"Human beings have three ways to act wisely," once taught Confucius. "First, by reflection, which is the noblest; second, by imitation, which is the easiest; and third, by experience, which is the bitterest." Is China taking the easiest path? And will it be bitter for Germany? How economic policy and SMEs might react to China’s economic trajectory is discussed by Christian Zeller, partner at enomyc, in this interview.
Mr. Zeller, you have a degree in economics and mechanical engineering, have long been involved with Asia, and have also worked there professionally. What fascinates you about this economic area?
My thesis at RWTH Aachen University was about Japan and the Toyota Production System. From that point, my interest and love for Asia were sparked. I have always been fascinated by the millennia-old cultures and the highly developed societies of the past. Asia masters complexity. Just organizing the daily life of 120 million Japanese across four islands demonstrates the highest discipline. And when it comes to strategic thinking, the two rival states, Japan and China, have perfected it over millennia. This is evident in today’s business world.
…many economic experts say that China thinks strategically much more long-term – and also has much more stamina.
That's true. China organizes and structures its economic policy very long-term, and so does its economy. In our country, theoretically, a new federal government can be elected every four years, which can then make a change in direction. In China, it's a completely different game. One may view it positively or negatively, but China sets strong frameworks for strategic and sustainable action. This allows for massive issues to be defined and realized over the long term, such as the "Belt and Road Initiative."
You mean the New Silk Road.
Exactly. The initiative to connect China with Europe, extends beyond land routes to sea routes. This includes port expansion and acquiring stakes in ports in various countries, including Pakistan. The initiative is heavily influenced by strategic action, driven not just from the economy, but primarily from politics.
Is China still a developing country in your view?
Yes and no. There are areas where China is certainly no longer a developing country today. For instance, in terms of innovation, China has taken the lead in various sectors. For example, among the ten largest lithium battery manufacturers for electric cars, CATL and BYD are two Chinese manufacturers in the top three. However, in areas like semiconductors or high-complexity machine engineering, China is not quite there yet. Moreover, if you look at the entire country, especially rural areas, many people are still employed as migrant workers, temporary workers, and farmers. And in terms of human rights and environmental protection, these areas are definitely still developing. Thus, one must view China very discernibly.
At the same time, China has made very important knowledge and technology transfers – through investments, joint ventures, and company acquisitions. Today, China's battery, electric car, and solar businesses are booming. The partner has become a system rival. What have we overlooked?
A lot. First, the brainpower China has built up through its population and demographic structure. Although China has also begun to age, if we look back 20 years, many highly educated graduates in IT, advanced technology areas, and also biotechnology entered the Chinese labor market. They are largely responsible for the innovations and current dynamics in China. Second, we underestimated how strategically long-term oriented China is in its politics – and how it also steers the economy.
This is particularly evident in the example of electromobility. China has already installed more than four million charging stations. This works so well, in part because the state mandates and subsidizes progress. It sometimes even takes over project management, coordinating supply chains – from battery manufacturers to control systems. In our country, the charging station register recently listed about 115,000 charging points, including fast chargers.
This is a good example. Clearly, we in Germany cannot intervene in our political system in this way or want to. That's something we have to accept. But it also makes it more difficult to promote projects in a coordinated manner and to advance the rapid spread of innovations and new technologies.
What can we learn from this? What would be a good solution for a democracy?
We can certainly learn from China's openness to technology, its dynamics, its consistency, its long-term approach. And there is indeed a middle model – or rather a counter-example from a democracy. Look at Tesla: The company – initially in the USA – grew so quickly because it put a complete concept in place from the start – including Superchargers. This approach, unlike the Chinese approach, was not regulated at all. The fact that Tesla was so promoted was ultimately based in the economic power and corresponding dynamics that Elon Musk and his team exhibited. This gave Tesla tremendous advantages over competitors at times.
So, does revenue strength not require regulatory power?
