Part 1: The View from European Companies in China

Part 2: The Chinese Communist Party Fears Ending Up Like the Soviet Union

Part 1

The View from European Companies in China

‘The propaganda ministry - within four to six weeks - managed to turn China into a problem for Europeans. China’s standing in Europe is eroding by the day.'

Malcolm Riddell: ‘How are European businesses faring in China?’

Joerg Wuttke: ‘European companies in China were doing well until January this year.’

• ‘Business was good for those that are permitted to operate here.’

‘But you have to keep in mind that there are lots of companies in Europe that have their nose against the China window and want to come in, but cannot. ‘

• ‘We estimate that we lose about 30 billion Euros every year because of companies not being able to operate in China the way Chinese companies are able operate in the European Union.’

Malcolm: ‘How do you see the relations between China and Europe businesses in China?’

Joerg: ‘Well it's a very mixed picture.’

• ‘We had, over the last year, a relatively smooth ride compared to the U.S.-China relationship.’

‘But at the same time, the U.S.-China trade battle sucked the oxygen out of our room for a long time.’

• ‘In the later part of 2019, we wanted to have high level meetings, we wanted to engage.’
• ‘But China simply wasn't able to focus. They were totally absorbed by the trouble Trump was causing them. So we had a real attention problem.’
• ‘This is funny because Europe happens to be the largest market for China - way bigger than the U.S. market - and we are by far China’s biggest technology provider.’
• ‘After 15th of January when the Phase One trade deal was signed in D.C., we got a bit of attention from the Chinese - then coronavirus happened.’

‘Europe is not the kind of world power the U.S. is.’

• ‘For us, China is in an economic story.'
• ‘The U.S.-China relations has the security story on top of the economic.’

Malcolm: ‘Relations between Europe and China seem strained lately. What’s behind that?'

Joerg: ‘Europe has always been sympathetic to China.’

• ‘Europeans felt a lot of goodwill towards China, in January in particular, when China was struggling - Europeans were moved by the pictures of Wuhanese standing on balconies singing.’
• ‘That goodwill turned around immediately when China was starting to donate equipment into Europe, particularly Italy, in the latter part of February and made a big fuss about it.’

‘What really annoyed us was when European people, as well as companies, donated money and equipment in January, the Chinese government asked us to lie low and not talk about it. So we didn't.’

• ‘Then all of a sudden we see China celebrating any mask that they landed in Europe.’

‘And of course on top of it, we are now experiencing the rhetoric, the assertiveness, the bullying of the ‘Wolf Warrior’ diplomats you have written about.’

• ‘We now enjoy Wolf Warriors in our capitals - in Stockholm and Paris and Prague and other places.’

‘It is a very sad story to see how the propaganda ministry - within four to six weeks - managed to turn China into a problem for Europeans, and how China’s standing in Europe is eroding by the day.’

Malcolm: ‘Is Europe feeling pressure from the U.S. and China to pick a side?’

Joerg: ‘Yes, the Chinese and the U.S. are putting pressure on us to make up our minds, "So who are you with? With us or with them?" ’

• ‘In this binary system, that's certainly not very positive to make a choice.'
• 'Besides, actually we don't want to make a choice.’

‘We are - if you include Britain - the largest economic block. We have a world currency. We don't have the army, and we look very messy, but as a matter of fact, we are an economic powerhouse.’

• ‘So we don't want to make a choice.’

‘We lean towards the U.S. of course for the system that we have, the democratic values that we have.’

• ‘And we certainly want to lean on China too because that means 30% of economic growth over the next 10 years coming out of China.’

‘So there’s a lot of soul searching have right now in Brussels, Berlin, and Paris, and other capitals.’

Part 2

The Chinese Communist Party Fears Ending Up Like the Soviet Union

‘The quality of administrative leadership in China is eroding.’

Malcolm: ‘Joerg, you have been in China for 30 years. Could you identify some of the biggest changes you’ve seen in the government?’

Joerg: ‘What I notice is that the quality of administrative leadership in China is eroding.’

• ‘When I look back 30 years, I remember the times, particularly in the nineties, when the leadership was open-minded, engaging, and took on difficult tasks.’

‘Now that seems to be down to just one person, Liu He, who is willing to do the heavy lifting.’

• ‘The rest of the gang I think is more aiming at sort of administering and just venturing on.’

‘There’s a complacency among the administrative leadership.’

• ‘And complacency is bad for business because there have to be structural changes in this country, and they simply don't happen.’

‘Take state run enterprises, for example.’

• ‘Everyone knows that they are bad for business. Everyone knows they're sucking money out of the system.’
• ‘But the political leadership still rewards SOEs.’

‘On the other hand, Chinese private enterprise is incredibly innovative and unbelievably good. They create the jobs and value.’

• ‘And they are being pushed in the corner in favor of SOEs.’

‘Just look at Nick Lardy’s two last books.’

• ‘In the earlier book, he talks about how China is moving toward a market-oriented economy.’
• ‘Then, three years later in his next book, this poor chap has to eat dirt and admit that Mao has taken over again.’

Malcolm: ‘Why do you think the administrative side is eroding?’

Joerg: ‘My company and I were - and I remain - very close to former Prime Minister Zhu Rongji - he's my hero, frankly. And one of his ministers is a bit of a political coach to me.’

• ‘So when there was a major screw up in late 2016 - all of a sudden four provinces lacked gas for three months - I asked him, “Minister so-and-so, why did this happen?"

‘The Minister told me, “Well, it’s because of the corruption campaign.” ’

• ‘ “The good people are leaving,” he said.'

“Why? Three reasons,”

• “A) They don't have a side income.”
• “B) They are held responsible for the rest of their life lives for any decisions they make, and”
• “C) They now have to spend to a lot of hours a day in political studies.”

“And so they leave the ministries - the economic ministries in particular - and go into private business where they can make a decent living.”

• ‘He concluded by saying, “A third-rate team doesn't make first-class policy. Just get used to it." ’

‘So, on the one hand, you have the best people leaving these decision-making bodies.’

• ‘And, on the other, those who are still there are scared stiff.’

Malcolm: ‘What’s driving all this?’

Joerg: ‘The Chinese Communist Party – it’s a Leninist party after all – is driven by fear.’

• ‘The Party has a lot of anxiety and wants to secure its position.’
• ‘That anxiety comes from three traumatic experiences related to Russia.’

‘The Russian trauma starts with Khrushchev in '56 denouncing Stalin.’

• ‘That really brought the Sino-Soviet relationship to a standstill.’

‘The second trauma was Gorbachev’s opening up Perestroika and Glasnost.’

• ‘That showed the Chinese that if you make political changes, then four years later you could be heading for the exit door.’

‘The third trauma is the Yeltsin years.’

• ‘This showed the Chinese that if you privatize SOEs, if you give this opportunity to businesspeople to buy them, then you end up with an oligarchy.’

‘So, this is the fear the Party has, of ending up like the collapsed  Soviet Union.’

• ‘They look at this again and again - all the time - in order to avoid Soviet mistakes.’
• ‘They're mesmerized by the Soviet and Russian story.’

‘Let's see the Chinese, with all this learning, can mastermind a different ending.’

• ‘At this stage, though, mesmerized as the Party may be, it looks like they might end up where they don't want to be.’