Part IV of CCG Munich event, Feb. 19
China-Brücke, China Institute for German Business, NIO Europe, Cambridge University, and Start-Up Factory representatives compare the EU transition with the Chinese one.
Hi, this is Yuxuan from Beijing. On February 19, the Center for China & Globalization (CCG) collaborated with the German Federal Association for Economic Development and Foreign Trade (BWA) to organize a luncheon roundtable right after the conclusion of the Munich Security Conference.
Themed "China, Europe, and Globalization in 2024: What’s Next for Business?", the event is composed of two roundtables - one on de-risking and the other on green & digital transition. It gathered over 30 figures from German and Chinese businesses, chambers of commerce, academia, and the media.
The CCG Update will release the insights from the two roundtables held that day, following the order of their presentations at the event. Today's newsletter features the five impulse speeches by:
Andreas HUBE, Vice Chairman, China-Brücke e.V.
Julia HAES, Lecturer for Business in Asia-Pacific, Munich Business School, University of Applied Sciences; Founder, China Institute for German Business
Hui ZHANG, Vice President and Managing Director, NIO Europe
Thorsten JELLINEK, CEO, DPG; Associate Scholar at Cambridge University
Christian HAUG, Start-Up Factory
For the full transcript, please refer to this Google Doc or the attached PDF file.
Andreas HUBE
Vice Chairman, China-Brücke e.V.
Thank you very much then, and thank you very much for staying. I know we've had too long a session, but just briefly saying that actually, I think it was quite a good discussion. So I think it speaks for the format again. Also thanks a lot to Henry, Mabel, and Ann for taking the time after your intensive days. I think also, as we said, the key idea of this format is really to bring the business together after this more political conference to really see what it means for the business now.
So this is the focus of the second roundtable: I would like to [shift the] focus from going from a policy perspective to really understanding what it means for business and how business has space to execute on de-risking - with the idea, for sure, in the end, we actually should be more in the driver's seat because, as one of the key challenges what we see from the China Bridge, which we founded a couple of years ago out of the need that we thought it's not only about the bridge to China, between Germany and China, it's about the bridge within Germany on the topic of China, be it on the corporate side, be it between corporate and science, the politics and stuff. We think that there's a certain gap and the gap is getting bigger.
This is also where we would like, for sure, to see an impulse from this discussion to really give a message out to the other areas and the other stakeholders. I have a very constructive view in terms of working with China and exchange with China. Again, a big thanks to Henry and his organization in terms of taking over the message to China so that people understand how we are thinking.
So the topic of the second round is something which is close to my heart, having spent many times, many years in the IT industry around digitalization, especially on the one side of the “twin transition” strategy of the European Union (the Green Deal and basically the digital transition), and also seeing this not in contrast but in connection with the China “high-quality development”. I would say they are looking into the aspects like the dual carbon strategy, all those aspects. And how do we deal with it from a company side?
But maybe before - and I have been very honored to have a couple of distinguished speakers here - but I really would like to see a very interactive session. So you may not wait until you might be called out. If you have an idea, bring it in, and let's discuss.
But first of all, I would like to actually, ladies first, ask Julia Haes, who is a lecturer for business in Asia-Pacific at the Munich Business School. I think more important and relevant for us is actually that you're the managing director of the China Institute for the German Economy. So basically, we would like to get your perspective in the context of those policies, especially around digitalization and also the green aspect. How do you see things developing here? What is your perspective? Thank you very much.
Julia HAES
Lecturer for Business in Asia-Pacific, Munich Business School, University of Applied Sciences; Founder, China Institute for German Business
Thank you very much for having me here. Actually, the purpose of the China Bridge/China-Brücke is also very much the objective of my institute, the China Institute for the German Economy. It's about bridging the gaps between businesses in China and Germany, but also between businesses and politics, but maybe more importantly, bridging the knowledge gap for the public, because I think that there's a great need right now, especially in these times where the public knowledge have is very driven towards a certain perspective. And I think we need a more differentiated and more objective view if that's possible.
