“Made in China 2025”

Now, the Chinese are facing a larger geopolitical push back but they appear confident that they have the means of fighting off the challenge.

MANOJ JOSHI
Srinagar, Publish Date: Mar 19 2018 11:40PM | Updated Date: Mar 19 2018 11:40PM
“Made in China 2025”

So the West  has begun to work along a new  strategy which views China as a rival, rather than a country that should be encouraged and helped to join the world order. As China works along a strategy to expand its influence using its new wealth, the US and Europe are pushing back.

For more than four decades most US policy makers and business elites believed that economic integration of China into the world system would lead to it becoming more liberal. Today things have changed. In January, for example, the US Trade Representative declared that the US had made a mistake in encouraging China to join the World Trade Organisation. Right now, the US is readying to hit China with a range of tariffs which could trigger a trade war.

The first shot of this putative war was fired on March 8 when the US announced that it would raise tariffs on steel and aluminum that would come into effect on March 23. Though this affects many countries, China is its principal target. Another shot came   last week when the Trump Administration blocked a hostile bid by Singapore based Broadcom to buy its rival chip company, Qualcomm.

At the same time, the US Congress is considering a bill to expand the powers of the Committee on Foreign Investment in the United States (CFIUS). This Committee can and does often block foreign acquisitions of American firms on national security grounds. One such acquisition it prevented was that of Midea, a major German chip manufacturer. German laws by themselves would not have blocked the acquisition, but the fact that the company had American links enabled the CFIUS to intervene.

A new American bill called the Foreign Investment Risk Review Modernisation Act (FIRRMA) is being mooted  to expand CFIUS powers  to target Chinese tactics more effectively. Another bill, the Foreign Agents Registration Act(FARA) is being drafted to get Chinese supported Confucius Institutes to be categorized as “foreign agents.”

Beyond this, the US is considering more stringent visa requirements for Chinese nationals, especially those who want to come in on the STEM (Science, Technology, Engineering and Mathematics) stream.

Finally, after a slew of Chinese acquisitions of European companies, a debate has emerged where Germany, France and Italy are calling for a European mechanism to vet foreign takeovers. The big shock came when, in 2016, a Chinese company purchased Kuka, one of the world’s leading robotics manufacturer. So, in 2017 Germany passed a law requiring deals to be scrutinized on national security grounds wherever an investor’s stake reaches 25 per cent.   

While the Americans talk and act tough, the Europeans are a bit cautious because they do not want to offend the Chinese because they are looking for Chinese investments and seek their markets. Just as in the ASEAN, China has succeeded in dividing the European Union on political issues. Countries like Greece and Hungary have been willing to back Beijing on issues such as the South China Sea and human rights, undermining the EU’s ability to take a strong stand.

IN September 2017, the European Commission president Jean-Claude Juncker proposed the creation of an EU system to screen deals involving China as a first step towards a CFIUS kind of a system to cover EU.  But there is a lack of unity. Germany, for example, is divided on the issue considering its huge investments in China.

Countries like Japan, UK, Australia and Canada have strengthened their respective mechanisms to put in place restrictions on foreign investments relating to national security.

Increasingly, China is using new ways to bypass these restrictions. In February, Li Shufu acquired a $ 9 billion stake in Daimler, one of Germany’s star companies. Li, who is chairman of the Chinese car maker Geely, used a Hong Kong shell companies, derivatives and bank finances to acquire small blocks of shares and suddenly emerge as the largest shareholder in the company, bypassing  German regulators and Daimler’s resistance. Geely bought up the Swedish car maker Volvo  in 2010 and is now eyeing Volvo Trucks. All this is part of a larger Chinese national strategy of becoming a world leader in electrical cars in the coming decades.

Under “Made in China 2025” strategy, the cash-rich Chinese have identified a slew of companies in automotive technology, chip fabrication, robotics, aerospace and aeronautical equipment, modern rail transport, power equipment, pharmaceuticals which they seek to acquire as a quicker means of enhancing the quality of their own products. These are legitimate tactics in the world of business, the only problem being that the Chinese themselves restrict investments in areas they deem sensitive.  

Now, the Chinese are facing a larger geopolitical push back but they appear confident that they have the means of fighting off the challenge. The reason is that they are integrated into the world economy and any effort to dent Chinese advances could have negative blowback  for the US and Europe as well. Businesses around the world seek Chinese markets and investment and are loath to deprive themselves of the opportunity to make money.

(The writer is a Distinguished Fellow, Observer Research Foundation, New Delhi)