How China is forcing us to do things we don’t want to do

Federal Government writes his China strategy and is anything but unified. This is also because China’s state capitalism calls into question the basic principles of our market.

Adam Smith’s famous model of thinking begins to falter: according to him, companies maximize profits in pursuit of selfish interests, but the country’s economy benefits from this, because the market economy, price system and competitive order ensure the harmony of interests.

In short: when companies do well, society benefits. But can we still be certain of Adam Smith’s insight about China?

German subsidiaries in China want to move more and more business activities to the Middle Kingdom and export more and more from China to the rest of the world. This should reduce our export prospects in the medium term and thus endanger German export jobs.

In addition, German companies are increasingly going to China with the latest technology. What does this do to the research site? Deutschland? And to what extent are German companies helping the Chinese to reduce their technological dependence?

But it is also true that if there are very large profits in China, most of which go to Germany and decisively strengthen employment and capital there, interests can still be sufficiently aligned.

But one must also ask whether too much dependence leaves individual companies and ultimately German politics vulnerable to blackmail. According to media reports, the Chinese embassy in Berlin apparently pressured some German companies with significant influence in China to lobby its politicians for Cosco to take over the Hamburg port terminal. Otherwise, it will have consequences for your business in China.

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And what happens if Taiwan is attacked? Would heavy Western economic sanctions require bailouts for jobs in Germany, leaving taxpayers to bear the brunt of losses in China?

It would be a serious regulatory problem if business and economic interests were no longer aligned in important areas. In a market economy, it seems rational for some companies to rely even more on China.

>> Read here: Steinmeier warns about China’s new course in unusually sharp words

If politicians want to continue to adhere to the basic principles of a market economy, what can they do to reduce their overdependence on China? Therefore, the key question for China’s strategy is how we can skillfully change the underlying conditions, and thus the incentives, for companies. A small but symbolic adjustment cog would be the federal government’s investment guarantees to tighten investment in China by German companies.

China’s subsidy policy puts pressure on the principle of open markets

The second great economist, David Ricardo, developed a model of foreign trade in which trade allows countries to increase their wealth by specializing in their comparative advantages. Our belief in the principle of open markets is based on this very insight.

But about 20 years ago, the pope of foreign trade theory, Paul Samuelson, showed that, according to the same model, China’s rapid technological catch-up relative to the United States could lead to a loss of prosperity in America.

Because China competes with the developed export markets of industrialized countries. This is all the more true as China sends its heavily subsidized companies to the global market and increasingly penetrates our areas of specialization under the Made-in-China-2025 strategy. The strategy envisages that Beijing will upgrade China’s industry and, for example, by 2025 will significantly increase the share of local basic materials.

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Even if you have to be careful with economic models, policymakers should consider the potential welfare loss scenario in their China strategy. Therefore, the rapid transfer of the latest technology to China seems very problematic.

If WTO China’s unfair competition will not be curbed by reformed rules, it will die

Unfair competition from China, which is forcing more and more efficient European companies out of the market, should be stopped by reforming global trade rules. Multilateral cooperation, as another principle of our actions, does not work without the participation of the main actor.

China has been blocking fairer industrial subsidy rules at the World Trade Organization (WTO) for years. If things continue as they are and China gains more and more market share, WTO die a slow death.


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