Part I of CCG Munich event, Feb. 19
Representatives from Huawei European Region, the Federation of German Industries (BDI), Zeppelin University, and Bosch discuss the boundaries of de-risking.
Hi, this is Yuxuan from Beijing. On February 19, the Center for China & Globalization (CCG) collaborated with the German Federal Association for Economic Development and Foreign Trade (BWA) to organize a luncheon roundtable right after the conclusion of the Munich Security Conference.
Themed "China, Europe, and Globalization in 2024: What’s Next for Business?", the event is composed of two roundtables - one on de-risking and the other on green & digital transition. It gathered over 30 figures from German and Chinese businesses, chambers of commerce, academia, and the media.
The CCG Update will release the insights from the two roundtables held that day, following the order of their presentations at the event. Having published the three keynotes on Friday, today's newsletter features the three impulse speeches by:
Kenneth Fredriksen, Vice-President of Huawei European Region
Stefan Gätzner, Chief Representative Greater China, BDI
Klaus Mühlhahn, President, Zeppelin University
Thomas Hueck, Chief Economist, Bosch
For the full transcript, please refer to this Google Doc or the attached PDF file.
Kenneth FREDRIKSEN
Vice-President of Huawei European Region
Good afternoon, everyone. I'm Kenneth Fredriksen from Huawei. I've been in Huawei for over 12 years now. So I've been, you know, going a very peaceful period of the decade we have behind this. And then the more turbulent of three, four, five years, I would say.
And obviously, I always approach de-risking from two perspectives. On the one hand side, the European-minded - by the way, I am Norwegian - So I come from a small country which is used to dependency on other large countries. So that's one approach to de-risking.
But of course, then also from my more Huawei perspective as well, I see dangers and I also see a lot of confirmed challenges within this discussion from both perspectives. Obviously from our business perspective, de-risking has caused a lot of uncertainties because nobody really understands what de-risking means. It's not defined properly. There's a model talk about de-risking. So it has kind of created a narrative that more leads to de-coupling rather than a conscious way of managing risk, which is actually de-risking's meaning and intention.
That brings me to my more European mindset. I believe de-risking is actually something very, very good for Europe. We should have de-risked a long time ago, to be honest, because nobody is sustainable or resilient if you're too dependent on anyone. It doesn't matter if you're depending on a Chinese company or a Western country or a more Eastern country - this is a situation you wouldn't want to find yourself in. So of course, from a European perspective, I think it is very important to really assess and define what we mean by de-risking. We need to do that from a more comprehensive and common way from Europe's perspective to make sure that de-risking is not ending up with more risk, which I believe is the current path we are heading on.
So when meeting with customers and, of course, stakeholders, what we experience is that because of the uncertainty - how to understand de-risking - they are shying away from business with Chinese companies. But they also delay business in general, which is also causing another more fundamental problem for Europe. I think when it comes to our business digitalization basically, Europe is rapidly falling behind in digitalization because of the de-risking situation, because too many companies and also countries need to delay their investments because they don't really understand how to maneuver and how to move forward in the current situation.
So that's why I appreciate this kind of opportunity as well. I think the most important thing we can do as a business community is to convey the messages to politicians in Europe that, yes, the de-risking is, if it's done correctly, good for Europe, but it needs to be defined properly and everyone needs to understand what is the purpose and the target of de-risking so that we can move forward, because the worst thing and the most risky thing for Europe and European businesses is that we are falling behind.
We are basically wasting time in trying to understand what to do because the rest of the world are competitive economies. They're not stopping. They're moving fast. And that's what we can see now, the digitalization is slowing down in Europe as a result of de-risking, I think, and that causes also more long-term issues for European companies because they are becoming less competitive.
So from Huawei's perspective, of course, we have always adapted de-risking in our supply chain and management. We have always had several sources of supply for every component. For all products to be allowed to move from an R&D concept to an R&D development stage, it needs to be possible to produce this product with at least two or three different types of components coming from different parts of the supply chain. We will not allow any product to be reliant on a single point of failure. And I think that is, of course, something everyone should adopt to their supply chains, also from a country's perspective.
