December 5, 2024 • 35 mins
Host Dr. Elizabeth Economy sits down with Joerg Wuttke to discuss his 30+ years doing business in China, the systemic challenges facing the Chinese economy, what the future holds for the China-EU relationship, and buying 160 million masks for then German Prime Minister Angela Merkel during the pandemic.
Wuttke provides insight into the dramatic changes in China’s business environment from his seat as BASF’s chief representative in China and head of the European Union’s Chamber of Commerce in China. He shares how he navigated the Chinese system to build one of the country’s most successful joint ventures, dealt with the endemic corruption in the Chinese bureaucracy, and steered BASF through the COVID lockdowns. He describes the current challenging environment for foreign companies: the departure of young talent, the growing competitiveness in many sectors of Chinese homegrown business, the primacy of Chinese Communist Party ideology over economic development, and the uneven playing field created by Beijing to advantage Chinese companies.
In his reflections, Wuttke describes his time working in China during the 1980s as the “best and worst of all times,” as he witnessed the stunning transformation of the country. Yet under the rule of Xi Jinping, he describes a vast surveillance state becoming increasingly unfriendly to the private sector—including both Chinese companies and multinationals. And while a thaw in relations may be unlikely, Wuttke encourages listeners to travel to China, to appreciate the culture, and to remember that the “party is not the country”.
Recorded on December 5, 2024.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:03):
[MUSIC]
>> Elizabeth Economy (00:06):
Welcome to China Considered, a podcast that brings fresh
insights and informed discussion to one ofthe most consequential issues of our time,
how China is changing andchanging the world.
I'm Liz Economy, Hargrove Senior Fellowand co-director of the US-China in
the World program at the HooverInstitution at Stanford University.
Today I have with me,
Joerg Wuttke, who is a partner at theconsulting firm DGA Albright Stonebridge.
(00:31):
But he's also spent more thanthree decades working in China,
most recently as the vice president and
chief representative of the powerhouseGerman chemical company BASF.
And for much of that time,
he was president of the EuropeanUnion Chamber of Commerce in China.
Joerg, thanks so much forjoining me today.
>> Joerg Wuttke (00:47):
Wonderful to be with you.
>> Elizabeth Economy (00:50):
So you actually started working in China in 1988 for ABB,
a Swiss-Swedish engineering andpower company.
That was really a pioneering time formultinationals in China.
Can you give us a sense of whatit was like to be living and
working in China duringthose sort of early years?
>> Joerg Wuttke (01:07):
Well, it was the best and the worst of all times.
It was really pioneering days because 88,I came for the first time in 82.
I was there moonlighting a bit in 87 for,at that time, BBC,
then later ABB and88 to June 89 was just fantastic.
I mean, the cultural life was so rich.
You had spectacular TV programs.
(01:29):
It was very open discussion.
Of course, then June 89 happened andthe whole house came crashing down.
That's why I also left in summer 1990,because business absolutely took a major
hit and only recuperated whenDeng Xiaoping took his 1992 Southern Tour.
So 88 to 90, it couldn't bemore different in these years.
(01:49):
But again, you experiencea China which was very poor,
which was humble, andpeople were super curious.
And that's very different from today.
Nobody's humble anymore andfew people are curious in China.
>> Elizabeth Economy (02:02):
But how was it sort of establishing the venture in terms of
just setting it up?
And were there rules and regulations?
Was there a lot of corruption?
What was sort of the businessenvironment for you early on?
>> Joerg Wuttke (02:17):
It was mostly trading, it was mostly exporting to China, selling
into China, very little investment,because the law was not really there.
And China was very reluctant toopen the door for foreigners.
They felt like foreigners take advantage.
Again, the Chinese interlocutors were veryinexperienced and the market was very,
very small.
So ABB, at that time was selling switchyards, everything around a power station,
(02:40):
also some train components.
And that's what China needed gradually.
But of course, it was all aboutnegotiations about payment terms and
so forth, investment, in essence,only started in the mid-90s.
>> Elizabeth Economy (02:52):
Okay, so let's talk about then,
sort of moving forward from thatlate 80s period through to today.
What did you see were sort ofthe major inflection points or
shifts in the business environment formultinationals?
Were there certain moments in time whenthings just seem to open up or close down?
(03:13):
How did the environment change, you know,
over the course of the sort of threedecades or more that you were there?
>> Joerg Wuttke (03:19):
I left in September 1990.
