China’s transformation and development are now widely recognised, and even Europe is slowly waking up to the gap. There is a growing awareness that we are falling further and further behind in a rapidly accelerating race. What may not yet be fully grasped is just how far behind we are.
Another thing that hasn’t quite been realised is that, despite all the statistics on trade deficits, undervalued currencies and rising overcapacity, there remains a fundamental difference between our systems. There is also a fundamental difference in mindset.
Within the EU, we still tend to assess China according to our own parameters and conditions. These are based on a certain world order, pattern of behaviour and set of circumstances. When we do this, we assume a certain outcome, a result linked to a specific development, such as in trade and economy. We assume what is best for the country, but we should be assuming what is best for the Communist Party, because those can be two completely different things. In our established political systems, the elected party serves the people. In China, the Communist Party considers that it is the people who serve the Party, and thereby the Party serves the people.
We start from the premise of balance in relationships, where the trade balance, for example, is in the interests of both parties; a balance that can be interpreted in many ways. Any measure that would improve a bilateral relationship but weaken the Communist Party’s position of power would never be implemented. We often talk about social stability in China, but we should be focusing on stability within the Communist Party instead. For the Communist Party, the Party and China are one and the same, though this is not necessarily the case for all the people who live here. Trade policy decisions, for example, will not be made based on what is best for the country or its people, but rather on what is best for the Communist Party.
In our mindset, political developments are guided by the will of the people. If there is no acceptance from the people, there will be a new government. In China, there is no need to take that into account; the Communist Party comes first, even if it means facing a temporary economic decline or losing a generation or two.
When assessing China, it is important to keep in mind that there are several dimensions. This is why we need to consider what strengthens the stability of the Communist Party and conduct risk assessments on decisions deemed to serve that purpose. Europe assumes mutual benefit and balance; China assumes strategic advantage for the system. Until Europe internalises that China is not a “misguided liberal state” but a fundamentally different political entity—where the Communist Party, the state and the people are fused—it will continue to misjudge both the risks and the opportunities.
To succeed in China, you need a deeper understanding and experienced managers who speak Chinese. We need boards back in Europe that genuinely understand local conditions, and despite all our good intentions, we are not there yet.
We need production that stops focusing solely on price and instead focuses on quality. We need supply chains that stop cannibalising each other because the end customer demands something different. Here foreign companies still have something to offer, and the Chinese still have something to learn.
By Lars-Åke Severin, CEO PSU