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Hamburg is a hub for European trade with China, and many Chinese companies are headquartered in the city. At a time when the German public is concerned about growing competition with China over innovation and technology, European entrepreneurs stressed the need to cooperate at a MERICS China Dispute organised in cooperation with the Hamburg Chamber of Commerce.

A Chinese containership in the port of Hamburg.

The Chinese gentleman in the audience provided his own summary of the evening’s debate: "It is an arrogant German prejudice to say ‘we are more advanced than China’. That could well be over in ten years' time”, said the man, who works for a German cosmetics company.

If this statement is true, what does it mean for Germany? The challenge of China’s current innovation offensive to the German economy was the topic of the discussion at the Hamburg Chamber of Commerce between Oliver Lücke, Technical CEO of Hamburg-based forklift producer Jungheinrich, Achim Kempe, Vice President of NXP Semiconductors Germany, Nina Trentmann, correspondent of German daily “Die Welt” and MERICS President Sebastian Heilmann.

In China, digitisation has created a vibrant start-up scene coming up with strange and at the same time successful ideas like apps for drunken drivers in need of a chauffeur to drive them home in their own car at night. Ordering on the internet for same-day delivery is completely normal for someone living in Shanghai. And where else have you seen a laundromat that can wash potatoes! “The adaptability to local conditions is what is so amazing about Chinese producers”, said Trentmann, who regularly travels to China for journalistic research.

China's ambitions go beyond adaptive innovation

But the Chinese innovation drive goes beyond individual endeavors to adapt existing technology. In an effort to move up the value chain and shed the image of the world’s workbench, the government pumps enormous sums into the development of high-tech products. The strategy "Made in China 2025" aims at sparking innovation, turning backward industries into globally competitive beacons of progress. Just recently, news of a record-breaking 93-petaflop supercomputer shook the international computing community.

On the other hand, coordination becomes a problem when 80 local governments embark on robotics programs at a time, as Heilmann pointed out. Trentmann recalled a trip to a drone lab in a Chinese provincial capital. “The staff was very enthusiastic but nobody had a clue if those drones would ever fly.” Despite the obvious shortcomings of centralised incentives, the Chinese innovation surge should be taken seriously: “If China’s strategy succeeds, it might soon operate on eye-level with Germany in the high-tech sector. We are looking at a substitution policy aimed at pushing foreign competitors in the Chinese market aside”, Heilmann argued.

The businessmen on the panel had a more pragmatic take. Lücke, whose company produces around 5000 forklift trucks per year on its site in Shanghai, said: “The Chinese market is huge, so there is space to share. We just have to keep innovating ourselves.” IP theft remained an issue for German producers, but Lücke considers trust as more important: “Our construction plans are as accessible for trustworthy Chinese staff as they are for colleagues in Hamburg or Houston. Protectionism will not help us if we want to be competitive.”

Danger of technology transfer

NXP manager Achim Kempe also stressed the need to cooperate with China. "Each country has the right to decide its own development path, we shouldn't patronize them and rather think about what kind of innovation we can provide." The Dutch semiconductor manufacturer which employs a staff of 12,000 in Greater China was just swept up in the Chinese shopping spree in Europe: It recently agreed to sell its standard products business unit to a Chinese consortium by the first quarter of 2017. Kempe stressed there was no danger of an unwanted technology transfer. "Our core expertise remains with us, and that is chip safety, secure identities." In this regard, the active Chinese market offered plenty of opportunities to test new products. "And being in the game in China might enable us to have a say in defining standards."

Will trust and transparency turn the Chinese innovation strategy into a win-win-situation for both sides? Heilmann was skeptical: some markets like the IT or banking sector would always remain closed to outsiders. He warned of existential risks in certain areas: "Who would want to share his processing knowledge in smart manufacturing if it is not possible to protect it from the grip of the state?" German government efforts to increase mutual trust have so far been futile: the cyber dialogue with China seems stuck in a dead end.

Buying knowledge for homegrown innovation abroad has become a characteristic of China's technological leapfrogging strategy. The controversial Chinese takeover offer for German robot maker Kuka is just another case in point, according to Heilmann. "Our governments have to think about technology transfer, they have to figure out where they want our industry to stand in 10 or 15 years time", he said. Foreign correspondent Trentman was more optimistic and stressed the "positive experiences" with Chinese capital flowing into German firms like Putzmeister. However, she also said that she did not expect German companies to enjoy equal treatment in China in the future: “There will be no such thing as reciprocity.”