It was grim, depression was really inthe economy and in the mindsets of people.
Foreigners did not really look atChina as a possibility anymore.
It looked all very grim.
And I came back in March 93, andof all cities across Shanghai,
which at that time was sort ofthe vanguard in opening up China again,
it's all down to one man, Deng Xiaoping.
(03:41):
And I recall how I was invited by themayor to see the Shanghai of the Future.
It was March 93 andit was in a huge warehouse in Pudong.
Nothing around it, only mud.
And there was an incredible city builtout of wood, carved out of wood.
And I said to my assistant, let's go.
This is crazy, this will never happen.
(04:03):
Now of course, not only did it happen,
it happened faster thanI thought it would be.
And that has never left my mindthat actually when the Chinese puts
their mind to it, it's going to help,it's going to develop.
And that's when actuallyinvestment started.
China was discussing then in late 90s,
the accession to WTO,there was a better legal framework.
(04:26):
China actually came out of the Asianfinancial crisis much better than all
the other countries.
Japan took a hit.
So in a way, China all of a suddenlooked cool and looked much better.
Courtesy also that the othersactually had really problems.
And then of course, nobody looked backuntil recently, it was just the wild 90s.
>> Elizabeth Economy (04:45):
And if you had to sort of pick a time that you thought
was the most challenging, putting asideCovid, which we want to talk about in
a few minutes, was there a moment whereyou felt like, this is really difficult,
this is just not working?
Was there a particular challenge thatyou faced where you felt like BASF,
because by then you were working forBASF, right?
>> Joerg Wuttke (05:07):
Yeah. >> Elizabeth Economy
felt like, this isn't reallygoing to work for us here?
Well, 89 was really difficult.
June 89, we had to withdraw people.
We had to close down construction sitesbecause of the shooting in Beijing.
And basically getting these constructionsites up and running to negotiate with
(05:28):
the Chinese on these situations where wehad to catch up, it was really difficult.
And I will remember these longnight sessions that we had.
So 89 with ABB definitely was the worstperiod that I negotiated ever in.
The second was in 9798Asian financial crisis,
BASF I joined them in late 96,basically decided to have
(05:50):
a $3 billion project developedin Nanjing which was incredible.
It was basically viewed as are you crazy?
Because the economy aroundChina went down in flames.
The market had no real regulations todeal with monster projects like that.
And of course a headquarter nervous andthe capital markets got very nervous.
(06:12):
What are you doing there?
And that's when I learnedentrepreneurial spirit.
The CEO at that time andthe Asia board member Mr.
Hamreich, who actually employed me in 96,
they showed how it is possible in asituation like that to develop a project.
And it worked out.
It's now by far one of the most profitableoperations that BASF has globally.
(06:34):
It's a 50-50 joint venture.
Also something interesting,most people say joint ventures never work.
So in a way you all of a sudd thatif you have a long term vision and
if you actually see the fault lines ofthe economy, the market development,
if you hang in there and if you dothe right things, invest when nobody's
investing, buying cheaper machinery,you actually can get going.
(06:56):
So in a way I'm sure this these dayswill not repeat themselves anymore, but
it is just somethingabout entrepreneurship.
>> Elizabeth Economy (07:04):
So okay, let's just drill down on that for
a minute because you know the investmentenvironment you're suggesting was quite
different in China from what maybe youwould experience in Germany, for example.
Can you talk a little bit about what thatentrepreneurial spirit meant like on
the ground, what is it that you had todo to get the venture up and running?
>> Joerg Wuttke (07:26):
Well, first of all, you had to find the right people.
We were lucky to have an empathetic,very, very considerate,
along German, an engineer whoreally had lots of patience.
Lucky to actually have a company that cansort of scan the operations back home,
who is a possible person.
People underestimate the importance ofindividuals in situations like that.
(07:48):
The second is just to be convinced thatbasically the market is gonna be there,
you just have to hang in there andjust do it.
Strategy has to be right, butthen also tactics has to be right.
And at that time.
It was primarily also reachingout to the Chinese leadership.
It was our patron at thattime was Prime Minister.
He looked after BSF,he wanted the project.
(08:10):
He came to our headquarter in Germany andwe basically then had a gentleman
who helped us to find the confidenceto do this $3 billion project,
while the capital markets actually lookedat BSF as if they have lost their marbles.
So in a way, the other one is,of course, to have a joint venture
partner that you can trust andtrust building takes a long time.
