IV Walther Leisler Kiep Symposium 2019

Berlin, Germany

June 24/25, 2019

Topic: China as a Global Competitor: Implications for Europe

On 25 June 2019 the Fourth Walther Leisler Kiep Symposium discussed the challenges and opportunities of China’s rise.

After generations of passive introspection, China is reappearing as an active power, engaging in foreign policy, staking out its geostrategic, territorial and technologic claims. The real competitor of the USA is no longer Russia. It is China – a China that is no longer imitating and copying western technology but taking the lead in some of the most advanced technologies: artificial intelligence, digital communication, bio-sciences, automotive solutions.

Two giants, the USA and China, overshadow a Europe that finds itself stuck uncomfortably in the middle. China is one of our most important markets. Europe – and even more so the USA – provides an important market for China. We are dependent on imports from China in some key technologies. We do not have a European champion to stand up to Huawei.

China has woken up. It is time we wake up from the dreams and illusions that we formed in our past. This Symposium has certainly shaken us up from some comfortable dreams. That is why we should all give our sincere thanks to those who organized this event and to those who let us share in their vast experience and wisdom.

For the full report from Dr. Rudolf Adam please click below

GLOBAL BRIDGES / Fourth Walther Leisler Kiep Symposium 2019 © Peter Adamik

We cannot continue economic openness if Chinese state capitalism gives unfair advantages to its national industry. We need reciprocity. European companies should be able to operate in China under similar conditions to Chinese companies operating in Europe. Our demands are basically similar to those of the USA, but our clout is much smaller. Can we bring the Chinese to accept global norms? We need to look for niches where we can preserve our unique competitiveness, such as new concepts of mobility, speech recognition or smart factories.

We are competitors both economically and technologically. Have we Europeans given sufficient attention to differences in values? Do our ideas about world order coincide with those of the Chinese: fair trade, human rights, the role of the state versus civic society, property rights, including intellectual property? The preum left by US-policy?

The present world order is a European order. The rise of China means competition about ethics, social attitudes, dedication, and discipline. Values are transmitted through families and schools. Can we expect the Chinese to share our present values concerning the environment, aesthetics, or ethics, particularly since we have lived through some fundamental changes of these values in our own societies? The Trump administration is hollowing out the validity of some essential international norms. Is this the moment for China to fill this vacuChina will try to redefine some rules of international behaviour. We all desire a rules-based international order, but who lays down those rules? Who enforces them? The same applies to international standards. We should compete with China, but are we prepared for an outcome in which China may emerge stronger than us? May China prove more attractive than our version of liberal democracy? Many politicians sympathise with the Chinese autocratic model. Could the future of international relations be more in the image of today’s China than of the USA or of the EU? We are expecting China to be a responsible stakeholder in the international system. But China may have different ideas about what that international system ought to be and how the stakes should be defined.

GLOBAL BRIDGES / Fourth Walther Leisler Kiep Symposium 2019 © Peter Adamik

We heard some reflective remarks: China achieves in one year what it takes Europe five years to achieve. China is more than a country – its dimensions are those of a continent. China has not only caught up. It has become an innovative, creative country. Germany invests around 3 billion US dollars on artificial intelligence, while China invests 150 billion – fifty times as much!

We need EU unity. Only together are we strong. The EU also needs an export strategy. Europe should become one single nation. My question would be: By when? Are we not far too late with such ambitious

aspirations? China wants to be a dominant power by 2049. Will the EU have a unified export strategy by then, let alone be one single nation? Inside the EU, we are partners, but at the same time we are competitors. The EU finds it difficult to give a common answer to the Belt and Road Initiative and it is bickering about arms exports to China. One of the reasons for Brexit is the British desire to explore new trading opportunities and become a truly “global Britain”, something they feel is not possible as an EU member.

There is little unity in the EU, but there is no unified Chinese position either. There are more internal divergences inside the CPC than meets the eye. There is strong leadership, but there are also heated discussions, though not in public. Decision making inside the CPC is difficult to understand.