So a few comments on the China “high-quality development” versus the EU “green and digital transition.” Or maybe not a “versus” because I think the EU and China pursuing quite complementary strategies for sustainable development with these two initiatives. And I think that a significant investment will be needed in both regions. The EU estimate that they need probably something about €650 billion for the green and digital transition annually until 2030. And China's approach to high-quality development is, of course, a little bit more differentiated according to the region. There will certainly be many business synergies possible in these areas of green technologies, digital innovation, e-commerce, climate, finance, and R&D - I don't have to tell you about the details because you all know quite well what's necessary. This transition requires investment, not only by the government but also, of course, by the business community, by us all.
I think that from the discussion we've seen that both German and Chinese businesses are committed to going through the green transition. The German businesses are quite committed. They are also committed to the Chinese market, as we have heard from the AHK survey and also from the Business Confidence Survey that the European Chamber of Commerce conducted last summer. I think that we also see many German businesses have R&D facilities in China because they fully understand that both sides can learn from each other and they have to work together. And the innovation in China is so fast and the speed is so fast-paced that they have to be there. They have the personnel there, they have the competencies there, they have the workforce there, and they can also learn a lot there. We have also heard that the research and development at the universities is quite high-standard. So basically, I think that we see that China businesses are really fully committed to be there.
Many Chinese businesses have, as I've seen on my recent trip in January, updated their process. They have automated their production processes. They have made great progress in green innovation. I've also seen that they're much more committed to following the ESG objectives, and they are quite involved there. So I think that we should really try to get German and Chinese businesses to jointly focus on leveraging these assets in order to increase the speed of innovation even more and to jointly form this transition.
There are, of course, some German businesses that don't want to be involved in the China business. Especially when we talk about it, they tell us that we don't need that, we don't want to sell there because our products are just for the European market, for the German market. But I think when I talk to them, I always tell them, you need to know your competition because even if you don't sell there or if you don’t source there or if you don’t produce there, who tells you that there isn't a new Chinese company that is already working exactly in your field and that will bring a new product - made tomorrow even - and will really rock you off of business? We've discussed this in the solar industry that competition can come around very quickly, and we need to be ready and we need to look at the market because otherwise, we might just be obsolete. So I think that's also something very important. That's something that we are trying to do - we're trying to convince the German businesses that they need to be informed, they need to know what's going on, even if they don't do business in China.
Let me come to the second point, China’s Two Sessions and the EU election in 2024. Of course, a transformation, especially a transformation of this magnitude, cannot be done without the people. We need to inform the people, the people in Europe, and the people who are also looking right now, in China, at the slouching economy and to operate on how this will continue. So these people have to be convinced and they have to be told how this transformation is good for them. They have to live with that transformation and they also have to live the transformation every day.
So I think that especially right now, the people in Europe are unhappy with the current development. They are not happy because of the high bureaucracy. They are skeptical because of the sometimes confusing green policy. In China, people are skeptical because of the uncoordinated opening after the pandemic. We've talked to people and they said, you know, somehow we are not happy that there was no plan for the opening. And they are also right now worried about the economy.
You said that we have to influence the policy-makers as we can. Of course, we only can indirectly influence them. There’s not so much responsibility for us. But we can take responsibility in re-involving the people in our business. We can show them our own cultural transformation. We can communicate with our employees, with our customers, with business partners. And I think many German companies are very good at communicating their commitment to green transformation to come to their customers, especially. And I think also the Chinese businesses are catching more and more on and they put this more into focus.
So to conclude my remarks, I think we're on a very good way. I think that businesses know exactly what they have to do. And they need to be told what they have to. They know about themselves.
However, I think that we also know recent history has shown us there might be unexpected risks. There might be unexpected things that happen - you can call them black swan events, but maybe even smaller. And we have to watch out for that. We have to open our focus. We have to navigate these stormy waters in a maybe different way from before. We have to become more resilient. And I see that exactly because of that, we need more dialogue, we need more cooperation, we need more robust business relations between Europe and China. And I think we need to work closely together. We need to learn from each other. I think that we all, at this table, are already doing this. And I think maybe by example, we can do more. I'm trying to bring more China knowledge to the German public, especially. I think that's very important and I hope that we can continue this good cooperation and this dialogue. I think then we have quite a good chance of going through these stormy waters in a good way and managing this green transformation.
