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China and the Digital Frontier - Between Innovation, Cooperation and Competition

22.07.2019 - Artikel


German Chamber China Ticker „ A Digital World“ – Summer 2019

Digital platforms and their services change the way we organize our economies and societies, including fundamental aspects of our daily lives: From communication to finances, from shopping to working. In China, this - sometimes disruptive - digital transformation is happening particularly fast creating broad opportunities, but also challenges. This issue of the German Ticker titled „A Digital World“ is hence addressing a development of utmost importance for German companies in China. It raises a broad range of not only economic and technical, but also ethical questions.

While digitalization is practically happening everywhere around the world, China is a special case because of its unique ecosystem for digital innovation:

Firstly, China offers tremendous market potential despite a still heavily protected market environment. With a large home market of more than 800 million Chinese citizens „online“, rising disposable incomes and a solid ICT infrastructure, China, to many, has become a global digital frontier and testbed for innovation – not least due to a tech savvy, young generation and a technologically skilled workforce.

Secondly, the Chinese leadership has embarked on an ambitious digitalization strategy and is harnessing vast resources of the state to promote innovation. The Chinese Government is increasing public investment in research (only surpassed by the USA) and provides venture capital not least through its State Owned Enterprises. According to the McKinsey Global Institute and a recent MERICS study, China is among the global top three countries for venture capital investment in key technologies such as Fintech, robotics, AI and machine learning. China has invested USD 50 billion in quantum encryption, registered around 30,000 AI patents, and is home to one third of global start-ups valued beyond USD 1 billion, commonly referred to as „Unicorns“. Despite current macro-economic uncertainties, there is ample room for further development through connecting rural areas, where internet penetration of 35% of households is only half that of urban areas.

Thirdly, China is developing its potential to shape the digital transformation also in other parts of the world. The „Digital Silk Road“ adds the dimension of cyberspace to the Belt and Road Initiative. At the same time, China is nurturing the international expansion of flagship companies such as Baidu, Alibaba and Tencent. China´s digitalization will therefore have effects on the rest of the world and in particular on important trading and investment partners such as Germany.

New opportunities for businesses and economic cooperation are opening up: German companies are well positioned to contribute to China’s efforts to upgrade its manufacturing industry and move from an export driven to an innovation driven growth model. China’s appreciation for high tech „Made in Germany“ continues to be high and makes it an ideal partner for German companies. In order to give this cooperation a boost, Germany joined forces with China to work on „Industry 4.0“. This move will enhance the mutual understanding of the technical and regulatory frameworks of both countries and will further foster the cooperation between companies.

Digital transformation, however, will also create more competition between German and Chinese businesses. Such competition is welcomed if it is based on equal and fair conditions. Therefore, market access and investment barriers as well as restrictive regulatory frameworks should be further removed, intellectual property rights fully protected and German companies in China be treated on an equal footing with Chinese companies. Recent regulatory measures such as the Cybersecurity Law and the limitation of VPN services have raised concerns, which we are addressing regularly with our Chinese partners in order to find solutions satisfactory to both sides. We welcome the new Foreign Investment Law as a step into the right direction and will follow with great attention the drafting of the implementing rules. These rules will ultimately define the scope of foreign investors’ rights and obligations.

We look forward to the „Comprehensive Agreement on Investment“ between the European Union by 2020, as agreed on by both sides at the recent EU-China Summit. Germany and the EU continue to welcome Chinese investment. In fact, the overall investment conditions in Germany for Chinese companies are much more open than vice versa. Investment screening procedures, which are in place in Germany, are transparent and restricted to clearly defined areas.

Lastly, I am convinced that sustainable cooperation in a „digital world“ needs to include a profound normative and ethical discourse on fundamental rules and values, on the future of work and education, on the protection of personal data and on security in cyberspace. The relevant questions are by no means theoretical: Chinese businesses active in the European Union are covered by the EU General Data Protection Regulation, which mandates a broad range of protective measures in dealing with personal data. Both regions are currently debating regulatory frameworks for the use of Artificial Intelligence. We need a common understanding not only about direction and speed of technological development, but also about policies addressing its consequences for our societies in a global digital economy.

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