Can we build up a long-standing reciprocal relationship with China?
The “eye for an eye, tooth for a tooth” approach must now give way to patterns of complementarity in the long term.
“Reciprocity” is rarely a simple word and has enabled diplomats to be reciprocally hypocritical in Sino-European relations. On the one side, Chinese leaders delight in stating that the concept does not exist in their language. On the other side, their European counterparts claim that it is desirable to limit Chinese investment in Europe even though it only accounts for 2% of all foreign investment. In the same way, condemning the colossal trade deficit with China makes it possible to let it go unnoticed that 40% of Chinese exports actually benefit the relocations of foreign multinationals, including European ones.
How can we calm things down and find a model for a balanced relationship? There is not much hope in calling on our political decision-makers: their approach — to promote the opening of the Chinese market in exchange for permission for China to buy up European companies — is leading up a blind alley. This is well illustrated by the Dongfeng Group’s acquisition of shares in PSA, whose sales in China subsequently plummeted even though the market for its products was not artificially closed.
There is more chance that a solution will come from the business world by means of a detailed analysis of value chains, which would identify the strengths and weaknesses of the two sides in terms of design, production and sales of goods and services. R&D must be multi-localised so as to be able to respond better to the different needs of customers — ranging from 700 million privileged Westerns to Chinese of whom 90% have extremely modest incomes.
With its huge large-scale economies, China is the obvious choice for production, whilst higher value-added operations will require Western-style productivity, which is still four or five times higher than in China. Sales can only be properly conducted on site, particularly in a country like China which, having adopted e-commerce, is now inventing m-commerce and, tomorrow, “social commerce”.
Rather than focus on an “eye for an eye, tooth for a tooth” approach, a long-standing reciprocal relationship must be set up in which each party undertakes to play the other’s game over the long term, characteristically in the numerous European soft skills that China will have to develop.
Rather than focus on an “eye for an eye, tooth for a tooth” approach, a long-standing reciprocal relationship must be set up.
One result should be the major comeback of joint ventures between Chinese and European companies. These JVs, which were often made necessary because of legal constraints in the 1980s, now represent a more strategic need that results from the difficulty for Westerners to adapt to the complexity of the young, fickle and ultra-connected Chinese consumer. On the Chinese side, recent mega-acquisitions in Europe seem to be giving way to more targeted purchases of divisions of large groups, focused on key technologies.
Therefore, it is by reinventing the geographical distribution of the business model that the major European groups will make President Xi Jinping realize that, even if reciprocity is not a Chinese concept, it could become a Sino-European reality.
This colum was previously published in L’Opinion, on march 15th 2018