Source: chinanews.sina.com

        CNS： Before we touch upon the specific questions， could you share with us your general impression on China’s manufacturing capability given its “world factory” or “the workshop of the world” status？

　　Simon： China has become the factory of the world， as expected for many years。 It has gone through a transformation from low cost， low price， low quality producer to a medium cost， price， quality producer。 In some sectors Chinese companies are world-class manufacturers， a good example are railroads。 But in general the quality of typical Chinese products is not yet at the level of German products。 It is important to be realistic about these facts and not to dream。 The objective quality is one side， the perceived quality is the other side。 Perceived quality is created through objective quality plus branding。 And branding remains a weakness of Chinese firms。 There are only two Chinese companies among the top 100 in the world， Huawei is No。 70 and Lenovo is No。 100。

　　CNS： As a natural follow-up， how do you evaluate China’s technological progress over the past 4 decades after the Reform and Opening-up policy was steadfastly implemented？ And why the technology and innovation is so critical in the context of the new economy？

　　Simon： Of course as everybody knows the technological progress of China has by far surpassed the expectations of the past。 Nobody would have thought only ten years ago that China could reach the current status within such a short time。 In Germany we talked of the “economic miracle” in the 1950s。 The Chinese “economic miracle” is at least as impressive， if not more impressive， than its German predecessor。 But again I call for realism。 The pride of the enormous progress must not seduce China to become overly self-confident and complacent。 In many areas the United States is still the technology leader and will remain in that position for many years to come。 The recent ZTE case is a telling example。 Airbus is a strong European company。 But according to its CEO 90% of the electronics in the Airbus planes are from the US。

　　CNS： Being widely witnessed， the Sino-US trade tensions have demonstrated substantial negatives impacts on the world trade and economy as a whole， and the resolution is not yet around the corner。 What is your view on this matter， and what should the German business community act if the conflicts between the two world biggest economies are escalating？ 

　　Simon： I hope that a viable solution can be found until the end of March。 This is a real danger for China， for the US， and for Germany。 Trump is incalculable。 The book by his advisor Navarro is very strongly anti-China。 But China should also change its strategy。 As long as people think that they can steal technology the danger of a serious trade war will prevail。 And if China and the US insist that they demonstrate their power a good outcome is endangered。 Again realism is indicated。 I hope that everybody involved understands the mutual interdependence and does not believe that anybody can win a trade war。 There are no winners in a trade war as we know from the 1930s。 In Germany we are very concerned。 We depend more strongly on peaceful trade than both China and USA。 Almost one half of our GDP comes from our exports。 And many German companies which manufacture in China export their products from there to the US。

　　CNS： On December 19， the Bundestag revised the foreign investment regulation， which brought down the shareholding threshold from 25% to 10% for the regulatory review。 Although it may not directly target Chinese M&A activities in Germany， the effects could be born hugely by Chinese companies。 What do your think is the real purpose of the new regulation， and how to further tackle the dilemma between the national security and economic co-operation， in particular to Chinese partners？

　　Simon： Personally I don’t think that the new regulation makes sense。 But it reflects the mood of the politicians， the industry and probably the majority of Germans。 In my opinion the German government should focus on creating a level playing field for German and foreign companies in China rather than impeding foreign and Chinese investments in Germany。 I do not expect that the new rules will have much impact。 There are some critical areas like infrastructure or defense where such restrictions are understandable and make sense， but for 90% of the economy they are nonsense。 But I have also to criticize the Chinese。 We have seen 162 acquisitions of German companies by Chinese investors in the last three years， in the opposite direction we had 32。 This imbalance in the numbers as such is not a problem。 The problem is rather that some of the Chinese takeovers were seen as rather aggressive and as coordinated within the “Made in China 2025”- initiative。 I think that the aggressive communication of that campaign has done damage to Chinese investments abroad。 Yes， China has been very successful。 But I would recommend the country to boast less about this success and the ensuing strength。 Chinese acquirers have often payed very high prices。 While this may be advantageous for the seller， it is not perceived well by politics and the public。 Why？ Because overly high prices create the suspicion that these are political rather than pure business acquisitions。

