authoritarian economies

When it comes to industrial policy, Germany should be more like China

China aims for World Cup qualification with soccer overhaul
If only Germany's team had had this kind of training. Source: DPA

The Chinese admire the Germans. They see “Made in Germany” as a mark of quality and innovation in cars, machinery and – at least until recently – in soccer. True to the adage that imitation is the sincerest form of flattery, the authors of the blueprint “Made in China 2025” were evidently inspired by Germany’s “Industrie 4.0” program to kick-start their fourth industrial revolution. Many of the areas where Beijing wants to catch up and take the lead are areas where Germany, land of engineers, is strong.

China’s plan to modernize industry offers German businesses many opportunities but also challenges. The prospect of turning a quick profit has proved tempting. Chinese companies want German technology and are prepared to spend a lot purchasing German goods and companies. Germany is a world leader in many areas that are important to China, where Beijing wants to improve. That’s why China is treating Germany with great respect, praising it as a special partner in Europe. That leaves the Germans in a position of strength, and that’s the spirit in which Germany should negotiate and plan for the future.

10 p04 China trade-01

The joint letter of intent on autonomous driving is the right path to creating fair competition. With such an important new technology it was important that both sides committed themselves to equal access to data for Chinese and German automakers. Berlin is right to insist on improvements in the fields of cyber security legislation, involuntary technology transfers and hurdles to market access.

But Germany must do more to ensure it remains on par with China in future. After all, German firms competing with Chinese companies in connected driving, high-speed trains or robotics aren’t just squaring up against other businesses, but also against a powerful state.

CATL didn’t become the world’s biggest battery maker by itself. Beijing gave it crucial support by only subsidizing electric cars equipped with Chinese batteries. While Germany has resorted to pilot projects undertaken by individual local authorities working with automakers in autonomous driving, China outlined a plan that will see all important companies and decision-makers working together. If Germany wants a level playing field, it must make sure that, in addition to demanding equal terms, it also creates the right conditions for its own industries at home.

When state intervention is good for business

In the case of autonomous driving, the head of one German automaker has complained that it is high time Berlin ensured nationwide cellular network coverage and introduced 5G, “and not just after China has.” In terms of infrastructure, in order to promote electric mobility at home, Germany needs to invest in a network of rapid charging points. Beijing announced last winter it wants to build 4.8 million charging points across the country.

After Ms. Merkel’s visit in May, the German ambassador to China, Michael Clauss, wrote in an opinion piece for the Financial Times China, that Europe can learn from China – for example, about how to promote dynamic development. He wrote that the Chinese leadership has pursued a determined and coherent strategy to promote domestic innovation in key areas, through investment funds, subsidies and a business-friendly environment.

That reads like an appeal for Europe to develop its own similar policy. Many dislike the idea of state intervention, or of governments getting too close to business. People like to pretend that competition in the free market is universal and that the government never needs to help any company or industry. In truth, though, the letter of intent that has just been signed is precisely that.

Ahead of the signing, government sources said the German auto industry had pushed for it. The letter of intent was a top priority because VW and its peers are important to the German economy and they safeguard German jobs. But if the government is going to get involved, why doesn’t it do so in the determined and coherent manner that Mr. Clauss suggested, and in cooperation with the rest of Europe?

In addition to a defensive strategy where potential investment is screened and critical infrastructure is protected, Germany also needs a more pro-active and positive approach. That means thinking about which of our own core industries we want to promote and strengthen, so they’re more competitive internationally.

After all, as the Chinese have already shown us, imitation is the sincerest form of flattery.

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