But we should also each differentiate between what has been stirred with this de-risking discussion, which is the Russian gas discussion. That is something very different because that is a continuous supply that is basically stopped from one second to another. Normal supplies on hardware and software are different. If you have a product in place, you have it in place. It doesn't really stop me from using it, although there might be a situation that causes tension between the two different parts of the supply chain.
So I think de-risking is something, we as an industry, have a big responsibility of trying to convey these messages in a constructive way to decision-makers so that it ends up as a good thing also for Europe. Because in the end, if we are going to have win-win scenarios, I think transparency and also clarity about rules, regulations, the investment climate, and the business environment. These investments are supposed to be made carefully, especially in our sector where we are making investments for the next five to 15 years. Of course, you need to be sure that these investments can be used or are allowed to be used for that period of investment. Otherwise, they won't make those investments.
So I think we can do something together by having a common voice not saying that de-risking is totally bad, but also, of course, bringing arguments into this discussion that make the politicians and the decision-makers understand the complexity and the importance of doing this correctly. I think that's my point.
Stefan GÄTZNER
Chief Representative Greater China, BDI
Thank you, Prof. Wang. I'm sorry for my poor voice. I got caught with a bad cough these days.
First of all, at the beginning of the New Year of the Dragon, Happy New Year! And I would like to point out a few points about de-risking, or better, simply diversifying strategies that German companies in the context of that changing perspective from China.
If you look at the recent investment statistics, like Michael just mentioned, we had last year new a record of investment from Germany - probably €11.9 billion are invested there. And in the last 2, 3 years, the U.S. has some really high [levels of investment from Germany]. So at first glance, everything seems to be well. But if you ask companies and they take a close look, you see some stress points. For example, according to the survey of the AHK (the German Chamber) - Michael already mentioned that number, I will put it in another context - 54% of German companies are willing to continue to invest in China Communist, but the number used to be about 60, 70%. So the investment trend is going down a bit.
And on the other hand, you are forced to overlook that those investments done right now, those big numbers are done by a handful of companies, big companies from Germany. And you don't see too many new companies coming from Germany anymore. So a big stock of investment from many companies, but no newcomers anymore.
That all has to do with the changing perspective of German companies on China. What lies is this: we have this changing perspective on China. I would like to point out two pivotal points. The first is, of course, the COVID-19 pandemic. If you look into global supply chains, at the heart lie sourcing production capacities in China. The disruption of this highly efficient, but also over-concentrated supply chain behind the capacities by the pandemic has made one thing clear, for all critical resources at least. And for our products, a selection of geographically differently dispersed sources is necessary. The more you can diversify geographically, the better. And only if you diversify geographically, for example, Eastern Europe, Asia, and so on, the whole network of supply chains will become more resilient again.
And secondly, maybe more crucially, is Russia's war and Russia's aggression against Ukraine. A lot of the full-scale invasion two years ago demonstrated to many German companies and European companies the need to reduce risks and dependencies when dealing with authoritarian states. And if you consider China's geopolitical ambitions, the question of Taiwan and escalated urgency of Taiwan, if the mainland is exerting its means to try to reunify with Taiwan.
So in German companies, for the first time, really started to consider extreme scenarios that we've never known before. And as a consequence of this new look at China, that new perspective has also reinforced the realization by multinational companies that hopes of trying to make changes in China's economic system towards a real market economy have always been unrealistic. The upsets in market access and lack of fair competition have always been a continuous feature of China's state and hybrid economic system. So that has become clear and of course, companies adapt to this.
Another fact which comes is the state's loyal obsession about autonomy and security: Data legislation, which is really hefty for many companies; and another, for example, this last year's anti-espionage law. It has been placed before, but it has been revised and it excessively expands the scope of espionage offenses. And as I was in China at that time, we really could fear that its target was foreign companies and the expatriates there.
