Tariffs, timeframes and markets as 'tools': what the West gets wrong about China

Roughly half a century ago, the man running China liked to compare his country’s burgeoning economy to a cat. Its color didn’t matter, “so long as it catches mice.”

Lately, the cat seems to be a deep shade of green.

Green energy, green cars, the makings of an entire green transition. So many Chinese electric vehicles have descended on foreign soil, they’re eliciting reactions that evoke a 19^th-century opium war. In the US and the EU, severe tariffs have now been deployed in a bid to make them prohibitively expensive.

The friction points to fundamental differences. It’s been suggested that we’re all capitalists now, but we may also have contrasting views of the value of markets – not to mention vastly differing timeframes and general approaches to fixing shared problems.

Markus Herrmann is uniquely positioned to help make sense of things. A Swiss-Chinese analyst with offices in Europe and Beijing, he functions a bit like an ancient priest, poring over official Chinese government documents, speeches, and discourse to interpret for Western clients – and identify potential points of departure.

In much of the West, for example, it’s a deeply embedded belief that a market is the best way to deliver value. But “from a Chinese perspective, it just doesn't have any idealistic texture,” Herrmann said, “It’s a tool.”

And about those timeframes. Planning in the West tends to revolve around elections every few years; in China, you should take into account benchmarks designed to require five years, 100 years, or far more than that to achieve, Herrmann said.

So, green technology might not always be about supplying enough to keep markets happy today. It could be about moving relentlessly towards a long-term goal, decarbonization, no matter what markets think. According to Herrmann, what we're seeing now from China has been “very long-term planned.”

Herrmann, the co-founder of Zurich-based China Macro Group, spoke with the Forum’s Radio Davos podcast about his method, things the West tends to get wrong about China, and why it matters. The work isn’t about value judgements, it’s about paying careful attention when someone tells you who they are, what they’re doing, and how they’re doing it.

Sometimes a single term can be significant. “Self-reliance,” for example, is liable to be translated from Chinese in ways that confuse its meaning, Herrmann said, necessitating a close read of primary sources.

What he watches for, generally: “How does the party or the government speak about opening up? How does it speak about the economy? How does it speak about security?” Maybe most importantly, how does it speak about “common prosperity?”

For a concept like markets, the script can be flipped. A Western presumption that they create efficiency becomes an assumption that they’re too often inefficient. Context is important.

China’s labour market, for example, is relatively constricted, in a way that means simply moving to another city to find a new job isn’t necessarily an option. “If you fully ‘marketize’ it, it would mean everyone in China can work in every city,” Herrmann said, threatening “an overwhelming of the East Coast cities… where basically most productive resources are concentrated.”

There’s often a lack of appreciation for how much has changed in China over a relatively brief period, Herrmann said. That can skew views from the outside, even roughly five decades after the opening up of the Chinese economy.

Last year, the US-based Pew Research Center published survey results pointing to a general sentiment that China doesn’t take the interests of other countries into account; at least, less so than the US. That gap may result from a failure to appreciate pragmatism, according to Herrmann.

“China's system is basically conditioned to act on interests,” he said, “and not ideals.”

“If countries feel their interests are not taken into account,” he added, the question may be “whether the countries themselves take their interests sufficiently into account.”

“Because that's basically how you would forge cooperation if you are engaging with China. You need to be very clear what your own interest is – and why you would engage, and on what kind of terms.”

Despite the frequent failure to understand how things work in China, the global economy is nonetheless starting to look a lot more Chinese.

Government intervention to turbocharge domestic sectors may be a longstanding hallmark of China’s economy, but the US is a relative beginner. A new American term was even conjured up recently for the trend: “neopopulism” (it’s long been described more generically as “industrial policy”).

The US isn't the only country playing industrial policy catch-up, with ambitious efforts now focused on green technology and semiconductors; French President Emmanuel Macron has called it a “conceptual revolution.”

In some ways, it’s a bit like having to abruptly switch mid-game from basketball to table tennis.

“It is a mirroring of the Chinese model,” Herrmann said, “but it's probably also a mirroring of the Chinese way of problem solving.” He added, “you will limit your options if you're not just purely practical.”

It’s unclear if any of that policy influence will translate into increased Chinese “soft power” – the overseas brand-burnishing that can help countries win friends and influence people through a blend of pop culture, propaganda, and humanitarian aid.

China’s relative lack of soft power has limited its ability to create a more positive perception, Herrmann said. That could change.

A few years ago, China became the world’s biggest film market. That same Pew Research Center survey delivering low marks for China taking others’ interests into account included some high marks for its entertainment – 67% of Nigerian respondents said it’s the “best or above average.” Meanwhile China’s programme for building infrastructure abroad has committed about $1 trillion to nearly 150 countries.

The West and China may now share a goal of reaping good PR through overseas engagement, but stark political differences persist.

The “modernization paradigm” is a Cold War-era idea that an economically developed society will almost certainly democratize. Many people may mistakenly think some version of that’s happened in China. “There is insufficient awareness of how much politics is still there,” Herrmann said.

Gaining a better understanding of those inner workings could arguably do more collective good than slapping tariffs on cars (Chinese electric vehicles may still be more affordable in the US than American models despite the measures). Herrmann says the best way forward is to constructively prepare for increased competition.

“It does not mean that this has to translate into conflict,” he said. “But at least it will mean that everyone will have to raise their game.”

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