(08:33):
You just don't get itright away in particular,
not with a state run enterprise.
And trust is, again, human to human.
It's about the chairman of Sinopec atthat time who actually when this whole
Sinopec in the Northwest Petrochina wasfalling apart and then got regrouped,
put together.
He came to Germany in order totell the top management and
(08:53):
the stakeholders guys the market is good.
So in a way, at the end of the day,it boiled down to people to people that
actually got projects going despitevery adverse circumstances.
>> Elizabeth Economy (09:05):
And without saying whether you actually had to pay anybody
any bribes, were you approachedto sort of pay people off?
We hear a lot about corruption inChina and sort of endemic corruption.
And obviously, Xi Jinping, current leaderhas had an ongoing anti corruption
campaign, one that seems to haveno end even now, 12 years into it.
(09:28):
How important was sort ofnavigating that corruption over
the course of your time there?
>> Joerg Wuttke (09:35):
In the electrical engineering businesses was really
difficult for many reasons.
This area was quite corrupt inthe early 90s in particular.
And the second is it was tax deductible inGermany, [LAUGH] so it was actually legal.
So in a way, that was a dark period it andI will cover it in my forthcoming
next year autobiography that I was sohappy then to leave that business and
(10:00):
go to chemicals, go to a companythat never used a single agent.
Staying away from middlemen ormiddlewomen,
it's just trying to have a directcontact with decision makers.
And that was kept in the 27 years thatI was heading this office in Beijing.
Again, you have to have the guts andthen also, of course,
(10:22):
the systems in order to stayaway from these kind of people.
And the system means that you haveto have very good compliance teams,
you have to good education of your people,
because there's always the occasionalprocurement office corruption scandal.
But once it sort of gets into the headsetsof people in the government or
(10:43):
with business partners,that BSF is not to be bought.
You cannot actually get business.
If we pay customers, for example, orif a client's suppliers give us money for
these huge projects in orderto get favorable treatment,
you actually are steering a ship whichis in smooth and very nice waters.
(11:03):
If you don't do this,you are subject to corruption campaigns to
basically fashionable areas wherethis guy goes out, this guy goes in,
and then all of a sudden you havebeen connected with the wrong person.
So if you stay away from that andyou keep it this way, actually,
you're pretty in safe hands.
It's not easy though.
>> Elizabeth Economy (11:25):
So let's fast forward to today or just a year or
two ago.
Most of us here in the westexperienced China's COVID lockdowns,
you through news reports orthrough videos on the Internet.
You lived through COVID in China.
Could you talk aboutthe impact on your life,
(11:47):
on the life of the internationalbusiness community?
How did it affect your sort of daily lifeand the sort of life of your business?
>> Joerg Wuttke (11:58):
Well, I was in two important positions as heading BSF in
Beijing, as well as chairof the European Chamber.
So I couldn't just leave the country andthen go through two, or three, or
four weeks of quarantineto come back again.
So I was three years stuck in China andthe last year I was stuck in Beijing,
I couldn't leave Beijing.
And we had a situation where itwas emergency upon emergency.
(12:20):
I mean, on the one hand, communication tomembers of how to navigate that situation.
Then on the side,I had to buy 160 million masks for
BSF on behalf of Angela Merkel andstuff like that.
Every day was nerve wracking in a way.
But again, 2020 second part,2021 was the best year ever in business.
(12:40):
Turnover was incredible,because the world needed electronics and
healthcare equipment from China.
And then, of course,we went into 2022 and then, of course,
Shanghai was setting the stagelockdown and then daily testing.
And at the end, it became insane.
The kind of effort the Chinese governmentdid in order to actually keep COVID out,
(13:01):
though the game has changedwith a totally different virus.
I was writing a letter tothe Vice Premier Hu Tung Hwa,
that got leaked on purpose bythe State Council to initiate discussion.
And I could sense that there are so manydecision makers in the Chinese government
that are against zero COVID,but it came from the politburo.
And then at the end,basically, it was policy.
(13:22):
And until the 7th of December,
it was then basically a countrywhich was under tremendous lockdown.
Then it opened the floodgates andyou know what happened?
Million people possibly died.
So it was bizarre.
And I think during this process,a lot of psychological damage happened,
particularly for people in Shanghai,particular also for the economy.
(13:43):
And it was overlaying also the otherchallenges that China was facing.
A real estate market, which was overblown,was deflated and then crashed, in essence.