Is Xi’s autocratic position a reflection of growing dissent behind closed doors?

Infrastructure development is taking place at breathtaking speed. China has the best, most reliable and efficient network of high speed trains. Airports have been built throughout the country. Beijing just opened a brand new airport after three years’ building time. That airport has thrice the capacity of the new airport in Berlin.

Demography and the environment may prove to be factors that severely limit future growth. The rigid introduction of the One-Child-Policy will inevitably lead to shortages of labor and a rapid aging of Chinese society. Labor costs are rising. (Another analysis spoke of the 10 million additional jobs that

GLOBAL BRIDGES / Fourth Walther Leisler Kiep Symposium 2019 © Peter Adamik

China has to create each year during the coming decades. There might be a certain contradiction here). China is facing some of the worst environmental degradation worldwide. Water, air and land are severely polluted.

China’s present should be seen against its past. The state still plays a strong role in the economy, but 50 years ago the government’s share in the economy was 100%. Initiatives, innovations, and ideas for new projects are being generated privately outside the state/party bureaucracy. China is subject to path dependency. 1.4 billion people have been liberalised, brought out of misery, given some hope of improved living conditions, and provided some basic medical care.

China’s growing wealth provides growing opportunities for other nations. In order to maintain this, China needs political stability.

It was said: The USA is at war with China – a trade war. This week, Foreign Affairs published an article titled Trump’s Trade War is the Wrong Way to Compete with China. Are we aware of what war implies? The aim of war is victory. Trump leaves no doubt that he loves winning and hates losers. But winning implies losing, victory implies defeat, and defeat involves humiliation, impotence, subjugation. Do we – or the USA – seriously mean to humiliate China?

Siemens sees China’s economy continue to grow until 2050. China is Siemens’ second largest market. The same is more or less true of Mercedes, BMW, VW, and BASF.

We were reminded of the wrong predictions about Japan and the Asian Tigers in the early 1990s. Could the same be true of China?

GLOBAL BRIDGES / Fourth Walther Leisler Kiep Symposium 2019 © Peter Adamik

We heard a lot about the Belt and Road Initiative. Each road is a two way street. The total investment involved in this project will top one trillion US dollars by 2025. 126 countries are involved in this project. It is not all plain sailing. Malaysia has pulled out and Sir Lanka is complaining. But upon completion, the project could generate more trade on a global scale. It offers a triple win solution: China, Europe and countries in Central Asia could profit. And beyond the economic and technologic aspects, it will initiate a “people to people process”.

Xi Jinping is a strong leader. He has positioned his country strategically for 2025 and 2049. His approach can be summed up as: China First.

China competes with lower prices and better conditions, just like the Japanese did some 40 years ago through MITI and JETRO. Does China aim at monopolistic market positions which will allow them to control prices and the rate of technological change, bar the way to later newcomers and thus strangle future competition? In some fields it looks like it. Artificial intelligence could be one such field. We need a European Huawei to avoid becoming exclusively dependent on Chinese components.

With one autocratic leader you can build an airport in three years, but are you able to identify and correct mistakes in time? Xi is opposed to democracy and to human rights. Under him, opposition means prison or torture.

We heard a resounding philippic against the CPC and Xi Jinping.

Subsidies for coal are different from subsidies for artificial intelligence. Forcing open entry into a hotly contested market is different from keeping alive moribund industries.

GLOBAL BRIDGES / Fourth Walther Leisler Kiep Symposium 2019 © Peter Adamik

Today, China presents itself as a functioning liberal market economy. How can the country reconcile that with five years plans made by central political authorities, or with long term strategic plans? Planning in China is infinitely more successful than in the Soviet Union: There are no shortages, there is rapid, continued growth at breathtaking speed, and there is broad innovation on a technologically competitive level.

One of the secrets of this success may be that central planning in China works with effective incentives, not rigid orders and the threat of punishment.