　　CNS： From a goods-oriented export country to a capital-related and technology-focused outbound investment country， China’s investment footprints will broadly reach out。 Germany has been one of the most significant host countries for China’s money due to its manufacturing prowess and the complementarity between the two， how do you view the role of the Chinese investments in Germany， from the economic and ESG points of views？ With regards to the newly-enacted regulation， is there any tremendous impacts on the Sino-Germany co-operations？ And what might be the effects on Germany’s economy？

　　Simon： As I said I do not expect a strong impact。 Germany actually needs more Chinese investments。 Currently there is only one Chinese greenfield factory operating in Germany。 And actually the states and cities are vying for Chinese investments – opposite to the restrictions on the federal level。 China and Germany are ideal partners。 They have to find a way to cooperate。 That has worked very well in the past。 Both sides do not gain if they are too assertive。   

 I don’t have the impression that we can generally accuse Chinese acquirers of German companies for doing something improperly。 For the vast majority the opposite is true。 There are some cases of misconduct， but I hold that their percentage is lower than for American acquirers of German companies。 

　　CNS： Globalization might be in retreat to certain extent， however the exchanges of goods， capital， people and information will definitely continue。 How could Germany and China jointly meet the short-term challenges of trade protectionism and geopolitical tussle， and embark on the long-term journey of a better future for human being？

China and Germany can become role models for free trade。 They are leaders in global trade and thus can exert enormous influence by creating free trade flows between Europe， China and other regions。 This should induce the US to eventually follow。 

Simon： We don’t need less， we need more globalization。 India or Africa have no chance to catch up if they cannot export more to and buy more from advanced countries。 China and Germany can become role models for free trade。 They are leaders in global trade and thus can exert enormous influence by creating free trade flows between Europe， China and other regions。 This should induce the US to eventually follow。  

　　CNS： The SMEs are supposed to be the backbone of any economies。 In this respect， Germany has been very successful in driving the economy especially from the mittelstand sector， within which the huge amounts of “hidden champions” have emerged。 You are one of the most capable academics， if not the one of analyzing and advising us on the development of this unique sector， so what is the essence of German’s model in promoting overall economy from the bottom-up？ What are the tech factors being embedded in the whole process？

　　Simon： It is not the government that has created the strong mid-sized sector and the numerous Hidden Champions in Germany， rather the opposite is true。 By providing a stable political environment and leaving them alone the mittelstand could flourish。 And there is no single factor which explains the mittelstand’s and the Hidden Champions’ continuing success。 Important factors are the entrepreneurial ambition to become the best in the world， focus on a narrow market， and globalization。 The Hidden Champions are also very innovative， which is not a pure matter of technology but the integration of customer needs and technology。 There is one are， though， where the government plays a decisive role， vocational training， a pillar of German competitiveness。 The companies provide the practical training of apprentices and the government runs the vocational schools （Berufsschulen）。 The technical universities also play a key role in cooperating very closely with the companies。

　　CNS： Recently， China once again demonstrates the high commitments to the opening-up policy， and further optimizes the negative list and ownership percentage for foreign investment。 How do you evaluate China‘s determination and actions towards a more open economy and what opportunities will this bring to German companies？

　　Simon： I explicitly acknowledge the opening and the removal of restrictions。 This is the right way to go。 But to be very candid， the belief that this is really practiced consistently is not there。 And certain incidences really damage the belief in the seriousness of the opening。 China must become more rigorous in taking care that intellectual property rights are respected and that corruption is removed。

　　CNS： In talking about China’s overseas investments， the Belt and Road region is an indispensable construct， and China is open to any ideas regarding the co-operations in the context of the B&R Initiative。 As a prominent scholar， what is your take on this new policy development？

　　Simon： The Belt and Road initiative makes a lot of sense。 But China should not forget that it is dealing with many states which are much smaller and weaker and thus may easily feel dominated by a very powerful China。 I think that this initiative should be handled with more sensitivity。 It is never a pure matter of what you do， but how you do it and especially how you communicate it。

　　CNS： The technology transfer and the business reciprocity are the hot and inevitable topics when the cross-border investments are discussed。 What is your advice in terms of the so-called forced tech transfer and how can we build up a more reciprocal relationship between Germany and China， especially in the area of financial and industrial investments？