And then the world doesn't neednecessarily all these medical equipment,
electronics.
So in a way, we came back in 2023,first quarter, and thought, okay,
come back story as usual.
There was a brief restocking andthen [LAUGH] we were on a plateau.
(14:07):
Nothing really happened,not in economics, not in politics.
In October 2022, this infamousparty congress triggered this point
that actually reforms are notgonna be around the corner.
The leading out of Hu Jintao wasthe visual about the old days are gone.
And then ever since,China's economy has been limping along.
And it's just amazing to seethat instead of the past where
(14:30):
Chinese government could step in fast andfix it,
we are now seeing band aids thatare handed out for amputations.
>> Elizabeth Economy (14:40):
[LAUGH] So that's a great visual, band aids for amputations.
So to what do you attribute sort ofthe failure of the Chinese government
to come in and actually just as you say,resolve the issues,
clearly they know what the problems are.
I mean,many of these problems are long standing.
It's not like they're facing new issues.
(15:01):
So what do you think is the holdup here?
What's preventing them from takingthe kinds of actions that you and
I know a number of Western and evenChinese economists have been proposing?
>> Joerg Wuttke (15:11):
Well, I mean, my position paper, I think the last one I launched in
September 2022 was ideologytrumps the economy.
They're boxed in.
>> Elizabeth Economy (15:21):
This is a European chamber position.
>> Joerg Wuttke (15:23):
That's right, that's right.
And I made it a point of thatthey have boxed themselves in.
The success story that was justified in2021 turned out to be a disaster in 2022,
but they couldn't changethe position on that one.
So they carried on with a policy,which definitely was not fitting that
particular virus that was notcirculating anywhere in China, but
(15:46):
then came like a tsunamiacross this country.
So in a way, it is something whereI can sense that the working
area there is sub director generals anddivision chiefs.
Definitely knew that there was somethingnot very well in its development,
but at the same time, at the very top,
(16:07):
I think it's one of these downsidesof having an echo chamber.
They believed the propaganda,
they believed the data set that theybelieved is the right situation.
So it was all about success, success.
And then at the end, the question is,
who is going to talk to the Emperorto say, we have a bit of a problem.
>> Elizabeth Economy (16:25):
And do you think there's anybody in the leadership that can
talk to the Emperor and say, there'sa problem, you have no clothes [LAUGH]?
>> Joerg Wuttke (16:32):
[LAUGH] Well, it's a group.
Yeah, well, it's a group of people thatdefinitely are creating this echo chamber.
And it's three or four of them.
I would say there are verysmart people in the leadership.
Definitely in the countryside,in the provinces Chongqing, Shanghai,
Xinjiang has great party leaders.
But I guess that the system is now soclearly focused on we follow
(16:56):
the Xi Jinping line that they don'tdare to waver and change from that.
The corruption campaign goes on.
You never know if that's reallybecause people are corrupt or
basically they get pushed aside.
So in a way, there is this echo chamber.
It might change in 2027 whenthe kind of leadership under
Xi Jinping might be exchanged witha more open minded generation.
(17:19):
Because also keep in mind thisleadership is socialized during
the Cultural Revolution.
And that is something which then will facepeople that have been studying abroad,
speak foreign languages, are technocrats,totally different mindset.
So I hope that in 2027 we see a change.
>> Elizabeth Economy (17:36):
Okay, so there's also been a kind of drop off,
a fairly significant drop off overthe past few years in foreign direct
investment and foreign venturecapital coming into the country.
I know that when I traveled to China,a year ago August with the secretary,
US Secretary of Commerce, all ofthe Chinese leaders were saying how much
(17:58):
they wanted foreign investment backed.
They were welcoming multinationals.
What's your sense for the degree to whichthe Chinese leadership is prepared to take
steps to get multinationals back investingand doing more business in China?
Is this a serious sort of issue for them?
(18:19):
Are they taking it seriously?
Or is this something where they'rejust kind of saying these things,
but they're not really preparedto take the necessary steps?
>> Joerg Wuttke (18:28):
I noticed a difference in the countryside and in Beijing,
the capital, it's in the countryside,
people really want tohave foreign investment.
They go the extra mile in particularcities like Chongqing, for example,
Shenyang really was rollingout the red carpet.
But there's so much they can do if thepolicy out of Beijing comes you have to
have self reliance.
30% of products in hospitalsare supposed to be Chinese brands,
(18:52):
not just manufactured goods made in China,but actually domestic brands.