Now what are the consequences of the changing perspective? The German companies who have been investing in China - and many companies have been investing for decades now - face a multi-dimensional strategic dilemma.
Firstly, the recent slowdown in China, the sluggish domestic competition, and the defense of overarching market positions - this applies especially to industries who are highly dependent on the Chinese market.
On the geopolitical side though, companies must go with this trade conflict between the U.S. and China which forces them to address trade force and to look for alternative investment locations. And prior to this, the rising requirements of German and the EU extensions, for example, the recent German supply chain law and the restrictive legislative proposal which discuss how the EU maybe won't come for the timing.
Compliance in China might lead to repercussions like state-orchestrated consumer boycotts. We have seen that before in 2021. And then on the context of Xinjiang cotton, where the European and the U.S. consumer brands were boycotted.
The toughest trial, of course, is potential military conflict in the Taiwan Strait. And something extreme - as I would consider extreme scenarios - this could imply consequences by being forced to close plants and stop present activities and lose investments like German companies faced in Russia, 2022.
So how would German companies cope with these changes? There are some strategies that are following now.
Many German companies are now adjusting their strategy and some are increasing localizations of existing investments and doing more marketing to secure that position in China and to sign on their position in China.
Others are trying to re-diversify into alternative markets for sourcing as well as for investments. Some companies are starting to separate supply chain systems on operating in China, avoiding risks above. So we can say despite the unique advantages of the Chinese market with its huge market and industry clusters and well-established supply chains, German companies are now also pursuing China+x strategy.
Another shift is an increase in inventory. Since the pandemic, manufacturing companies have started to stock up on critical raw materials and contingency goods. Of course, there are consequences to this in the end. All this build-up in logistics, transport, and storage is to higher expenditures, and this applies pressure on company profits or an increase in the prices of the goods.
Just to wrap it up, in the foreseeable future, China will be an extremely condusive to professional creation as well as the sourcing sales market for German companies. However, from many business leaders' perspective, the market's risk-rewards have changed and new balances to be found between resilience, efficiency, between investment security and internal investment. Thank you.
Klaus MÜHLHAHN
President, Zeppelin Universität
Thank you very much, Henry. I'm really happy to be here. I have to apologize. I don't have to leave right after my remark because I have a very important meeting that I need to go to.
What I would like to do here is highlight a little bit of the bigger picture of de-risking. I think if we think about the term "de-risking", then of course, we know where it came from - it was invented in Europe as a softer version of decoupling. The Americans started to talk about decoupling and then sort of a softer version was put forward by von der Leyen and that's called de-risking. But we know the direction that it's going. I think it's difficult to save the term because I think the term implies that in the end, it will be a gradual decoupling because I think that is what's really behind it. That's my opinion.
But this is one thing. The other thing which I find dangerous about this term in the way we use it, "de-risking", is that it's also almost exclusively focused on China - like it implies that China is the biggest risk that we face. But my question is, when we talk with businesses in my area, in Baden-Württemberg, what are the biggest risks that we face actually? And there are risks that we can only face if we work together, for instance, China and other countries. And do you know the list of these words? Climate change, of course, and I think it's been discussed already. But the other risks, for instance, an increasing gap between rich and poor in the world that fuels many conflicts and instabilities - just think about Yemen and what's happening and the threats it poses for global shipping lines and so on. This is unsustainable.
We live in a world where, I think, events like the Munich Security Forum often - because they use the older terminologies and the older concepts - miss the reality that we live in a world that is non-sustainable. Neither if we talk about climate change, but also not disperse these huge differences between regions and within societies between the rich and the poor. As a historian, I'd say it's an illusion to think that this will not result in something. It has always in history. This cannot go on forever.
