Why we have to go into the “new China” of the future
— This column was previously published in Les Echos on 25th march 2019 —
On the eve of Xi Jinping’s visit to France — his first since 2014! — many questions are being asked about the future of China. One thing is certain: every ten years, China re-invents its growth model and offers a small window of opportunity for foreigners to enter by. It is of historic importance that this opportunity is now closed to Americans and that it is being given to a Europe that would otherwise be condemned — because of the ECB’s everlasting monetary easing — to a 1990s-style Japanization.
Whereas the PSA Group is a splendid example of the danger of going into China with yesterday’s crafts, the next decade will show us the danger of not going there with the crafts of tomorrow. Firstly, because China, which still continues to be the main source of global development, will increasingly attract investors in desperate search of growth. Secondly, since China, because of its economies of scale, will be the prescriber of new products such as electric batteries and, through its entrepreneurial creativity, will re-create new business models such as the “new offline-online commerce”. Lastly, because the average Chinese consumer is the only one in the world to be both young and well-off, and will be the consumer that dictates new product features, as in the smartphone industries.
We are lucky in that China has never actually needed Europe quite so much.
But our cooperation must be set up at the right price.
We are lucky that China has never actually needed Europe quite so much: it has “lost” the USA ten years too soon, for it is still partially dependent on the Western technology needed to reverse the dangerous decline in productivity over the past ten years. Furthermore, the future reversal of its balance of payments situation, under the two-fold effect of its trade surplus and the explosion of money spent by Chinese tourists abroad, will threaten its long-term objective to make the Yuan a convertible currency. Hence the increased need for China to attract foreign investment, particularly from Europe.
Unfortunately, all this is no guarantee that European companies that establish themselves in China will get a warm welcome from the locals. More than ever, it is no longer a matter of knowing whether or not to go into China, but rather of determining why one should go: what productivity bottlenecks can our know-how resolve? What is the value generated by our know-how? How do we get paid for it at the right price?
The “Greater Bay Area”, a new geographical entity with 80 million inhabitants in the Guangdong province to the north of Hong Kong, intends to redefine the concept of connectivity between humans and machines. Its ambition is even to build the “California of the 21st century” there, and for it to generate the equivalent of Germany’s GNP by 2030. It is up to us to convince the Greater Bay Area developers that we have much to bring them in terms of both productivity increases and know-how.
The success or failure of this “New China” will determine whether or not Xi Jinping will have to deal with his own “Yellow Vest” crisis during his years in power. We have to fix a new and effective power balance with China, as our German neighbors have already succeeded in doing by successively blowing hot and cold. In the absence of any American alternative, it is of primordial importance that our collaboration should at long last be paid for at the right price.