There are divergent views within party and government and they give rise to hotly contested arguments. But once a decision has been taken, it is rigidly implemented. How much competition is there within the Chinese system? Obviously, no criticism of Xi is allowed comparable to the sort of criticism leveled openly against Trump, May, Macron or Merkel. China will not change – neither its system nor its habits.

Party control of private business is increasing. Planning may not be prescriptive, but economic development is continuously and closely supervised and, if needed, corrected by the state/party.

Do we need more planning in our own economy? Not the sort of fumbling bureaucratic interference, but indicative, innovative planning that emphasizes a time horizon that is normally well beyond the horizons of individual entrepreneurs? We had a long and intensive debate. There is no absolute contradiction between planning and free markets. You need both political planning and creative entrepreneurial spontaneity. It is not a question of either/or but of finding the optimum combination. It is a question of degree rather than of black and white.

GLOBAL BRIDGES / Fourth Walther Leisler Kiep Symposium 2019 © Peter Adamik

China is not bent on conquering the world, but it demands treatment on a par with other great powers. Maybe it aspires to a position of primus inter pares. China wants to provide a counterweight against the USA. It wants to dominate its region and deter US interference in its sphere of influence. But China has no global aspirations. China will not start a war, but it will seek influence and dependencies.

The world in 2050 will look different from today. The feeling of a triumph of democracy and market economy in 1990 (Francis Fukuyama) was premature. China wants to shape events and particularly prevent developments detrimental to its national interests. China’s population needs growing imports and China’s industry needs access to profitable markets. China wants to shape global values and practices and to bring them into line with its own model of state and society.

China and India together will account for more than 30% of global population. What does that mean for markets, education, talent? If they represent 3 billion people, the EU and US represent around 400 million each, which means that each European and American is facing 8-10 competitors from these two countries. For each highly qualified European or American, you could find 10 applicants from those two countries. We heard, that for top positions requiring skills in mathematics, information technologies or business administration, firms in the USA are increasingly hiring young people with a Chinese or Indian background. If China aims at 50% of average per capita income of the USA or EU, its GDP will exceed 30 trillion US dollars. If it aspires to a comparable standard of living, it will be 60 trillion.

GLOBAL BRIDGES / Fourth Walther Leisler Kiep Symposium 2019 © Peter Adamik

Siemens is a truly international company. Germany is not becoming more competitive if Siemens is told what to do by German politicians. But Siemens and Germany would benefit if there were more and better qualified engineers and managers around.

We phase out lignite because we are concerned about global warming. At the same time, Trump reverses restrictions on coal mining because he is concerned about profits and jobs. And China is building a new coal powered station each day because it faces an exploding energy demand.

We heard a fascinating account about going to a Chinese school. That implies extremely intensive teaching. Children seem to like the challenges involved. They face a tough programme. There is little room for play, much emphasis on discipline, on self-discipline. Discipline is derived from the Latin word discere for learning: the ability and the method of effective learning. The consequence seems obvious: education and professional qualifications are one of the fields where competition between China and the rest of the world is being carried out.

We have to learn to adopt a different perspective. In order to compete successfully, you have to understand your competitor, his aspiration, his priorities, and his abilities. And in order to understand him, you have to try to see the world through his eyes.

China is building ships as if it were at war. What is the strategic intention behind such an ambitious (and expensive) programme? Such a programme only makes sense if China wants to have the ability of power projection and a deep blue water navy that can operate far away from its national bases and present an effective deterrent to US naval capabilities in the region.

GLOBAL BRIDGES / Fourth Walther Leisler Kiep Symposium 2019 © Peter Adamik

The chain of artificial islands in the South China Sea form part of this programme. Threats against Taiwan and measures calculated to intimidate are being intensified.

