Notebooks from China: (and much more) 2 - 2014

By Alberto Forchielli and Romeo Orlandi

The asian continent is quivering, China is going through happenings that can have relevant consequences on the whole world. Our two authors, Albert Forchielli and Romeo Orlandi, who have been experts on asian and chinese matters for a long time, offer us once again a privileged outlook on that society, providing a detailed and updated picture of what shakes the chaotic oriental continent. The second volume of "Notebooks of China" talks about this political and geographic area's ability of being contemporary and, at the same time, allows us to understand the geopolitical and economic scenarios that are building up in Asia and in the rest of the world. The Notebooks are a useful tool to comprehend that part of the world that we are still struggling to see, but that we absolutely can not ignore any longer.

• Language: English
• Publisher: KKIEN Publ. Int.
• Release date: Oct 30, 2014
• ISBN: 9788898473984

Book preview

Respecting rules and customs, delegating with social groups, and guaranteeing welfare: Beijing’s awful adventure in Europe

Alberto Forchielli – May 25, 2014

The ring of tensions between Washington and Beijing has just earned another diamond, one of the most precious gems.  After years of investigations, the Department of Justice has accused five Chinese military officials of illegal activities aimed as industrial espionage and information security.  Essentially, they accused the Chinese military of training its agents to fraudulently steal industrial property, presumably of high sophistication.  The FBI published photos of the five researchers.  China’s reaction was very hard, not only because the soldiers lost face symbolically, but also because their pictures were preceded by the words wanted, like outlaws in the Old West or gangsters in Chicago.  China has refuted the accusations and has accused the US of managing the biggest espionage information network in the world, citing recent examples in the media.  As a first response, but probably not the last, it interrupted the China-US Cyber Working Group.  The US was therefore not reticent in taking strong measures, knowing that incriminating the military officials would have pointed the finger at political leaders.  Evidently, the bilateral climate is tending strongly toward anti-Chinese positions, where even supporters of a pragmatic relationship with China are in the minority for the paucity of results reached.  It’s only the latest source of tension that’s fueling a dangerous decline in rapport between the two superpowers: from the containment of China in the Pacific to the worries over the reinvigorated relationship between Beijing and Moscow, from the arms sales to Taiwan to the nondisclosure of facts regarding Pyongyang’s regime.  Even if resounding, Washington’s decision is not unexpected.  For a long time, Germany and Austria have been working to contain the dangers of Chinese industrial espionage (after being involved in political spying with the US).  Intelligence agencies are worried about two aspects of cyber spying: the military-political implications (given the country’s central role in the west’s chessboard), and industrial implications that could lead to economic successes or cyclical declines.  Competent authorities recommend caution to businesses: avoid the diffusion of sensitive materials, business emails, speaking about patents, and discussing discoveries over the phone.  They seem like trivial worries, but they are strengthened during trips to China or when receiving business delegations.  The fear is shared by businesses that gave uncontainable instructions over the phone to employees, especially to top management.  This worry stems from a phase of declining investments in Germany; it’s simultaneously cause and effect.  In principle, all of the pretexts for an advantageous exchange exist.  German Mittelstands (which is to say, the biggest in terms of PMI, production capacity, innovation, and export) are the most desirable targets for Chinese investors that need quality and have the financial resources to buy them.  Chinese manufacturing capabilities and the promise of a limitless market are the dreams of every European business—both nightmare and fantasy.  In any case, Chinese acquisitions in Germany are declining.  According to the German Trade and Invest Institute, there were 593 acquisitions of German companies in 2013, of which 99 ended up in US hands, 63 in the UK’s, 53 in Swiss, 30 in French, and only 7 in Chinese hands (non of which were large).  Expectations of currency inflows from China have been disregarded, involving an army of consultants and analysts that predicted an easy marriage of interests.  There’s no doubt Chinese inexperience is among the causes.  Managing complex situations, respecting rules and customs, and dialoguing with social groups to guarantee welfare have not been among their best qualities that characterize Beijing’s explorations overseas.  Larger doses of humility and respect for international laws would have been needed.  It was probably this very fear of sacrificing these aspects of dear, old Europe that discouraged German companies from having complete faith in their Chinese counterparts even though they had all the requisites to become credible business partners on paper.  For now, German technology seems to be a postponed interest for the Chinese, because attempts to buy it are based on a different prerogative.  You can buy a company, but the socio-economic model is not yet for sale.  

China’s Lost Opportunity

Alberto Forchielli – June 2, 2014

China’s expansion numbers are ambivalent, but the poor diffusion of its model is unequivocal.  By now, breaking records is one of Beijing’s specialties; an impressive sequence of results has undeniably projected it into a leading role in the global theater.  In any case, there are signals of slowing growth, like the greatly reduced acquisitions of German Mittelstand businesses, the high quality small-medium enterprises that would be valuable for China’s technological improvement (we wrote about this in last week’s post).  Even Chinese investments in the US are languishing, entangled in politics and national security issues, despite ideal economic conditions.  Not surprising are the obstacles hindering China’s approach to Japan, the third region—after Europe and North America—where China could find the innovation it needs.  The numbers reveal that Chinese capital has been deferred, and negotiations to sign bilateral accords are still in the deep water.  On the contrary, investments in countries that produce raw materials continue; they are generally weaker politically and economically underdeveloped.    London is one exception, but it involves the real estate market where selling assets to Chinese investors is less challenging.

The recession is palpable in the real economy, more in terms of lost opportunities than what statistics reveal.  There’s a mixed attitude of rejection, suspicion, disinterest, and disillusionment toward business partnerships with China.  People that work between Europe and China have an undeniable perception of this.  Business, law offices, and communication firms are closing their China desks.  Setting up business meetings required more time and effort, as if you were forcing the involved parties into an undesired interaction.  Even curiosity concerning the Middle Kingdom is waning, as if economic transactions had exhausted other spheres of knowledge.  Sociologists teach us that expatriated Chinese communities don’t integrate, and that students studying in the best universities don’t bring the cross-cultural knowledge expect by such high-level programs.  Ironically, in a globalized world, China continues to assert its differences.  But, this inspires continually less sympathy.  The economy is running the risk of souring relationships, but in turn it’s risking losing sight of its objectives, which are profit opportunities.  Essentially, China is missing two central aspects needed to affirm itself in the business world: an endearing soft power, and a network of services to accompany its economic might.  It’s not enough to have production capacity or reserves to spend.  It is necessary to confirm the trust of your partners, maintain business etiquette, and instill hope rather than fear.  The great Chinese culture should be a springboard for the future, not a mantra for justifying any kind of behavior.  Furthermore, a framework of services would support the economy: legal offices that recognize international laws, respected consulting agencies, business ethics that marry power relationships, and assuming international responsibilities that go beyond the country’s