　　Simon： Forced tech transfer was probably necessary in an earlier stage of development。 Today China is in a position of strength， where any forced or inappropriate transfer of technology should be abandoned。 I think both countries should also stop to think of German or Chinese companies。 Companies as such have no nationality。 A German company which runs a good factory in China is a blessing for China。 And a Chinese company which runs a good factory in Germany is a blessing for Germany。 I often say that German companies have to become Chinese， and in the same vein Chinese companies have to become German。 The consulting company I founded， Simon-Kucher & Partners， has employees from 68 countries who work in 38 offices all over the world。 Our origin is in Germany， but we are not a German company。 In Beijing and Shanghai we are a Chinese company， all our employees there are Chinese。 I personally think that we have transcended the state of nationalism in our company。 But the politicians and most people are still thinking in national， if not nationalistic terms。 The result is what we see today in the trade tensions and the danger that global value chains are destroyed。

　　CNS： What is your opinion on a policy paper from the BDI， Germany’s main business lobby， suggesting the government to protect Germany’s open model from China’s “state-dominated economy”？

Of course， not everything is 100% separate in the West either。  Whether and how Western secret services obtain business data can only be guessed at。 But at least there are clear legal dividing lines that even apply to secret services。 But German companies and associations should also accept that they cannot change certain political conditions in China。 If one wants to do business with and in China， one has to accept the institutional framework there。 Nevertheless， there is a right to equal and fair treatment and every partner should insist on this right。

Simon： The policy paper “Partners and systemic competitors - How do we deal with China‘s state-controlled economy” by the Federation of German Industries （BDI） is comprehensive and addresses many important aspects of Chinese-German cooperation。 The paper is critical of， but not unfriendly to China。 I think that both sides are aware that they depend on each other and have to find compromises。 At the same time， the paper leaves no doubt that the two political systems in China and Germany are fundamentally different。 This is not of great importance at the pure business level， but where the state or the party on the Chinese side intervenes， it becomes critical。 So far， these differences have been swept under the carpet。 Due to the success of Chinese companies and， in particular， the numerous takeovers， awareness of the difference has risen sharply in Germany and other parts of the world。 One does not always get the impression that this change is fully understood by the Chinese side。 In the West， there are doubts as to whether the Chinese state or party is systematically keeping out of business issues。 In my opinion， this is extremely important if China wants to continue to be as successful as before in exports and foreign investments。 China must do everything it can to avoid further cases like Huawei。 Trust is one of the most important elements in international trade。 Of course， not everything is 100% separate in the West either。  Whether and how Western secret services obtain business data can only be guessed at。 But at least there are clear legal dividing lines that even apply to secret services。 But German companies and associations should also accept that they cannot change certain political conditions in China。 If one wants to do business with and in China， one has to accept the institutional framework there。 Nevertheless， there is a right to equal and fair treatment and every partner should insist on this right。

　　CNS： We have noticed that the German government has recently launched the National Industrial Strategy 2030， which aims to maintain the leading position facing the tremendous competitions from the US and China。 Several industries have been identified to be ones representing Germany’s manufacturing excellence and the government is urged to be more supportive， in another sense， to be more protective。 So how do you view this directional change of the government to be more involved in the business activities？ What are the impacts on the mittelstand sector， which is the backbone of Corporate Germany？ Meantime， how can Germany and China achieve a win-win situation taking into account the variables of the government policies？

　　Simon： The new initiative from the Minister of economic affairs meet with mixed reception in Germany。 It is mostly seen as a kind of industrial policy which is typical for France， but not for Germany。 The impact on the Mittelstand and the Hidden Champions will remain very limited。

　　CNS： In the post-Merkel era partly symbolized by CDU’s new leadership of AKK， what do you think are the possible changes， and what are the major impacts on the Sino-Germany economic relationships？

　　Simon： I am optimistic for Germany。 But we depend strongly on Europe， the US， and also on China。 In this context the Sino-German relation is one of the least pressing problems。 As I said in many of my talks， China and Germany fit very well together。 We have an industrial spirit， people are working hard， even culturally there are no conflicts。 Just as an example， there are about 300，000 Chinese living in Germany。 They don’t cause any trouble， unlike some other minorities。 I would like to see many more Chinese factories and companies in Germany。 And I hope that the access to the Chinese market will become freer and freer for German and foreign companies。 It will benefit all countries。