Hui ZHANG
Vice President and Managing Director, NIO Europe
Thank you. As I said, it's been an honor today be part of this discussion. Especially thanks to Dr. Wang and Dr. Miao. And of course Schumann - we have known each other for years. But I met Henry and Mabel last year for the first time and I thought we immediately found there was so much common ground. So that's why following last year's first visit to Munich, we could be honored to support a little bit, besides BWA and China-Brücke, this event today. I learned a lot and I actually shared a lot of views.
So this topic is called “Unlocking shared opportunities in green & digital transition.” So, fortunately, our product combines both. So smart EVs - in the green industry, but also with a lot of smartness. If I may start with the overall target set by the European Commission years ago to become by 2050 the first carbon-neutral continent in the world. And most recently, just last month, I think the European Commission presented its interim target that by 2040 it should have 90% of the target achieved compared to the CO2 emissions level in 1990. This gives us a huge challenge. But of course, at the same time, it's a huge opportunity.
And Nio, in the industry where we are, the company is going to be celebrating its 10th anniversary this year. It's still very young. But luckily, under these big business opportunities, we could grow very fast. And as Niels just mentioned, we were the first Chinese car company to set up a design center in Germany - in 2015. So I still remember at the very beginning, even many of our partners couldn't speak out the Nio name correctly. Until today, we kind of become well-known, especially in our industry.
And with also our comprehensive power supplying technology, especially the power swap technology. I'm not very sure how many people here today represented are aware of the power swap. If you know, please raise your hand. Pretty good. Yeah, I mean, I'm kind of relieved. So with the power swap and also our comprehensive power supplying solutions, I think we give the users here in Europe more and the maximum flexibility to drive electric cars to really counter your ranch necessity. Why you don't purchase an electric car or why you don’t drive an electric car today?
We started to deploy the first power swap stations since we entered the Norwegian market. The first power swap station (PSS) - I still remember - was opened in January 2022. It took us 11 months to get all the permissions and go through the bureaucracy. Until today, we have deployed 36 power swap stations all over Europe. There are 9 PSSs in Sweden, 9 PSSs in Germany, 9 PSSs in the Netherlands, 1 PSS in Denmark, and 8 PSSs in Sweden. And we're going to double roughly at the end of this year. With that, I think we make a contribution to the green transition here for Europe.
And when we think about the business synergies, in fact - I'm just talking about Europe - I'm working with over 2,800 partners. This year probably, we’ll have a purchasing volume of around €1 billion. This is only in Europe. I didn't count the purchasing volume we purchased from Continental or Bosch plants in China. And you know, when we think about this, this is what we can contribute to the European economy.
As I said, in 2015, I started with 7, or 8 people here in Bogenhausen in Munich. Now we have about 1,000 people across seven countries in Europe, including five sales markets from Norway, Sweden, Denmark, Netherlands, and Germany. And on top of that, we have a factory and shared services center in Budapest. And we have another R&D center in England. And so we create already jobs here. Only in Germany, we’ve created about 500 jobs and a total investment of almost €300 million.
Secondly, of course, we also brought some technology, like I said, battery swap. Probably nobody has heard about that or has seen that in Europe. Thirdly, we also purchase the parts that are still produced by European companies - it doesn't matter if it's in Germany or in Hungary or maybe Romania or somewhere else. So we make a contribution to the supply chains and value chains here on this continent.
About the renewables and auto sector, is China a threat? This is a good question. I think my statement would be we are an enrichment of the auto industry here in Europe. As I mentioned, we are one of the first, for example, to adopt air suspension technology. Back then, our supplier was Continental. So we are almost the first Chinese car maker to use this technology and use their module on a big-volume basis.
Secondly, we bring, for example, our AI cloud-based digital device called NOMI. That's the first in-car AI device since 2018. And we bring also the other technology here into this continent.
Thirdly, I think with the Chinese products coming to the European market firsthand, we will have to achieve the target set by the European Union for decarbonization. And secondly, hopefully, we can also offer more choices and more product competitiveness to the European users. And I believe that is a really big contribution from our side and what we can do to the green transition here on this continent. And I really appreciate what has been said by the other panelists and also the other colleagues so far.
De-risking is - I would say - really not precise because businesses make decisions ourselves. We don't need to let people lecture us on how to do business and where to do business. Think about the German business. They are so smart. If you could explore some other potentials like the Bundesförderung to Africa or some other continent, I think the businesses have done that early before the government can tell you, right? And why, all of a sudden, do you say, okay, we need to de-risk, we need to go somewhere else? So I think as businesses, we make our decisions based on our own judgment and, of course, our own analysis.
