The US and Germany must work together in the face of China’s global plan to dominate tech and manufacturing. But is it too late?

 

Through its “Made in China 2025” industry strategy, China is making great strides to become the global leader in high-tech industries and manufacturing. The initiative was launched in 2015 as part of a government funded effort for Beijing to achieve its goal of surpassing the likes of the US and Germany to dominate global tech and automation by 2049 (the 100th anniversary of the Peoples Republic).  From China’s point of view, it’s looking to raise its economic global profile on par with the forecast that it’s economy will overtake the US in size by 2029.

Beijing wants to piggyback off western technology in the short term to enhance their own in the long term.  Both the US and Germany, among other western powers, continue to be targets of China’s “Trojan Herd”, a combination of joint ventures, tech incubators, acquisitions of critical infrastructure and early stage technology investments disguised as partnerships and credible M&A opportunities.

As China’s trade volumes have drastically increased on both sides of the Atlantic, its direct investments in tech and commercial sectors have increased as well. These include artificial intelligence, virtual reality, fintech, military equipment, robotics, real estate, and intellectual property.

Between the US and China alone the combined direct investments between the two in 1990 stood at $547 million and $18.57 billion in 2005 to $60.3 billion in 2016. From 2013 to 2015, Chinese investments into US tech companies increased 185 percent. Also, by 2015, Chinese companies were involved in 16 percent of the venture capital deals and investment into early stage technology deals have grown in the last decade at a total value of $11.5 billion. The money was very much welcomed as the global financial crisis had caused greater demand for third country financing in the US.

Across the Atlantic, Germany has become the second largest EU recipient of Chinese direct investment with annual investment levels between €1-2 billion. Germany’s world leading manufacturing sector is most attractive to Chinese investors. But recently, Beijing has expanded its interests in Germany beyond automotive and industry to finance, IT equipment, and electricity.

 

This is all part of a wider global strategy from China that not only includes Made in China 2025, but other strategic initiatives such as the Belt and Road Initiative (BRI) and the Asia Infrastructure and Investment Bank (AIIB), all in place to expand China’s influence through economic and geopolitical means to supplement and in some cases, rival and replace western hegemony. This approach is dangerous as China is on the path to accruing personal customer data, steal intellectual property and own significant portions of western military and security supply chains.

The hegemonic ambition of China, however, has been well studied and analyzed not just in the US and the Asia-Pacific, but also in distant Europe. And rising concerns about Beijing’s ambitions have been followed by action. In October 2016, Berlin blocked China’s approval to purchase chip equipment maker Aixtron and most recently the German Ministry of Economy nudged Belgium based electricity operator Elia to use its first right of refusal to sell a 20 percent stake in 50Hertz, one of Germany’s four electric power distributing companies, to state bank KfW. The move was made to thwart the State Grid Corporation of China’s (SGCC) second attempt in four months to make the purchase on the grounds of “security policy reasons”, according to the German government.

What could make for an efficient US-German or even a European alliance to keep China in check, is instead being blocked by the Trump administration’s policy to place tariffs against its neighbors and allies, including Germany. Trump’s active aggression towards the EU on trade and security has squandered an opportunity to partner with the US’s closest allies in countering China’s technological and geo-economic penetration that will introduce plenty of Trojan Horses for possible future conflicts.

Instead, the US and Europe should seek a Memorandum of Understanding drafted between an expanding Committee on Foreign Investment in the United States (CFIUS) and the 11-national inbound Foreign Direct Investments screening mechanisms within the EU. Once the EU reaches passage of its own bloc wide screening mechanism, constant communication between it, the national programs and CFIUS is paramount. Not only for sharing best practices including matching acquisition thresholds, but to re-establish transatlantic priorities along joint lines of economic security.

This MOU should be reinforced with a Transatlantic Strategic & Economic Dialogue (TS&ED) that occurs annually to reassess third country investment flows parallel with changing geopolitical outcomes. In the Aixtron deal, for example, CFIUS blocked it before Germany did on the grounds of the company’s US exposure, but the coordination or lack thereof between the two nations left much to be desired.

Although the US is pushing back from its leadership role in the world in various other areas, halting China’s tech and critical asset takeovers is one space it cannot cede ground. But it can only do so successfully with its allies and Berlin is Washington’s most qualified partner.

*Photo from the Associated Press. 

 

Todd Williamson is a General Manager at the Atlantic Community, and specializes in transatlantic relations, global trade and financial regulatory policy. He is currently a Senior Consultant at Berlin Global Advisors, and has previously worked with the Global Public Policy Institute as a Robert Bosch Fellow. 

The opinions of Mr. Williamson are his own and do not reflect any held by the Atlantic Community or its extended editorial staff. 

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