I don't think so. What is needed are overarching, centrally steered initiatives that combine infrastructure with promotion and incentive policies – keyword: electric car premium – and then actually implement them long-term. And that's exactly where we're somewhat trapped in the political system. We currently have a government that has been in office since 2021. After a year and a half of finding its feet, we're already looking towards the next federal election. Are really long-term, sustainable initiatives and support possible? I see that as a huge disadvantage.
We've already talked about what Germany has overlooked or underestimated. Have we also overestimated something about China?
Yes, we believed it was about real partnerships. But of course, China is about national self-interests. As for the mentioned joint ventures, i.e., the participation of Chinese companies in German companies in China: China has always aimed to maintain control to ensure the transfer of know-how and technology.
China has conducted a lot of knowledge and technology transfer. There are also numerous cases of industrial theft. Is China, to use Confucius' words, taking it easy? Imitation, he said, is ultimately the easiest way to act wisely.
In certain product areas – for example, construction machinery equipment or commercial vehicles – China has strongly imitated. It has imitated, copied, and taken over. But much was also created through own innovation. Take battery manufacturing: Here, innovative action was taken both in product and production technology. However – it must also be said – the realization was also greatly enabled by European manufacturers of production equipment.
You have visited several automotive supplier plants in China. What details reminded you of German counterparts?
I remember well the visit to a first-tier supplier in Taicang. A former Bosch manager was responsible for the plant. The entire production principles were cutting-edge – from the consistent implementation of lean management principles to state-of-the-art production facilities. Material flow principles, process visualization, and much more were up to date. What I also found very impressive – and what is completely different in China – are the flexibility and commitment of the employees. In Germany, one gets the impression that society is somewhat more satiated in parts. Especially the following generations have a very different attitude towards work, which is also much discussed.
What can Germany learn from this, apart from a flexible, committed workforce?
There are several examples. One that represents the technological complex very well is certainly the test track for the Transrapid in Emsland: The technology was developed in Germany. But it never came to real use in public space. China, on the other hand, adapted the Transrapid theme early – and simply made it! Since December 2002, the connection between Shanghai Airport and the center has been in place. And to date, it is the only operating Transrapid track ever opened in the world. I have used it myself.
What does this example stand for?
On the one hand, it stands for daring to do something. Even if only for prestige reasons.
And on the other hand?
It stands for being open to technology and new technological applications.
Do you perceive Germany as closed in this regard?
Yes. Here too, there are several examples that show how difficult German society often finds it to deal with new technologies. There are very often partial interests. For example, there are numerous lawsuits against the expansion of wind farms. Or the issue of monitoring public spaces: Here, the preservation of privacy and aspects of data protection are also extremely controversially discussed. I don't want to speak out against data protection, but overall, we are slowing down new technologies, technological applications, and products. This is fatal. Western Europe, and Germany in particular, have significantly lost ground in terms of technology openness and the associated dynamics. There are often extremely good approaches that are then realized elsewhere.
Where does Germany's mistake lie?
In my view, Germany can only position itself long-term as a high-cost location through dynamic innovation strength. This takes up too little space both in the economic policy discussion and in creating suitable frameworks. In this country, we often only develop basic technologies for products. Germany must also make the step to develop marketable products, commercialize them, generate competitive advantages, and keep other market participants at bay.
What does that involve?
Genuine entrepreneurship and openness to technology – in a substantive sense, not just as a political slogan. We need to bring back significantly more dynamism to our economic life. That means that there should be much less regulation in some areas. We need to return to a genuine spirit of innovation. This also involves focusing on expanding our science – and bundling it here. I observe that scientists are emigrating abroad, where there are better research conditions, higher degrees of freedom, very good job prospects, and not least, more attractive salaries.
Thinking of the Intel chip factory in Magdeburg, the planned Northvolt battery factory near Heide, and other initiatives, Germany's economic policy is already getting involved.
