How China Shapes our Future
In the middle of May, US President Donald Trump signed an executive order enabling the federal government to prohibit US companies from buying telecom equipment from foreign companies. The first to feel the damage from the order was Chinese company Huawei. How do you see this situation?
It is fair to say that the trade war is not really about trade, but technology. China has climbed the ladder so fast, faster than anybody thought, and this challenges the US. Huawei is now number two in the world for smart phones and number one for certain fields of 5G, which is going to revolutionize our transportation system. The US has many reasons to limit Chinese tech companies. There are economic and business reasons, but there are also political reasons. They claim that Chinese companies can be used for espionage, so there is a security risk if you use their technologies. But at the same time if there is Huawei equipment in vital infrastructure, the US themselves cannot carry out espionage. It has never been documented that Huawei has been involved in any espionage, but that doesn't mean it doesn't happen.
I think that most of all we need to remember that we are Europeans, not Americans. This means that we are often caught in this power game between the US and China. We are not part of the game because the EU isn't as big of a power. The problem is that the US is so powerful in Europe. For example, a small country like Denmark, where I come from, is very dependent on the US intelligence to protect against terrorism. And when the American government tells Denmark that they cannot share intelligence with us because the infrastructure was built by Huawei, do we really have a choice?
But it's about much more than espionage. It is about market shares and about the future where everything will be connected. This is why 5G will be so important.
China was recently labeled a partner of the EU, but also "an economic competitor in the pur-suit of technological leadership and a systemic rival promoting alternative models of govern-ance" by the European Commission. Is there any advice on relations with China and Chinese companies that you would give to European governments?
It is good that the EU takes a more strategic approach to China. China puts much effort into bilateral cooperation with EU countries. It is crucial to cooperate at the level of the EU. China is very protectionist in certain strategic areas like energy and finance. Chinese companies can easily build infrastructure in Europe, but European companies don't have the same access to the Chinese market.
So if you want to put pressure on China to change some of these limitations, you need to be more strategic in the way you deal with them. It is smart to think of the country with the ambitious Made in China 2025 plan as a strategic competitor. Eventually, European companies will have a tougher time because the prices will come under pressure. Some players in China don't even have to be profitable, they just focus on expanding their business and that's very difficult to compete with.
Chinese officials deal with countries very much like a businessperson would deal with investments and trades. For example, when they show interest in knowledge cooperation in areas where EU is more advanced, like our welfare system, medicine control, and food safety, our governments often provide this knowledge for free because they hope their companies can export to China. European governments and politicians need to be much better at setting up demands and counter claims.
What are the biggest innovations of most successful Chinese high tech companies and brands? Relatively low prices are not their only competitive advantage. What can and what should European companies learn from them to compete successfully?
Chinese companies are extremely good at creating user experience and they have a strong dialog with their customers online. If you are a company in the European context, you usually launch a product after a long process of innovation or development. But in China you need to be much more agile. You can't just launch one product that has to be a success, because you've spent so much money and effort on it. You probably launch around seven products that are perhaps only eighty percent ready, but you still push them to the market and test them. This way you start a dialogue with the users and listen to their feedback. Chinese companies are born agile because the environment demands it. The Chinese government will often change the regulations overnight so the business can be made illegal. You need to be very dynamic and Chinese companies know that. So that is one thing our companies can learn from them.
What is or what should be the main competitive edge of European companies in China? What industries do you think can have most success in China's market in the near future?
There are ten industries included in the Made in China 2025 plan. They represent a great challenge for European companies, because according to the plan, Chinese companies in those ten industries will become global front runners in the next five years. On the other hand they can be very attractive because it will be easier for foreign companies to get license to operate in those areas. They can also get access to state subsidies, because China really wants to attract that kind of investment right now.
Health is another area, also related to poverty reduction, which is a priority for the government. They have a plan called Healthy China 2030 and we can see many medical companies trying to set up labs in China. The problem is that the Chinese government wants to reduce the prices of medicine. You can get access to the market because they need our products, which are high quality and safe, but they are not willing to pay the price to cover research and development. So again you have to make a strategic decision. Do you think that China is so important for the long-term that you want to be here, even though you can't earn a lot or have to pay to sell medicines?
The Chinese consumer market provides plenty of opportunities with all the new emerging platforms. Some of them enable you to sell products to Chinese consumers directly from Slovenia. In general they feel safe about buying products directly form EU because they know that the quality control is better for many products.
While all companies say they listen to the customers, Chinese companies are obsessed with listening to the customers.
Ten priority industries of the Made in China 2025 plan:
• Next generation information technology;
• High-end numerical control machinery and robotics;
• Aerospace and aviation equipment;
• Maritime engineering equipment and high-tech maritime vessel manufacturing;
• Advanced rail equipment;
• Energy-saving and new energy vehicles;
• Electrical equipment;
• New materials;
• Biomedicine and high-performance medical devices;
• Agricultural machinery and equipment