The last topic here, talking about Election 2024. I think most recently, we have seen that Chinese companies’ investment in Europe is experiencing big challenges at different levels. At the European level, we contend with, for example, our car industry, the anti-subsidies investigation. We are in the middle of the process. At the country level, we’re also experiencing the European member states having different policies. For example, in France, the subsidies for electric cars, it's basically the Chinese products that have disadvantages right now. And we really wish, from the business perspective, a stable, predictable environment so that we can make our investment strategy for the long run reasonable. We hope with a new election, we could restart the China-European relations - a productive and constructive new start for the relations. Thank you.
Andreas HUBE
Just a quick point. Actually this year, Mr. Wang Yi, just at the end, said something about prediction. Now if you look at the context of digitalization, there is, for sure, the one big thing we haven't really talked about here, which is AI. I know it was a big topic on the conference. And because I just thought, because he also mentioned election and everything, which comes now, all the challenges we actually facing also come with AI in this context - the challenges businesses are facing on both sides with AI in terms of how to deal with it, how to create business value. But before we go further in the business part and have other speakers speaking, I would like to actually invite Thorsten Jellinek to talk a little bit about the underlying theme and other topics of data because data is fueling everything. And in this context also, for you, data is a huge aspect of your business in order to go international. And in this context, data or digitalization and the related governance, what are the governance processes or what are the governance challenges we have? But on the other side, what are the opportunities for cross-border engagements?
Thorsten JELLINEK
CEO, DPG; Associate Scholar at Cambridge University
Henry, Mabel, let me share this. Thank you very much for having me here. It's a great pleasure. It's always good to see you and all the effort you put into traveling to Europe, in traveling to Germany, I think it should be appreciated. And then I think they would foresaw my conclusion.
I think 2023 has seen a softening of tension where President Xi and Biden met in San Francisco. And you mentioned it was the largest Chinese delegation. There was a meeting between foreign ministers. I think the question is why and the question is whether this is sustainable. But I want to go first back and challenge now to talk about the digital side.
Now I first want to talk about de-risking. I think if you're not sure what de-risking means and you think it's a loose political theme, I would disagree because since May last year, there’s the Economic Security Strategy of the Commission and it was updated in January. And it clearly outlines what the de-risking means. I’ll just tell you some things it really touched upon. It talks about the Net-Zero Industry Act, (International) Procurement Instrument (regulation), Foreign Subsidies Regulation, Foreign Direct Investment Screening (Act), Anti-Coercion (Instrument), Chips Act, (Critical Raw) Material Act, and due diligence. Then there's a research and innovation action, which basically bars China from getting funds. So it's just a whole list. And the communication from the EU puts it together and out come the issues on the EU level. Some of the regulations are passed, and some will be passed. But the transposition or the implementation, what you just said, is different in France than in Hungary, for example, in terms of FDI screening - completely different. So there's a full spectrum of hard laws on how to apply that. And that's, I think, quite unfortunate, but that's the reality.
I want to take a step back and I hope I'm very quick going through the history. We should not forget that in the past century, the 20th century, 80 years was a monopoly. A monopoly about all key sectors, transportation, energy, and telecommunication. And let me pick on telecommunication. There were five countries that dominated it, the U.S., Britain, Germany, France, and also Japan. They had no interest in any transfer of telecommunication technology to smaller countries and to the poor world. The ITU, which is the Intentional Telecommunication Union, which was set up 100 years old or older in France, had no interest in bargaining. It was not set up for knowledge or technology bargaining. Poor countries said, give us technology so we can build our nascent technology. And then, you know history, the internet came, liberal values manifested. Mainly under Thatcher-Reagon, there was a whole collapse of all monopolized industries. And that was a big de-regulation. Before, we had the big regulation. At the beginning of the twentieth century, even the United States’s markets were insufficient in dealing with this kind of technology. So no country from the poor world could briefly get a symmetry.
And yes, because we had a China roundtable, there was only one country that managed to do that to three steps. And the fourth step is the modern one or the latest one, where the automotive made great progress.