It's something which actually reallyundercuts these efforts of mayors and
party secretaries in the countryside.
It's a big scheme, it's a big planthat Beijing wants to impose.
And so, yes, there's a lot of Sundayspeeches in Boao, China Development Forum.
(19:13):
We want more butat the same time we have 6,
8% of all the issues in the EuropeanChamber position paper and hey,
we talk about 1000 cases on 430 pages.
6 to 8% are being resolved every year.
So the book is swelling andwe hear these speeches and
the word that came upa couple of years ago,
(19:35):
I mentioned that in a press conference,is of promise, fatigue.
But the situation has inthis far also changed that.
If you have a very closed market,
very difficult market with a very strongeconomic growth pattern behind it,
you still hang in there andyou have a certain optimism.
Now you have a market access problem andan economy which is limping along.
(19:57):
And another economy which is lessincredibly strong, like the US and
like India coming up,all of a sudden you've got choices.
And I think that's what some leaders,particularly in the countryside,
realize is foreign investors have choices.
And that's why we see less andless in equity investment and less and
less in real investment.
(20:18):
And when you look into the Europeandataset, 66% of European investment into
China comes from German companies andhalf of that from three car companies.
So in a way, it becomes very top heavy.
And the SMEs are basicallyputting everything on hold.
>> Elizabeth Economy (20:34):
Yeah, so
what does it take to besuccessful in this environment?
You're painting a pretty bleak picture,
which is one I have to say I hear echoedby companies in the United States.
And now you're workingwith US Companies as well.
So I think you're probablyhearing the same things.
There's a lot of symmetry between what theEuropean Chamber presents in terms of how
(20:55):
its companies are feeling aboutwhat's going on in China and
what the US chamber presents.
I've always been struck,frankly over the years by just how closely
the percentages match, both inenthusiasm and then lack of enthusiasm.
But I guess I'm just wondering,is there still room to be successful?
(21:16):
What is it you talked earlier about,you got to hang in there,
have a long term vision.
Are those still things thatcan see companies through or
is this a really just a fundamentallydifferent time where companies
are just really reevaluatingtheir entire investment?
Sort of thinking around China.
>> Joerg Wuttke (21:37):
Yeah, what has changed is definitely the economy is not as strong as
it used to be.
Certainly not 5 and 6 and 7% more.
1 or 2 or 3% at best.
Second, you have massive overall capacity.
By the way, I covered that topicin 2016 as well as and 2009.
(21:57):
Overcapacity in China is not a bug,it's systemic.
And of course then lots of people makelots of stuff, but nobody makes money and
it has a deflationary impact that is notvery helpful for European investors and
companies doing business there.
Again, you have self reliance.
And on top of it, Chinese companiesare just very strong in development,
not necessarily in research.
(22:19):
We have incredible leapfrogging intechnologies among Chinese machine
builders, chemical companies, and thenof course the famous electric vehicles.
And so what does China offer us now?
Well, it offers us pockets of growth, but
it still offers us what I wouldcall the China fitness club.
It has incredible deep benchof very good engineers.
(22:40):
50 out of 100 top end engineeringuniversities globally are in China.
In chemicals, it's about 46 out of 100.
So in a way,even if you don't sell in China,
you are very well better positioned ifyou actually manage to develop in China.
The other thing is that you learn speed.
(23:01):
Again Germany, it might take 24 months toget stuff out of the lap and in China's
15 months because the customers are morerisk savvy and are more demanding.
So what we should not underestimate isthe fact that even with a very dire
economic background, you can stilldevelop a lot of product in China.
(23:21):
You can unlearn how to build cars andyou can develop mobile phones on wheels.
You can develop chemical sites thatare nowhere else to be built but in China,
because there are half of the Chineseglobal customers are there.
And the other one is ofcourse the designability.
China has very funky ideas,very good designers.
And just if you go toRockville Montgomery,
(23:42):
where I wanted to buy a BMW andthe guy said, you're German,
you should buy the new 7Series made in Germany.
I said, yeah, it's made in Munich,but it's designed in Shanghai.
>> Elizabeth Economy (23:52):
So in a way it sounds almost like you're suggesting that
Xi Jinping's idea of dual circulation.
Is working right?
This idea that you can innovate,manufacture and
consume largely within China,you're still gonna export,
there will be a few areas ofimport of capital and know how.
(24:13):
But for the most part you're developingan entire market that is sort of
designed to produce,to consume within China.
