Decoding China: Competing for control over digital future

The Hannover Messe, one of the world's largest trade fairs, is a trendsetter.  

The annual event, which takes place in the German city of Hanover, is where the world gets a glimpse into the industrial future and its groundbreaking themes.

The fact that China is an indispensable player here is apparent from the number of exhibitors from the Asian powerhouse. Almost 1 in 3 of the approximately 4,000 participants this year came from China.

The fact that the German government defines Beijing simultaneously as a "partner," "competitor" and "systemic rival" in its China strategy, unveiled last year, did not deter exhibitors.

"I'm not aware of Germany's position," said entrepreneur Jiang, who was exhibiting ball bearings of various sizes at his standard nine square meter stand in Hall 4.

The bearings are used in machines for so-called additive manufacturing, where workpieces are built up layer by layer.

"But that doesn't matter. We want to do business. And my products are good, inexpensive and indispensable for the industry," Jiang said.

A small number of stands remain empty in Hall 4. The company names stuck to the outside wall indicate that these were also intended for companies from China. The business representatives were probably not issued with visas for Germany, according to some exhibitors in nearby stands.

Otherwise, there was a clear sense of optimism at the stand for Chinese SMEs.

Taking part in the Hanover fair gives companies the opportunity for more export business to compensate for the declining demand in China's domestic market. "We are hoping for large orders from abroad," said Jiang, but admits that it is "difficult everywhere."

The future with AI-driven industry made in China

The logo on the China stand, "Make Things Better," reads like a self-confident slogan: Chinese companies have already taken the lead in some sectors worldwide. Themes such as digitalization and artificial intelligence (AI) would be inconceivable without Chinese involvement. The future lies in "Industry 4.0" — networked production with automated allocation of resources using AI.

The factories of the future, also known as smart factories, need fast wireless networks and cloud services. All industrial data is transmitted from production sites to the servers in real time via these "data clouds."

Artificial intelligence uses cloud computing to determine the best possible solutions according to predefined calculation models — the algorithms — and gives the machines instructions to perform the next steps.

Attending the opening of the trade fair on Monday, April 22, German Chancellor Olaf Scholz emphasized his country's strength "to ensure the future for our economy and for good, secure jobs in 10, 20, 30 years and for the future."

This can only be achieved with technological innovations, for which companies from Germany and many other countries that are participating in the Hanover fair are particularly suited, Scholz said.

Symbiosis through globalization

Important innovations are coming out of China.

"We are convinced of the progress made through globalization," said Zhiqiang Tao, vice president of Huawei Cloud.

The Chinese telecom giant is rapidly expanding its cloud services in Europe and operates servers for European customers in Ireland and Turkey.

"In Germany, for example, we offer our industrial customers a reliable cloud service via Deutsche Telekom. Only through cooperation will we remain successful in the future," Zhiqiang added.

According to Tao, over 8,000 industrial companies with a global presence are already using Huawei's cloud services in China. Linking these firms with their international partners would accelerate the digitalization of the entire value chain, he said. "We create added value for everyone. And a symbiosis is created."

But it is precisely this symbiosis that Germany has a problem with. Although Berlin's China strategy does not call for complete decoupling, it does call for diversification and so-called de-risking, a term implying a reduced economic dependence on Beijing. 

"We think it is understandable that Germany is trying to reduce its dependence on key primary products and raw materials," said Volker Treier, deputy head of the German Chamber of Industry and Commerce (DIHK) in Hanover.

"This is a normal commercial imperative. It gives some substance to the concept of de-risking. In China, issues such as the protection of intellectual property and the forced transfer of technology have not yet completely disappeared from the agenda."

Investment record despite de-risking strategy

But investment figures paint a different picture.

According to the Bundesbank, German firms invested almost €12 billion ($12.9 billion) in China in 2023 — more than ever before — despite the increased talk of de-risking. 

A business climate survey conducted by the German Chambers of Commerce Abroad (AHK) found that 54% of German companies want to increase their investments in China in order to "remain competitive there."

"This shows that, despite the existing challenges, there is still confidence in the stability and potential of the Chinese market," said Thomas Scheler, managing director of the German-Chinese Business Association (DCW) in Düsseldorf.

The complementarity of the two economies is "a key driver" in the contrasting phenomenon of political control and economic action, he said.

The opportunity now lies in the fact that globalization is moving away from trade in goods towards trade in services and, above all, direct investment, said business journalist Dieter Beste.

"Direct investment means producing close to the market, and in the market for the respective market. These are trends that are emerging worldwide, especially in the relationship between Germany and China," Beste added.

Reports of industrial espionage

The debate on innovation partnerships with Chinese companies has been overshadowed this week by reports of Chinese espionage.

The German Federal Prosecutor's office on Monday said that three German nationals had been arrested under the suspicion of having worked for the Chinese secret service.

Prosecutors believe the trio may have been involved in research projects that could be useful for China to expand its maritime power.

It is alleged that one of the suspects obtained information about innovative technologies that could be used for military purposes.

Due to the EU arms embargo on China, following the violent suppression of students protests on Tiananmen Square in Beijing in 1989, no licenses for export of weapons to China may be issued.

"Quite frankly, relations have been better in the past," said DIHK's Treier. "The volatile global situation has also had an impact on economic relations with China. Still, despite strong headwinds, we need to expand and systematically develop areas of cooperation."

This article was originally written in German

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