As a farewell: A personal look at the challenges of doing business in China - by Ambassador Michael Clauss
After five years, my time as German Ambassador to China is coming to an end. It was a fascinating yet challenging period. China's rise has accelerated further since I took office in 2013, and economic output has again increased by almost half. Especially in the technological area China has been remarkably successful in catching up. In the field of artificial intelligence, it now belongs to the world leaders in this sector. 50% of all investments in start-ups worldwide take place in China. While many believe that an authoritarian political system is per se unfavorable for innovation, the start-up scene in China claims to enjoy better conditions than elsewhere. While talking to young, highly skilled entrepreneurs, they pointed to the low regulatory restrictions (such as data protection) and lavishly equipped venture capital funds. In addition, the Chinese market is largely sealed off from foreign competition. Apparently, in some areas of artificial intelligence applications, e.g. face recognition, China has already outpaced Silicon Valley. From today's perspective, therefore, it seems legitimate to ask whether China can actually still claim the status of a developing country in the face of these successes.
However, the opening of the Chinese market has not kept pace with this rapid development. The third plenum of the eighteenth Central Committee announced in 2013 that in the future the market would "play the decisive role". Proclamations that China will now indeed open up quickly followed time and again. However, not much has happened so far. In fact, protectionism has even increased in some areas, as illustrated by the following two examples: For the new Fuxing platform for high-speed trains, most German suppliers are either excluded because Chinese suppliers have managed to reproduce their products or they are being pushed into minority joint ventures in order to still be at all considered. Chinese customers tell us that, according to internal instructions, Chinese hospitals are obliged to give priority to Chinese suppliers for the procurement of medical equipment.
Nonetheless, problems in the area of forced technology transfer or patent protection persist. According to the recent Business Confidence Survey of the EU Chamber of Commerce, about 20% of the companies surveyed are still under pressure to license their technologies for gaining access to the Chinese market. Complaints about the violation of IPR are even increasing lately. So it is no wonder that China is placed fourth last out of 68 countries in the corresponding OECD ranking.
However, there is also good news. For example, the announced easing of the joint venture obligation was followed by action: BASF will soon be able to realize a significant investment in China without a joint venture partner, for the first time. And BMW will increase its stake in its local joint venture to 75%. The financial sector will also open up further. Since June 30, 2018, majority shareholdings of foreign companies are possible. After years of waiting, Deutsche Bank was granted a license for corporate debt underwriting. Further steps towards opening up have been announced by the authorities. The MOU on automated and connected driving, signed at the bilateral intergovernmental consultations in Berlin in early July, is a reassuring signal that China is planning the future with and not without foreign OEMs.
I think that these recent developments provide us with a good basis upon which we should continue to build committedly in the years to come to reach one central goal: to make China’s economic environment, which today still shows a contradictory picture in parts, more open, fair and equal. To this end, Germany will remain a reliable partner on the side of China also in the future.