Is that, am I getting thatright from what you just said?
>> Joerg Wuttke (24:24):
Well, you have one foot on the gas pedal and
the other foot on the brakes.
So in a way his policy actuallybrings the focus on resources again,
the government help.
But also helps in order to havethe Chinese companies competing
based on customer changes atthe same time, foot on the brakes.
(24:45):
Because it's more and more difficult for
Chinese private enterprises to operatehere, then you have a brain drain.
You have lots of people, particularChinese top end engineers leaving China.
So in a way the picture generatesa lot of smoke and a lot of noise.
But as a matter of fact they could do so
(25:06):
much better if they would focus again onwhat they did best from 2000 to 2020 or
2015 is let the Chineseentrepreneurs develop stuff.
So in a way we still seepockets of development,
I mean CATL, BYD, FA and so forth.
But at the same time you can clearlysee where the loans are going,
(25:27):
you can clearly see who's going bankrupt.
Soes get the money andthe private enterprises go belly up.
And that is not what brings youinnovation that Xi Jinping wants.
And on top of it,it's all about manufacturing,
as if China doesn'tproduce enough already.
>> Elizabeth Economy (25:42):
[LAUGH] So let me just pick up on this last point that you
made about the sort of the braindrain because China is experiencing
a significant loss of expertin the expert community.
And you are a prime example,
someone who left just this summer after sotime in China.
(26:03):
But I think others too who really hada deep commitment to the country and
to the sort of economicopportunities in China.
And just this year, last year,
all of a sudden there seems tobe this exodus of foreigners.
And as you're suggesting of Chinese,
is there something in particularthat's driving at this moment?
(26:24):
Is it just this post Covid sort ofrealization that this is a difficult time
and it's not gonna get better?
Or is something else going onthat sort of producing this
groundswell of people leaving the country?
>> Joerg Wuttke (26:39):
Well, there were not many people to leave China in the first place.
We did a survey in 2021 andshowed that there are 60,000 Europeans,
including children, living in China.
So you could fill the bird's nest andstill have space for the Brits.
And so in a way, I would say inGuangdong and In Southwest China,
(27:00):
2/3 of expats left also,not only because it fel.
It doesn't have the right system anymore.
The hospitals are not up to it.
The schools were shrinking,schools in kindergarten, foreign schools,
kindergarten were closing.
But also, yetthe feeling is like it's no fun anymore.
China was a lot of fun all the way untilCovid and then it became the stifling
(27:22):
country that also was approachingeverything in your life with surveillance.
So it wasn't that good anymore andyou had other choices again
other countries were doing quite well,opening up faster, having better economy.
And then on top of it, of course,you have Chinese leaving.
It might be a trickle, butit's a couple of 10,000 very rich Chinese.
(27:45):
My neighbors in Beijing,one third of the houses was dark at night.
Many of them left forSingapore, Thailand, Tokyo or
United Emirates because they were fed up,fed up with political surveillance.
And secondly also they just wantedto make money elsewhere and
not be afraid about common prosperity,
that maybe the party that has talkedabout it is reaching for their pockets.
(28:09):
And these are actually the catalysts inthe Chinese economic development that
are missing right now.
So in a way it's still, it's a richcountry when it comes to brain power,
but boy, it could do so much better.
>> Elizabeth Economy (28:21):
It sounds like a lot of self inflicted wounds here from the top
leadership.
Okay, solet's just do a quick lightning round.
Let me get your take on a few questions,
if you had to have one must read book orarticle on China,
aside from all of your excellent EUchamber reports, what would it be?
>> Joerg Wuttke (28:47):
Besides your own book list, of course.
Yeah okay, thank you.
I would say that Kevin Rudd justbrought out a fantastic book about
Xi Jinping's thinking.
It's not an easy read, buthe makes it easy for you.
You can read the first two orthree chapters and the last two or
three chapters in between youhave to digest a lot of Marxists.
But it is, I think, the best bookabout where China's coming from and
(29:10):
definitely where China's heading.
So if you actually are able todeal with political language,
then read this book clearly.
And the best article is written by myfriend from Rhodium, Logan Wright.
The article is called Peak China andhe clearly lines up where the problems
are and that we have to be realisticthat China will not bounce back and
(29:34):
will basically limp along.
He has a great data set in there.
I think these two booksare just reality checks.
So there are too many people out therewho want to see the good news or
want to see China cracking and crashing.
