Akshay Mathur (GH): Heribert, you have been working on a research-based project on the Chinese economy. Will you tell us what your current assessment of the Chinese economy is and where you think it is going?
Heribert Dieter (HD): In the last few years, everyone seemed to think that the Chinese economy only knows one direction, and that is up. Currently, the Chinese leadership is confronted with a range of difficulties that will force it to make choices. None of these choices are nice. China has a growing debt pile, it has an overvalued real estate market and it wants to continue to grow. It will be difficult to reconcile these three issues. China will either have to bring the debt level down, which will result in lower growth or it will continue to pile up even more debt, which is to postpone the adjustment, and the rental crisis will worsen. So it is a very complicated situation and Premier Li has acknowledged this at the beginning of March. I think we will see more discussion on China in the next few months and years.
GH: Coming as you do from Germany, can you give us a German – or European – perspective on China’s place in the global economy and its trade and economic relationship with Europe?
HD: China has, of course, for a long period of time, been a very beneficial and positive contributor to the expansion of the global economy. This is changing: exports are not collapsing, but they are shrinking and German businesses are becoming more concerned about doing business in China. In the past, German business people and managers were very eager to be in China, they made lots of money there, but in the last, say 18 months, the perception has changed – both in industry and policy-making circuits in Berlin. People understand that China’s motivations are less benign than Chinese policy-makers have told us over the years. China is aiming at a leading position in the global economy, which is understandable, but this will, of course, result in competition with it in a range of sectors that were traditionally very strong in the German economy.
GH: If you were to advise the German and U.S. governments on the current U.S.-China trade war and how they should deal with China, what would you tell them?
HD: I would say that this is a conflict that had to happen. China has been in the World Trade Organization since almost 18 years and has failed to adjust. It continues to exploit the benefits of the multilateral system, but at the same time, the obligations of multilateralism are easily forgotten in Beijing. This is a big problem. This is not just my observation, but the former Director-General of the World Trade organization, Pascal Lamy, has come up with the same assessment, arguing that China needs to change. Or else, its partner countries, those which are negatively affected will have to change their trade policies.
Nobody likes to suggest that Mr Trump is right for once, but on China, he is. There is bipartisan support in the United States for his policies on China. In Europe, we saw in the second week of March that the European Commission is formulating a new strategy for China – and on China – with a revised assessment of the motivations of Chinese policy-makers. The trouble is today – take the controversies around Huawei and 5G equipment – nobody knows which company in China is a private one and which is not. The influence of the government in China on companies is remarkably high and that makes it very difficult to say that these companies can be easier to deal with because they are private and those are better avoided because they are state-owned. This is a complicated situation.
GH: What do you think is the role of international financial institutions and global forums like G20 – because they were set up with the idea of creating laws of global economic exchange? What role can multilateral economic platforms and institutions play?
HD: Well, they can play a role, facilitate exchange, but the trouble is… China defines its role in the WTO, and not that of the other member countries. It defines itself as a developing country, with fewer obligations than the OECD countries. But we all know that China is both – it is a developing country, but also an industrialised one. And other countries cannot force China to change its policies, say, on intellectual property and on subsidised, state-owned companies. This is a very difficult situation. The dialogues with China, and of course, between the United States and Europe, are very useful. But the expectation that was created in 2008-2009, that the G20 can solve problems that countries don’t want to solve, has turned out to be a bit of wishful thinking. Still, those organisations are useful.
When we look at the current conflict between China and the U.S., and the European Union, and Japan, it’s not just a conflict between China and the U.S. It’s many other important countries in the North. The problem is that the G20 can only facilitate, it cannot solve problems, and it cannot tell countries what to do. They have to come up with their own unilateral policy changes.
GH: You have been a keen observer of China, and probably just as much of India and India’s foreign policy. What is your assessment of India’s foreign policy towards China and the region? How do you see India’s role in Asia and the world?
HD: India has certainly changed its position in international relations. It wants to become a player, and a more active one. Prime Minister Modi has said that time and again. This is very useful. Ten years ago, India was seeing itself as a victim of globalisation; and today, the Indian government wants to defend the benefits of globalisation. That’s a structural change which I very much welcome. At the same time, of course, India does not have the easiest neighbourhood, and that, of course, limits the ability of the Indian government: we have just seen the terrorist attacks in February in this country. It is a very unfortunate and difficult situation, but still, I think India has increased its profile in international arenas and forums. This is useful for the future development of multilateral cooperation – and useful also for India.
GH: What roles do India and Germany have? On what issues can they work together? And on what issues in the foreign policy space can research institutions from our two countries collaborate?
HD: Research institutions cannot, and should not, set agendas, but they can raise the awareness of policy-makers on the issues to be dealt with. Much needs to be done here. Germany is largely unaware of the problems in this part of world; it ignores them at its own peril. I think there is not enough expertise on South Asia or the Indo-Pacific; the German government and German policy-making circuits should consider a more active role in this part of the world. By ‘active role’, I don’t mean a ‘military role’. I mean, many people have started to criticise China’s Belt and Road Initiative, but the trouble is there is no alternative. Germany, and other European countries, but Germany, first and foremost, could finance a better Belt and Road Initiative with low interest rates, with less tight conditions. But it is a formidable challenge. We cannot leave the task of financing infrastructure in this booming and growing part of the world to the World Bank and the Chinese. This is an opportunity for Europe, and for the time being, there is insufficient understanding that this is not a burden, but an opportunity. Both Germany – that is, the countries of the European Union – and India can benefit from enhanced opportunities in South Asia.
Heribert Dieter is Senior Fellow, German Institute for International and Security Affairs, Berlin & Visiting Fellow at Gateway House, Mumbai
Akshay Mathur is Director, Research and Analysis & Fellow, Geoeconomic Studies, Gateway House.
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