It imitated what was called Eureka here, what was called in Japan Human Frontier Science Program, or in the U.S. the SDI, Strategic Defense Initiative, which is to activate and build a generation of engineers. Yeah, state intervention.
The second one is to import foreign technology, financed by - at that time - World Bank, etc. so Siemens, Accenture, Nortech, everyone - they came all in different phases of this time.
The third step was basically to build own companies like DJI, ZTE, and Huawei Tech. Most of them but the SOEs are public. ZTE is hybrid. Huawei is private. There was consolidation, competition, and kind of a forced knowledge transfer. I think it was not forced; that was the rule of the game. And the West complied because it was a huge market. I think I remember when I had my PhD, it was in 2008 - a very stupid time for business because of the financial crisis. I don't want to make a focused speech on Huawei. That's not my intention. But Huawei boasted in 2008 the first Chinese company that was leading in patent application globally. And Siemens was No. 3. So it came down, it was the first time also Huawei was leading in global telecommunications. It was not reverse engineering - reverse engineering was part of it - but it actually was dominating innovation. And the rest of the story, I think Carsten and Kenneth can tell better.
And now there's a fourth layer. That's what's called the “mayor economy”, right? Now with your company, I think BYD is the case in point. I think it's fair enough to mention like just to balance. Otherwise, they should pay more. Some companies collaborate with the provinces, where the mayor tries to help build a supply chain ecosystem. And there is, I think, a collaborative approach for the interest of the province to have employment exceptions. And that has also created a lot of great companies in China. Sorry for my inefficiency in this case, anyway because BYD was actually bankrupt.
So China broke through. So now we come to the critical part. And I would here rely on Dani Rodrik. He's a Stanford [sic] professor, very well known. And he said a poor country cannot become rich just relying on the market. It needs to interfere. And we accept for 80 years there was pure interference in the West to do that and there was no way to bring a lesson through, to be specific. So now China moved through three stages. It's a factor-driven economy, it's an efficiency-driven economy. And that is the innovation-driven economy.
Only the innovation-driven economy - and the West is, of course, an innovation-driven economy - has no longer the diminishing returns of the previous three stages because you cannot extract endlessly; you cannot squeeze out costs endlessly, even though corporations need to do it. But the only way you can sustain in the long run is to innovate. So innovation is a prerogative of the West or used to be a prerogative of the West because of tender. It's the same disadvantage. And China now challenges exactly that innovation through - and that's the irony now when we see, I think The Economist or the FT, said we're living through the age or the era of the biggest industrial policy, big intervention, since the Second World War where the government intervenes in the market. One reason why it's intervening is the green transformation. The second one is the lessons of the failure of previous phases of globalization, which was unsustainable, where everything got outsourced, by the way. And why they failed the previous globalization periods is not guilty on China, but China is blamed for that often in a very political way. But China, of course, as a key globalizing actor, there's a role, but it's not responsible for that.
And of course, the digital transformation. So this is what we have experienced. To conclude what's happening on the digital side, and I think on the data side, probably Stefan is much better from the BDI to explain that there is a need to transfer data in the automotive because you need to have this data going back and forth. So it's a negotiation. But actually, I won't be quite positive. I will tell you why.
Second, what we see is a great re-regulation. If you look back, the 20th century was fully regulated, and now we see a great re-regulation and we see it in the data space or the digital space. The AI Act is the latest of the achievements. But for other achievements - I think they’re kind of in between - but there are many more. There's the NIS Directive, there's the Data Act, the Data Governance Act, and there is the Cybersecurity and there is the Digital Markets Act. Here are representatives from Xiaomi and also from the consumer space who have to comply. It's not just due diligence actually, it's just a very complex landscape.
As to that re-regulation, the problem is - or not the problem - it should serve society, that digitalization serves a society. But we have crossed the boundary of protectionism - very clearly targeted at the United States and, of course, targeted also towards China. In that respect, that's quite a change.
Now to end positively, I think not because of goodwill, we see some softening. I think if I go to the United States, we’ll see some softening, of course, because of the efforts like Henry’s on the high-level political side, coming here, going to summits and meeting and having dialogue. That's the mechanism. But of course, you cannot make pressure. China has immense pressure, cyclical but also structure. Europe has immense pressure. I think this will bring together the two sides.