How should the EU react if the USA were involved in a military conflict in East Asia? First of all, such a conflict would vitally affect our market access and our logistic chains. On the other hand, US defense arrangements with Japan and South Korea have always been kept separate from NATO, which, as the name implies, is confined to the North Atlantic area. But European NATO partners have become involved in two Asian conflicts of the USA: Vietnam and Afghanistan.

China is not a status quo power. It does not accept the political set up inherited from the Cold War in the South China Sea, around Taiwan and in Hong Kong.

We were given some impressive figures about the GDP and growth rates in the USA, in China, in Europe and in Africa. China has built up a huge presence and influence in Africa’s infrastructure and agriculture. 60% of all African imports come from China or India. On the other hand, China provides a huge consumer market, particularly for agricultural products.

The Harvard professor Graham Allison recently published a book with the title ‘Destined for War’. Some US generals seem to believe that a military conflict with China is inevitable. We heard a resounding “No” to such warmongering and were given three sound reasons:

  1. The two antagonists are far too intertangled economically and financially. Any defeat of one would be fatal to the other.
  2. China’s ambition is not to be a global superpower, but a regional hegemon.
  3. Psychologically, the USA is not prepared for war.

GLOBAL BRIDGES / Fourth Walther Leisler Kiep Symposium 2019 © Peter Adamik

How can the EU become more relevant in this context? Certainly, to follow up such an ambition, the EU would have to mobilise more money, more political resources, more traditional levers of power.

The Trump administration is leaving tremendous damage to the multilateral system. There is no significantly higher risk of war, but the damage affects logistics, trade flows, mutual confidence and calculability. The control of global flows remains the essential fundament of power: flows of data, of money, of goods, and of information. Trump’s unilateral and largely willful interruptions of existing trade patterns have been aptly called ’weapons of mass disruption’. Through

his reckless imposition of tariffs and sanctions, Trump is destroying the multilateral system of conflict resolution and some fundamental norms of international law. Strategy and logistics are two sides of the same coin.

The USA used to be the architect of international organizations that were pillars of international order. It was a hegemonic system based on the US willingness to support, to engage and, if need be, to enforce this system. China (and Russia) dislike this unilateral US hegemony. Will China exploit the weakness of US leadership and substitute its own leadership? Xi Jinping certainly made an effort in that direction at the Davos meeting in 2018.

What will be left of the west after Trump? The traditional liberal system of global trade may outlive its utility. Will it be replaced by a more authoritarian, dogmatic, disciplining system, based on bilateral, discriminating and preferential relations in which trade relations are a direct reflection of political relations? Are we facing an east-west clash of civilisations – and could that clash be won by China?

GLOBAL BRIDGES / Fourth Walther Leisler Kiep Symposium 2019 © Peter Adamik

The 20th century was the century of America. Will the 21st century be the century of China?

The Chinese model has proved that modernisation can succeed without democracy, with a mixture of state planning and a liberal market economy, against human rights and without the rule of law. Maybe the Chinese model is applicable to societies that are less individualistic, governed by clusters of oligarchs that resolve disputes not through law courts but through internal mediation.

The Chinese military serves first of all to secure regional interests and supply routes. But even given this limited scope, China’s maritime aspirations are bound to clash with the traditional US naval presence in the Pacific.

China wants to win the technological Cold War, winning dominance over Central Asia and Africa. This may not present a clash of civilization, but a clash of ecosystems. Geopolitics might be replaced by geoeconomics.

China presents a huge challenge, not only in terms of economics, but above all in the way we look at the world and at our own future. Some fifty years ago a French intellectual, Alain Peyrefitte, published a book with the title ‘Quand la Chine s’éveillera’. He had more foresight than most of his contemporaries.

China has woken up. It is time we wake up from the dreams and illusions that we formed in our past. This Symposium has certainly shaken us up from some comfortable dreams. That is why we should all give our sincere thanks to those who organized this event and to those who let us share in their vast experience and wisdom.

To see the IV Walther Leisler Kiep Symposium Program, click here: 2019 WLK Programm.