ZFHN-View at the global growth engine China

2019-05-09T22:29:27+02:00May 9th, 2019|

China is the mega topic of these days. Not a day goes by without a new headline appearing in the media: “The new Silk Road is coming”; “Artificial intelligence is booming in China” or “The German economy is afraid of selling out its technology”. But what is really behind the Chinese economic miracle of the last decades? Is it even an economic miracle – or do we let ourselves be blinded by a magnificent facade?

As managing director of an investment fund and family office, it is an important task to keep an eye on the technological hot spots worldwide. In the American Silicon Valley, important technological developments are still being driven forward, but in some areas the Chinese economy is reaching for the leading role.

The speed in China is impressive

In the past two years I have been to the Chinese tech metropolises several times and could get an impression of the enormous speed of the economy and the absolutely impressive diligence of the people. The drive emanating from the makers – but also from the employees – is extraordinary. You can feel the merciless will to make a difference. Motivation and passion are always an essential basis for progress.

Sometimes the suspicion creeps up on me that we in Germany no longer feel this hunger. And such a development is highly dangerous. Otto Fürst von Bismarck once said about wealth: “The first generation creates assets, the second manages assets, the third studies art history, and the fourth decays.“ It’s not that bad in today’s Germany, but speed and zeal win against work-life balance. We must always be aware of this.

China is still a developing country

Let us first take a look at the framework conditions. Progress in China is progressing at a fast pace, but China also has a lot of catching up to do. “China is still a developing country that still has a long way to go before it is comprehensively modernised,” writes Chinese Prime Minister Li Keqiang in a guest article in the Handelsblatt last month. This statement certainly resonates with a little understatement, but it hits the nail on the head. At present, the per capita income of the Chinese is only a quarter of that in the EU.

The IT infrastructure in China is currently worse than in Germany. The good IT and utilities equipment is concentrated in the Chinese metropolitan regions. In Germany, 81% of companies have a broadband connection, in China the figure is currently 64%.  The average data transmission speed in Germany is almost twice as high as in the Far East. At the same time, we must not close our eyes to the fact that the high-growth metropolises such as Shenzen, Shanghai and Beijing now have an excellent IT infrastructure. The 5G mobile communications standard is already in use there, while we are still in the process of inviting tenders.

China relies heavily on electric mobility

What are the big trends for young companies in China? During my visits so far, the topics electromobility, artificial intelligence (AI) and e-commerce have become familiar as predominant. China is placing great emphasis on electromobility. Approvals rose by 68% in 2018 compared to the previous year. The share of e-cars in the number of registered cars is already included: 4,5%. China is expected to have around 2.5 million electric cars by 2022. It is also important to note that 95% of the e-cars sold in China come from a Chinese manufacturer. So this huge market is firmly in Chinese hands. The Middle Kingdom is moving into the centre of interest when it comes to electromobility. And in the center of mobility you get the ideas

German cars offer a lot of tech and sheet metal but little software, while in China the software is more in the foreground. Important car manufacturers in China are amongst others BYD, Geely, Yudo and WM Motor. I was able to get to know the Geely company myself during a visit. The company holds almost 10% of Daimler and would like to increase its stake even further. German automakers and suppliers continue to enjoy a high reputation in China. In this respect, this provides a solid basis for cooperation.

Total work of art Mobility

Battery technology is an important pillar of electric mobility in China. Modern batteries work in many high-tech devices: Electric cars, smartphones, tablets, mobile robots, etc. According to a unanimous statement by many experts, Chinese companies are ahead by a nose when it comes to batteries. And developments are being driven forward at a high pace. I strongly doubt that this lead can still be made up in Europe. In the future, there will be a strong risk of dependency here due to wrong decisions in companies and politics.

In the Chinese metropolises, mobility is very cleverly planned as a kind of total work of art. Modern drive technology, new batteries, high-speed Internet with intensive networking of all components and interconnected by artificial intelligence. The mobility of the future is currently being developed in China. These Megac cities are somehow oversized laboratories for the latest developments.

Large database for AI systems

During my visits to China in the field of artificial intelligence, I have experienced that developments focus on medical technology, robotics and facial recognition. Due to the size of the country, there is a very large database. And people in China are not afraid to divulge data about themselves. In this way, the data pool grows continuously. The systems become continuously more accurate and faster. Experts estimate that 30% of the world’s data will be stored in China by 2030.

Great hunger for data in China

In e-commerce, China decoupled itself from the rest of the Internet at an early stage, thus creating optimal conditions for the development of its own companies. Global giants like Amazon, Facebook or Google simply do not take place in China. Instead there is Alibaba (online trading), Baidu (search engine) and Tencent (WeChat) – with a comparable dominant market position. The difference between China and other countries lies in the increased use of mobile devices. 772 million Chinese already use smartphones in 2017, two-thirds of whom use them for most payment transactions. The Chinese currently spend three times as much time a day on the mobile Internet as people in Germany. This makes it clear how large this market is and it continues to grow steadily.

What must we do in Germany in the future?

From my personal point of view, cooperation is more important than confrontation. There is, of course, a need in China to improve the protection of intellectual property and market access for foreign companies. Nevertheless, intensive cooperation should be sought – particularly in the area of research and development. Especially the partnership with start-ups and open innovation platforms brings added value. It has been shown that German companies profit in China if they promote innovation there. We all need to improve our knowledge of China. I also think it makes sense to introduce Chinese as a foreign language in schools.

by Thomas R. Villinger, CEO ZFHN