And then just to maybe keep in mind what are the mechanisms from the European side, of course, you know the EU-China summit. We have the EU-China High-Level Economic and Trade Dialogue. We have the High-level Digital Dialogue where the data issues are discussed, and where the EU-China ICT dialogue should be reinvigorated. We have the Joint Roadmap for the future of EU-China cooperation in science, technology, and innovation. And we have a security dialogue also on that. And there are even financing opportunities by the EU when, for example, China and the EU want to do a project in Africa. It's also supported. So I think there are very good messages. And in the meantime, this is about navigating the current fragmentation. I think this roundtable helps to navigate maybe or to have some impulses for some positive navigation through that whole mess. Thank you very much.
Andreas HUBE
We have around roughly 20 minutes left. I would like to open the floor before. I still would like a little bit in this context, what has been said before, maybe look the other way around in terms of where lies a very good success story in terms of cooperation from German initiatives based in China. In the bigger context, one of the key initiatives which Germany in China have been driving since I think 2011 was around “Industry 4.0.” And back then it was called “中国制造 Made In China 2025.” And there's actually one company. And I'm happy that we have Christian Haug here representing Start-Up Factory, which is a very innovative company, which is driving innovation in China with European companies in a very interesting concept.
So maybe Christian, if you don't mind, just share a little bit from your very practical experience, what you’ve seen based on the topics that we have mentioned because if you deal with Industry 4.0, data is a big issue for sure.
Christian HAUG
Start-Up Factory
Industry 4.0 is part of our business. Another part of the business is to help production companies get a grip on China, to do their first steps in China. So we are an incubator and have ranked up more than 60 companies in China. To bring this risk assessment discussion down to the shop floor, what are the least requirements, but also concerns of headquarters in Germany doing the step to China - or in the meantime, I would say, generally abroad?
As Mr. Jellinek just now pointed out - it's a good point - these de-risking strategies or policies are already in law; and legislation is getting more and more. That means for SMEs, documentation is getting more and more and more. And documentation for sure has nothing to do with innovation. It's blocking innovation. It's blocking working together - all the exchanges that are important. You mentioned a lot of EU and German initiatives, but you of course have these mirrors from the Chinese side. Mr. Gätzner has mentioned some; there are many more. Now we get a kind of level playing field of employee representatives on the part of companies responding to the new company law. So there are many things on the legislative side, which is making business more difficult.
Since three years ago in the U.S., there have been tariffs - a big topic for European companies, not only for Chinese companies. This was the starting point that drives my headquarters to all localizations in foreign markets. And they are not risk-averse at all. They are very clever and would converse with company leaders here and there. We should keep in mind that they often invest their own money. So I am going to tell them the risk is very stable, to assess risk but also assess opportunities.
And if I read the forecasts right, then China will stay one of the biggest growing economies for the next 10 years by a 20 to 30% share of the global growth. No company leader will neglect this even though right now we have maybe a little bit of hesitation. Karl Wehner, you talked about uncertainties. And though there are big uncertainties for SMEs on both sides, there are, of course, the Ukrainian war clients that are engaged with production plants for cable trade in Ukraine. So they are not thinking about building up the plant or they are thinking about de-risking, but in a completely different way because they have to save the business.
From this perspective, we should have trust also in our economy in Germany, because we have not only one or two big company leaders, we have a lot. They are very diverse. They further try to innovate. They are not afraid of competition because competition is somehow their daily business. And they are not afraid of Chinese competition. If I look at our clients in China, it's better to have competition in a market which is still growing than in a market which is shrinking. Because MSMEs, we don't need a market share of - I don't know - I want to turn market leader or my shareholders think I have to reach 20% or something. I have to make good business. And therefore, for them, China will stay for the next 10 years a very, very important country. They are clever enough to handle this. So right now mentioned that innovation is something where China, in certain sectors, is getting very strong. It would be a must for them to be there just to compete there because only if you compete there in China, then you will be able to keep your Roman In the girls. Not sure about export. I think more in localization, but it's an ongoing way already. And all these de-risking policies have already now relevant impact on the daily business of the companies.
Thinking of how to be part of Chinese and German business delegations.
Thanks for sharing, soo educative, doing a follow up on the CCG Munich event, seriously seeking for for business connection between China and German investors.