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Caroline Meinhardt, Michael Laha, Rebecca Arcesati, Václav Kopecký 

Europe’s cautious approach to developing emerging technologies is hampering its global competitiveness. The European Commission’s AI strategy falls far behind China’s ambitious blueprint in several key aspects, including funding, sector-specific policies, startup incentives, and talent attraction. This article is part 2 of a mini-series to present the outcomes of the MERICS European China Talent Program 2018.

There are many indications that China could suffer a second round of capital flight. Interest rates in Western economies are up, and Chinese savers don't have access to favorable rates at home. Fears of tax increases or currency devaluation are other factors that might drive wealthy Chinese to try to move their capital abroad and circumvent the government's strict capital controls.

At a time of rising protectionism, China is sending a signal of liberalization by lowering its import tariffs on cars. The unilateral move is only a first step if China wants to prove its commitment to the multilateral trading system. Sacrificing outdated protections can also help China’s transition towards a higher value-added economy.

The US president’s attacks on multilateralism may push Chancellor Merkel into an unlikely alliance with Beijing. Germany and the EU have to test ways to work with China in the absence of transatlantic coordination. The goal must be to organize an international pushback against destructive US trade policies.

The success of authoritarian innovation in China challenges liberal market theories. Technological innovation is no longer just driven by Silicon Valley-style capitalism, but also by technocrats in Beijing. China is proving to be a "red swan," as unforeseen as a "black swan" event. Its techno authoritarianism appears well suited for dealing with many megachallenges of the 21st century.

Sebastian HeilmannGuntram B. Wolff

Germany’s economic success is under threat. Berlin needs to reduce the country’s dependency on exports by stimulating domestic growth―and push for robust European trade and industrial policies.

China is determined to become the globally-leading innovation center for Artificial Intelligence (AI). National industrial policies to promote AI are implemented at top speed at local and provincial level. In some cases, the local goals even exceed the national ambitions.

The Chinese government’s decision to pull Chinese nationals from international hacking contests should worry international IT companies. They stand to lose valuable information about security vulnerabilities in their devices and run the risk that exploits will be reported to the Chinese government instead.

From 5G networks to blockchain and electric driving: China has caught up to the forefront of new technologies that are based on artificial intelligence. Chinese companies benefit from state support for R&D, from internationally trained experts and from the sheer mass of data generated by 800 million internet users. Today’s innovation leaders in the United States and the EU would do well not to rest on their laurels.

Geoffrey Hoffman (via ChinaFile)

Censorship and surveillance versus a free and open internet: China's ideas of cyber sovereignty are incompatible with how liberal democracies define cyberspace. Despite these inevitable conflicts, the two models could coexist in relative peace as long as governments focus on the shared goal of cyber defense.

On her recent visit to China, Britain’s Prime Minister Theresa May got a foretaste of the difficult path ahead in carving out a new role for the UK on the world stage. Pressured to forge new trade and investment relationships with major powers like China, the UK might soon find out that it feels much less at home outside the EU than inside.

With little room for tightening, Beijing lacks good options to prevent a return of capital flight. China cannot afford to match the US policy changes as lower tax rates and higher interest rates would further drive up budget deficits and debt.

In 2018, economic stability will remain the Chinese leadership's priority. Despite all the good intentions to tackle structural problems, Beijing will be hard-pressed to tolerate a drop of GDP growth below an annual average of 6.4 percent.

China’s import ban on some "dirty" solid wastes could be a big contribution to protecting the global environment. The ban could force exporting countries to raise their recycling standards. At the same time, China would have to enforce stricter standards on domestic producers to defend the ban against potential trade disputes.

Interview with Danit Gal (via Young China Watchers)

"Do it first, regulate later," is how Danit Gal characterizes China's approach to Artificial Intelligence (AI). In this interview, she describes China's competitive advantages as large-scale commercial application, strategic planning and the lack of regulation.

China works full steam on institutionalizing its cooperation with Eastern Europe, building the 16+1 initiative into a platform for its Belt and Road Initiative. The economic reality lags far behind the announcements, but the promise of Chinese investment and the symbolism of the high-level cooperation between China and Eastern Europe are turning into a stress test for EU cohesion.

The CCP reasserts its control over the private sector by extending its reach far inside foreign and Chinese companies. For foreign investors, such close and often involuntary cooperation with the party-state can bring lucrative opportunities but also lead to questionable business decisions.

Strict outflow controls have helped maintain China's financial stability. But they risk undermining their own utility by keeping funds in the country, driving investors into risky sectors and creating an excuse to postpone overdue reforms in the financial sector.

Economic planning and societal control: The digital transformation is changing the rules of the game in the global systemic competition. China's determined pursuit of a "digital Leninism" presents a major challenge to liberal market economies and democratic political systems. 

China's Internet economy is developing rapidly with the help of government funding and a protected domestic market. European governments have to rethink their digital policies to be prepared for the Chinese competition.

The state’s role in economic planning has increased under Xi Jinping, and national interests take precedence over market principles. Signs point to more government controls and intervention, rather than liberalisation, as a result of the 19th Party Congress.

With its recent promises of better market access for foreign companies, China tries to placate international criticism. But the steps are half-hearted at best, especially since the relaxations in some areas go hand in hand with new restrictions in others.

Interview with Shazeda Ahmed

In setting up the so called Social Credit System, China plans to monitor, rate and regulate the behavior of citizens and companies with the help of big data. What motivates the government? What are the major challenges? And what do people in China think about this system?

China’s outbound M&A volume has contracted significantly since the beginning of the year. The Chinese government’s attempt to curtail acquisitions outside the core business areas of Chinese companies and the resulting breathing spell could have a favourable effect on M&A success probabilities.

North Korea’s triumph in the standoff with the United States may be short-lived. The strategic value of its nuclear deterrent is questionable, as it has profoundly alienated China, North Korea’s long-time ally. At the same time, the regime in Pyongyang continues to dig its own grave with its failed economic policies.