Yes, that's true. There are concrete efforts to establish sites. But it's not always fair. The task of economic policy should not only be to provide companies with funds: It must also generate long-term benefits for the respective industry segment and for Germany as a location. Thinking of Tesla in Grünheide, there is currently – just two years after the opening of the plant – discussion about cutting hundreds of jobs. What we need in Germany are long-term existing jobs in areas with future prospects.
Germany's strongest industries are still automotive, mechanical engineering, chemistry, and electrical. In our preliminary conversation, you said that semiconductors are the order of the day. What scenarios are conceivable for Germany in this field?
This is a very important point: We have successful companies in the field of semiconductors in Germany. In the field of automotive semiconductors, Infineon is very well positioned. And of course, Bosch has both the power and the know-how to further develop this business area. The semiconductor industry is extremely complex and capital-intensive, and thus requires long planning lead times. In my opinion, there must also be economic and location policy that specifically promotes this field. The sector must be pushed from research to industry. That is the task of economic and science policy: It must set the framework conditions. What happened to us with photovoltaics must not happen to us a second time.
You also advise companies in the transport and logistics sector. What do you think of the Chinese drop-shipping providers Temu and SHEIN in this context? In this country, there is talk of 400,000 packages being delivered daily – and it is said that Temu is even planning its own airline between Zhengzhou and Frankfurt. Do you find these developments dangerous?
From a consumer perspective, this development is initially seemingly attractive. Many products and also product imitations are offered at very low prices. Logistics companies also benefit: They sell high transport capacities and fully utilize their delivery capacities. The CEP – courier, express, and parcel services – are bursting at the seams. That's one side of the coin.
And the other?
These developments come at the expense of providers who cannot offer their products at such favorable conditions. On the one hand, because they maintain a different business ethic; on the other hand, because they have a different standard for their products. As long as the aforementioned developments affect the consumer goods sector, this is certainly still to be evaluated differently. It becomes dangerous – and I'm not talking about Temu or SHEIN here – in the industrial sector. One example is the discussion about expanding the mobile network with Huawei components. Another concerns the equipping of ports with crane systems from Chinese manufacturers. This shows where the journey could go. After all, infrastructural and digital security could be affected.
And although there is concern, even though there is the China strategy and the Chancellor is pressing for a level playing field: Imports from China were still twice as high as exports from Germany in 2023. What do you think will happen if the Taiwan-China conflict escalates?
Here we must distinguish two points. What are the most important volumes from Taiwan? Certainly, semiconductors, advanced electronics, and electronic components. An attack by China on Taiwan would lead to massive outages here. That's one area. The second concerns the reactions of the Western powers – especially the USA and their NATO allies: What sanctions would be the result? That's the key question.
In the event of severe sanctions against China, significant parts of global supply chains would also collapse.
And for this reason, the global sourcing approaches of the last 30 years are currently being heavily reconsidered. Among other things, resourcing and relocating from Asia to Eastern European countries or the NAFTA area are being discussed – and also already implemented.
What concerns do medium-sized companies share with you?
When it comes to supply chain fragility, many companies are now carefully weighing up whether to have goods delivered by truck from Romania within two days instead of receiving them from China after four to six weeks. And that's without the additional two weeks of sea transport time and the extra costs for a sea voyage around the Cape of Good Hope. All things considered, depending on the product, this can be the more sensible approach. I also notice that medium-sized companies, like large companies, are intensively thinking about their own production networks and sites, as well as about localizing their key suppliers.
So, from "Don't Hate. Imitate" to "Rethink and Relocate"?
Yes, a lot now needs to be reconsidered and re-dynamized. The conditions have changed. Decisions that were once made – which had their reasons and worked well for many years – no longer hold up. Production costs have also risen significantly in Asia, for example. Certain structures must therefore be reconsidered. But it would be wrong to apply "relocation" across the board – i.e., to bring everything back. That would also cause the major global players to lose their market access. Germany's economy cannot afford that.
Thank you for your insights, Mr. Zeller.
What questions do you have on the topic? Reach out to us! We look forward to hearing from you.