But there are also other really grave risks. For instance, think about technological development. Technological development, especially in terms of AI, can produce huge benefits - no doubt about it. But I was in China three weeks ago and I was really moved that I talked to a leading computer scientist and he told me in terms of artificial intelligence. Man, this thing's dangerous! We as a world community need to sit together and come up with rules. We want to use it and to harness it, but we also need clear rules. And these rules will not work if they are only established in one region of the world and are not rolled out globally.
So this is also a huge - we don't know what's happening and we are sort of blind - problem. So I think we need a whole new way to think about the changes that we have. And therefore, de-risking in terms of China is so dangerous because it gives us the illusion that China might be our biggest problem, but the biggest problems are elsewhere in the world. And we can only address them together.
And I'm not saying that there are not differences between [Europe and China]. We have different systems, and that's fine. We have different cultural conditions. That's also fine. But we need to face these things together. So I often think that if we cannot come together also on the intellectual level and create a platform where we come up with a better vision for the world (and I also do think there's something right to it), the institutions that we have, global institutions, let's face it, it's not only extreme rightists who criticize them and say they are not working - they are really not working. They're not working well. They're not working well enough.
So I think if we are under the dream that just keep doing, the way we did in the past will work in the future, I don't think that's going to happen. So that's my two cents here. Thank you so much.
Thomas HUECK
Chief Economist, Bosch
Firstly, I only can underline what had been somewhat romantic. But the big problem is - and I know economists - the economists tend to believe that trade is the best thing you can do.
You've heard, of course, of distributing income disintermediated but apart from that, free trade can't relieve anything. That's naive if you are an economist. Apart from that, it's a truism to clearly understand that if you're globally active, you have to establish more regionalized supply chains; you have to be close to your clients. EU suppliers should be close to the production facilities, otherwise you might run into big problems. There are a few areas where we can't do that. Semiconductors as well as these expensive LCD displays and a few other electronic components.
The problem here is that politicians tend to interfere with economics. It varies in levels, by the way. And from the economist's point of view, that's always bad. I'm old enough to understand that I have to accept reality. Politicians or politics have changed in the last decade - honestly, it's two decades - which has much to do with the rise of newer superpowers, for instance, China.
That is something we in the Western world have not actually realized today. You know, sometimes we see huge achievements of the market on multiple occasions, we initially turned to ignore and then came back on the table in quite an odd way. And it's, honestly, I wouldn't say that's a fault of China, or a fault of the U.S., or a fault of the Europeans; it simply happened. And that's to the fury with our business right now that's spreading multiple dimensions. So the best companies can do is to adapt and adjust accordingly - that's what companies are good at.
The only thing I would argue is we need a better understanding about how the cooperation of corporations globally will look alike for the next five to ten years. That again is a little bit late because I can't say that today with clear tendency, but we do already have a few, many years. As was mentioned, climate change is one of those areas where we can achieve some kind of common understanding. And insofar as these new rules that you mentioned before as well - which are important - are agreed on to some extent, it's getting easier for companies to adapt.
Would it be as sufficient a mode as we had hoped for? Of course not. Any deviation from free trade incurs costs. That's a kind of tax levied on business activities that is not going away, independent upon, by the way, who will be elected President of the United States later this year that will make such a big difference to economics.
And at the end of the day, economists, we are good enough to understand that you shall never put all your eggs in one basket. You have nothing that's trusting your own, one of the first courses of economic theory. So, putting everything together, we can complain a lot, if Good morning, us. So we should make all the best of it enough quickly and we must be agile enough to address our processes and ensure our investments accordingly.
Last reminder of that point, talking about China, the EU, or the U.S., these three large regions inhabited by 400 to 1.4 billion people, it is naive to assume a global player who can forego one of those three regions for doing business. So if politicians are asking companies to either refrain from or to refrain from the U.S., that won't work.
Cool, please can i get in contact with the Chief economist in the person of Mr Thomas Hueck from BOSCH ,BOSCH is also part of manufacturer of dremel3453D printer for 3Dprinting technology, we need to discuss some safety tips about making use of the products.