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March 22, 2017

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China’s transformation drives global renewal

AFTER years, even decades, of predictable and mostly prosperous development, the world now seems to be in disarray. It almost seems like disorder is the new order — the new normal. Has the world gone off the rails? I wouldn't say that, but certainly, the world is changing at breakneck speed. Digitalization is triggering quantum leaps in technological progress. Think of the advances being in the areas such as big data, robotics, artificial intelligence, and electro-mobility. At the same time, global developments like climate change and mass migration are causing anxiety. Many people feel left behind and left out. And, unfortunately, it has become fashionable to pander to these anxieties and stoke the flames of populism, protectionism, and isolationism.

President Xi Jinping strongly warned against the consequences of nurturing such sentiments. And he also dared to be optimistic. At this year’s World Economic Forum in Davos, Switzerland, he painted a picture of a "bright future" as he called it. In his widely noted speech, Xi argued that it is shortsighted and wrong to blame “economic globalization” for the current contradictions and "imbalance." He said that the world must find a new equilibrium, combat poverty, and create prosperity for all. His prescription is openness. And his plea for a free global economy was passionate: “We must remain committed to developing global free trade and investment, promote trade and investment liberalization and facilitation through opening up, and say no to protectionism.”

As a German citizen and as the CEO of a company that generates 87 percent of its revenues outside Germany and employs more than 31,000 people in China, I fully support this plea. The economies of both China and Germany rely heavily on international trade. China is the No. 1 exporting nation in the world and Germany is No. 3. In 2016, China was also Germany’s most important trade partner for the first time. Vice versa, Germany is an especially attractive place for China to do business: Chinese companies made direct investments of roughly US$13 billion in Germany last year, more than ever before. Our economies are linked by strong trade ties; our value chains are increasingly intertwined.

Against this backdrop, it is obvious that China and Germany will benefit from a continuing reduction of trade barriers and a transparent, open investment climate. The ultimate goal should be a “level playing field” where Chinese and German companies have equal opportunity. This should include effective and reliable protection of intellectual property rights as well as the adoption of joint international technology standards — especially in future growth fields like "Industrie 4.0" or its Chinese equivalent, "Made in China 2025."

Competitive economy

The global exchange of ideas, technologies, and products opens up new opportunities for all countries. With the 13th Five-Year Plan, China seeks to seize these opportunities. The Plan calls for a transition from an economy driven by exports and investment to an economy driven by innovation. China continues to enact structural reforms prudently, sustainably, and consistently. Business and industry are being modernized step by step. And the government is resolutely promoting promising technologies. Instead of double-digit growth rates, the focus is now on qualitative growth, with the “new normal” as the measure. The goal is for products “Made in China” to be synonymous with innovation and quality by the year 2025.

This transformation is undoubtedly an enormous undertaking. For observers from Germany, a country with "only" about 83 million inhabitants, it takes some imagination to grasp the dimensions of this project: China has a population of 1.4 billion people and accounts for one-seventh of the global economic output. Fortunately, China’s leadership does not underestimate the magnitude of this undertaking, and it deserves greatest respect for aiming to complete this transformation by 2049, when the People’s Republic of China will celebrate the 100th anniversary of its founding. Clearly, the 13th Five-Year Plan is an opportunity for China to achieve sustainable economic development. However, it will take time for changes to have an impact. Patience and consistency will be needed, as well as continuous reforms along the way.

Today, digitalization is the most effective way to generate growth, boost competitiveness, and raise quality of life. It will enable us to make tremendous progress in many fields in the coming decades and it has already and will continue to transform all industries.

Manufacturing is of particular relevance to China and Germany because the economies of both countries rely so heavily on it. While the digitalization of manufacturing has the potential to push productivity to new heights, its impact on society is difficult to predict. According to some estimates, roughly half of today’s jobs will be automated in the coming years. If that scenario comes true, the impact on the labor market will be massive, in particular in manufacturing. If machines perform most of the routine tasks in the Fourth Industrial Revolution, in Industrie 4.0, what will humans do? And what skills will workers need? We cannot predict the future, but one thing is already certain today: The transformation of our economies will only be a success if it creates enough new, well-paying jobs and if workers receive training for these jobs. We must make sure that society as a whole benefits from digitalization.

In the second half of the 20th century, Germany's economic powerhouse, the Ruhr Region, underwent a similar transformation, which was preceded by severe crisis. Two key industries, coal and steel, started crumbling. During this time, Germany learned how important it is to act prudently and responsibly. Managing a transformation successfully not only involves developing new industries; it also involves training and educating people for the new jobs in those industries.

A good partner

China’s government understands that multinational companies have the potential to play a vital role in the renewal of its economy. But multinationals must also understand that China needs reliable partners, partners who think long term and do not sidestep the challenges ahead. Siemens is that kind of partner.

Siemens has been active in China since 1872. Our large local footprint enables us to be a strong technology partner for China in the ongoing development of its economy — for “Made in China 2025”, for Internet Plus, for “new urbanization” and for “Belt and Road” initiative.

China can benefit from our expertise and experience in the digitalization of manufacturing. Thanks to digital technologies, the output of our world-class factory in the German town of Amberg has risen eightfold over the last 25 years, while the number of employees has remained roughly the same over the same period. Continuous training is a big part of this success story. This factory has a “twin” in China. Our digital factory in Chengdu is almost an identical copy of the factory in Amberg. And it's the first digital factory Siemens built outside Germany. Since it was built, Siemens has formed partnerships with local government and a broad range of local companies in order to jointly explore the opportunities offered by digital manufacturing.

Joe Kaeser is the CEO of Siemens AG. The article, edited by length, was first published in CDF Journal 2017.


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