Europe naive about Chinese competition?

News Mondays - Clément Guntern

In recent months, the Chinese telecoms company Huawei has been at the heart of debates in several countries around the world. Having thrived on the domestic market, Huawei has quietly moved into international markets, to the point of becoming a major player in several telecoms sectors. In particular, the future 5G, which is the source of concern for certain governments, accusing the operator of acting as a spy for the Communist regime, without any real proof as yet.

However, there's no denying the links between Chinese business and Beijing. In fact, many of the party's top executives, such as that of Alibaba, the e-commerce giant, are members of the party's governing bodies. These close ties and the support that many firms receive from the Chinese state to expand and become dominant enterprises are real problems, as their foreign competitors don't play by the same rules.

This is what lies at the heart of several recent controversies, such as the European Commission's aborted merger between Alstom and Siemens. The latter wanted to merge in order to face up to their Chinese competitor CRRC. The same problem can be found in negotiations between China and the United States in their trade disputes. Washington accuses Beijing of unfair practices such as forced technology transfer, intellectual property infringement and the very likely massive subsidies granted to companies like CRRC and Huawei.

The US administration's determination to put an end to these practices is long overdue. Negotiations are underway, and if they fail, President Trump is promising to raise tariffs on Chinese exports from 10 to 25%, enough to give President Xi pause for thought. This is a necessary but not necessarily sufficient overhaul of global trade relations, as not all companies play by the same rules. Chinese companies can receive multiple subsidies and support, they can obtain technologies from their competitors, and so on.

 In this case, there are two solutions: either we succeed in making the Chinese apply the same rules as the rest of the world, or we adopt the same practices in Europe, the United States and everywhere else in the world. But in reality, the solution will be somewhere in between. Firstly, because the Chinese can't afford to withdraw their support now, and because they have a habit of taking advantage of loopholes to grow, often at the expense of others. On the other hand, Europeans need to be less naive. Competition management is a European competence in the hands of the Commission, and in the case of the Siemens-Alstom merger it simply followed the rules.

However, the refusal of the merger was a political and economic mistake, as companies are denied the ability to face up to competition that doesn't play by the rules. Countries that trade with China need to be aware of what lies ahead; companies may gain initially, but the situation is likely to deteriorate as Chinese competitors advance and overtake them. And this is already happening in some sectors. This is another attitude for Europeans to adopt: they must no longer be afraid of adopting a power policy that is not naïve.

Write to the author: clement.guntern@leregardlibre.com