situation is clearly different.
An example of this is Germany’s foreign trade with China. China is an important, but not a dominant, trading partner for Germany. It is roughly the same size as with the USA and is significantly lower than the trade volume with EU countries.
The situation is similar for direct investment. Chinese investments in Germany amounted to just under 50 billion euros in 2020, which is five percent of all Chinese foreign direct investment. They are thus not only, as the Bundestag’s scientific service writes, “at the lower end” of all Chinese foreign investment, but also rank only 11th among all foreign direct investment in Germany. So-called critical infrastructure is hardly affected.
A different assessment must be made of the partially high import ratio from China of 70 percent and more, especially for electronics supplies to selected German entrepreneurs in the electrical and automotive industries. Overall, around one-third of all German electronics imports in 2021 came from China. A similar picture can be seen in the import ratio for critical raw materials, in particular graphite, magnesium and rare earth elements.
In these cases, diversification is certainly indicated. However, this is only possible on condition that a core element of the German prosperity model of recent decades – low-cost imports that enable exports with high domestic value added – is not damaged in the long term. Greater economic independence cannot be an end in itself, nor can it be bought by restricting trade to so-called value partners.
A similar situation applies to the cluster risk of German companies in China, above all in the automotive industry. Here, too, diversification makes sense once alternative sales markets have been found. Otherwise, the one-sided reduction of dependency only means a loss of prosperity for German companies and employees.
A very open economy like Germany’s, where the sum of exports and imports accounts for around 80 percent of gross domestic product, must have a very strong interest in the continuation of globalization. We share this interest with China, which, as an economy four times the size of Germany, still has a degree of openness of around 50 percent, while that of the USA is only around 30 percent. It is no wonder that the importance of globalization is viewed differently, regardless of the political system.
In contrast, the foreign and economic ministries cultivate an image of China that judges China mainly on the basis of human rights violations against the Uyghurs in Xinjiang, Beijing’s rigid actions against Hong Kong and sabre-rattling on the Taiwan issue. But this is too short-sighted and shows a lack of understanding of China’s actual development over the past four decades. Not only China’s economic progress, but above all its related social progress, tells a different story.
In the past 40 years, China has lifted around 800 million people out of abject poverty. Life expectancy today – as in the USA – is 77 years and has more than doubled in the aforementioned period. Average per capita income has increased 35-fold over the same period, and infant mortality is only slightly higher than in Germany. Consequently, no country can boast a greater leap in development in the Human Development Index than China: From rank 103 in 1990 to rank 79 today.
These astonishing successes, which are unparalleled in economic history, raise the interesting question of how an autocratic party state with a controlled, state-capitalist economy managed to achieve this. Perhaps the fundamental answer lies in the fact that China’s development path does not follow the West’s historical patterns of a far-reaching simultaneity of market economy and democracy.
The convergence thesis has always been an arrogance and illusion cultivated by the West. There is much to suggest that China’s economic reform process has been successful because it is linked to the continuity of Chinese civilization and institutions of an authoritarian elite society with a high level of competition, and because it has left behind the Maoist chaos with its egalitarianism.
Rolf D. Cremer was Dean and Vice President of the China Europe International Business School in Shanghai for many years.
Horst Loechel is a Professor of Economics and Head of the Sino-German Center at the Frankfurt School of Finance and Management.
The Year of the Rabbit is just around the corner. In many Asian countries, preparations for the Chinese New Year are already underway. The man in the photo is working on a lantern in Bandung, Indonesia, under the anticipatory gaze of a horde of rabbits. Chinese New Year begins on January 22 and ushers in the Year of the Water Rabbit.
In China.Table of January 9, 2023, we misquoted an obituary on the website of the Chinese Academy of Engineering. The translation was based on the German version of the text and named “inadequate medical treatment” as the cause of death of a civil engineer. In fact, it merely stated 因病医治无效, the usual phrase for deaths due to illness, literally “due to illness for which treatment did not help (anymore).” However, it is correct that the academy laments a large number of deaths related to the Covid wave.
