German ambassador to the EU: ‘China is changing us’

A protester dressed in an outfit covered with Chinese signs hits with a steel hammer a shield wrapped in European union flag during an European steel workers protest against China’s dumping price in Brussels, Belgium, 9 November 2016. [Stephanie Lecocq/EPA]

Europe should increase its economic assertiveness abroad and put forward a new strategy to face China’s rivalry, as the challenges posed by Beijing are already affecting the way European countries are preparing to compete with global powers, experts and diplomats agreed on Thursday (12 July).

China is pursuing a programme to become the leader in key technological fields (China 2025). In addition, “state-owned and private companies are an instrument for achieving political and strategic goals”, German ambassador to the EU, Michael Clauss, told an event hosted by the European Council on Foreign Relations.

To date, the reaction was to leave the industrial policy to the private sector to compete with the ‘champions’ coming from China or the US. The Europeans also hoped that the Chinese leadership would deliver on the promises to open up its economy and reduce public subsidies.

But after years of broken promises, Europe has “no illusions” about turning China into a market and open economy, said Clauss, who was German ambassador in China for five years before arriving in Brussels.

As a result, EU institutions, member states and economic players are increasingly calling for a new economic strategy to protect European interests beyond its borders.

This blueprint should include a new industrial strategy, an update of the competition rules, a more robust trade policy, and sizeable innovation funds to develop cutting edge technologies.

A few years ago, industrial policy in Germany would have been “mad”, Clauss admitted.

“China is changing us,” he added.

Germany’s envoy to Brussels insisted on the need to replicate the story of Airbus to create European champions. But in today’s world, the priority fields should be artificial intelligence and internet platforms.

But China is not the only challenge for the Europeans. The US, led by Donald Trump, Russia, Turkey or Saudi Arabia are also competing to squeeze Europe´s interests in the world.

“What unites these disparate powers is their unwillingness to separate the functioning of the global economy from political and security competition,” the ECFR noted in a recent report.

“The EU has the market power, defence spending, and diplomatic heft to end this vulnerability and restore sovereignty to its member states,” the report added.

Europe has become the champion of a rules-based multilateral order as a way of addressing the ongoing global trade war. Mark Leonard, co-founder and director of ECFR, said the new European Commission should prioritise for the short term “a plan B” for the World Trade Organisation’s appellate body

But the WTO’s dispute settlement system, a key piece in the multilateral framework, may no longer be functional after December, as Washington is blocking the appointment of new judges for the institution.

In order to increase Europe’s economic sovereignty in the long run, Leonard named strengthening the international role of the euro, a new mandate to develop the external role of the European Investment Bank and the European Stability Mechanism, and strengthening the EU pillar of NATO.

The EU, as it stands, “is not very well equipped” for today’s global competition, said Guntram Wolff, director of Bruegel think tank.

But Wolff disliked the German proposal of creating ‘European champions’. He considered that, by ‘picking’ champions, governments would maintain the incumbent structures instead of nurturing future-oriented economic players.

“We need to beef up our defences,” he added. Europe also needs to better understand the level of public support received by foreign companies, especially coming from China, and competing in public tenders.

He explained that the problem is not that China is becoming a tech leader, “we have to accept it”. “What becomes problematic is that Beijing not always plays by the rules”, including in terms of public subsidies.

In order to protect Europe against unfair practices, “retaliation is the name of the game”. If Europe is not ready to play it, it will lose.

Ann Mettler, head of the European Political Strategy Centre (EPSC, the Commission’s in-house think tank), also agreed that Europe must be “much better in defining and protecting our interests”.

In this context, the bloc should open its internal market only when reciprocity exists, she said and called for a better understanding of the public subsidies that some non-European firms bidding in Europe receive.

“The game-changer is China,” she said “We all know how it is to live in a world dominated by the US, but we don’t know what it will be like living in a world dominated by China”.

Between the two global superpowers, Europe’s opportunity lies in the “EU common goods”, namely the internal market, competition policy and trade, Mettler explained

“That is where we are strong, but we jointly own them”, she said.

As the reluctance to deepen the union grows in some corners, Mettler argued that this is not about transferring more powers to Brussels, but strengthening the member states’ capacity in the 21st century.

Mettler, who reported directly to outgoing Commission President Jean-Claude Juncker, also recommended working “much closer with like-minded countries”, in particular in the field of developing the next generation of telecommunications, key for the future development of our economies.

Given the “mess” seen with 5G, she suggested that Europeans should work more closely with other countries with similar priorities and values in the development of 6G.

China-based Huawei, which was part of the Commission’s Public-Private Partnership, is the global leader in the development of 5G. The Europeans, however, still have concerns about the potential risk of cyber espionage by Chinese authorities in networks deployed by the Chinese firm.

“The Chinese blueprint doesn’t really fit with us”, Mettler added.