These two basically are individualsthat see China as it is.
And that's why I can recommend these,this book and this article.
>> Elizabeth Economy (29:57):
Terrific, so what do you miss most,
and least about your time in Chinanow that you've been out for.
I guess it's been, what,four months or so since you left?
>> Joerg Wuttke (30:06):
Four months, exactly.
So, yeah, well,35 years was a long time and
I was really lucky getting intoChina when China took off.
And I wouldn't say I leftbefore China lands, but
definitely heydays wereuntil I would say 20, 21.
I left but I missed the most food,of course, the Chinese cuisine.
(30:31):
That is really a challengein Germany as well as here,
despite the fact that youhave very good Chinese cooks.
Let's see if Rockwell can swing the needlebut the other one is definitely friends.
I was back in Beijing in November.
I met lots of friends, I was catching up.
But it was a strange visit becausein a way, I saw my old city again,
(30:51):
where I lived more than 32 years,and I was not coming home.
I was on a visit, and I felt like that.
And the thing I miss, definitely willnot miss, is this surveillance thing.
At the end I took it personal thatthe Financial Times, New York Times,
Wall Street Journal, all these printpapers came in bits and pieces.
And then we had the idea,the FT correspondent, Joe and myself,
(31:14):
that maybe we should cover my house.
There's a Weekend edition on House andhome where basically he featured me with
furniture, but I could actuallysay what I thought about China.
And sure enough, the sensor did notlook into the Weekend Edition House and
home and there it is.
>> Elizabeth Economy (31:31):
I'm gonna be looking for that now.
I missed that one.
So that sounds great.
Okay what China issue dowe not know enough about?
Like what?What are we missing here outside
the country?
What don't we reallyunderstand about the country?
>> Joerg Wuttke (31:47):
That the Party is not the country.
It's the people.
It's the culture, it's the civilization.
Certainly the party has done a lot of goodsince Deng Xiaoping came into office.
But again, it's the people.
So read, read novels, read,look at the culture of China,
go into museums,visit China, try the food.
(32:11):
And don't always think that whatever youhear about China, all this party slang and
jargons, that is China,it's much, much more than that.
>> Elizabeth Economy (32:20):
Completely agree with you.
Last question.
How likely are we to see a new opening ora breakthrough in EU China relations,
particularly with the return ofPresident Trump in the United States?
There's a lot of, I think,
hope in Beijing that this is going togive a new life to EU China relations.
(32:44):
What are your thoughts?
>> Joerg Wuttke (32:46):
Well, on a scale to 1 to 10, I give it a 0.
I see no chance.
Definitely it's first of all,China has little to offer.
We can see that in the socalled negotiations on these EV tariffs.
Second, the mood in Europe has changed.
Ukraine war is to be blamed on that.
And then Trump will definitelynot give the Germans and
(33:07):
the French wiggle room in orderto do a separate deal with China.
So the relationship in the next fouryears between Europe and China will
be very much under Trump's shadow andlet's see how we come out of that.
But certainly I don't expect anything.
It's very sad to say.
As a European and
especially someone who was in a primeposition in order to steer business.
(33:32):
I still hope that we in Europeremain open to Chinese investment,
which is quite differentfrom the United States.
I hope that China realizes that itcannot cause a rift between us and
the United States, something they are soskillfully trying every year.
But again, I don't know, maybe it's just amoment of depression, but I see no chance.
>> Elizabeth Economy (33:54):
Okay, well, on that somewhat dark note, let me thank you, but
also say I'm very much lookingforward to your autobiography.
Do you have a title or.
>> Joerg Wuttke (34:04):
Not yet?
Not yet.
In a way it is really covering my parentsalready as refugees from the eastern
part of Germany, growing up ina small village in southwest Germany.
And then ending up as chairman asan illustrious guy in Beijing and
now even coming to Washington.
(34:24):
Sometimes I wonder whathappen happen to me.
>> Elizabeth Economy (34:27):
Well, I can't say, but
that we are extremely grateful tohave you here in the United States.
Jorg, you are a true international asset,I would say so.
Thank you fortaking the time to speak with me.
And I look forward to featuring youagain when your book comes out.
>> Joerg Wuttke (34:46):
Thank you.
>> Elizabeth Economy (34:47):
If you enjoyed this podcast and
want to hear more recent discourse anddebate on China.
I encourage you to subscribeto China Considered via
The Hoover Institution YouTube channel orpodcast platform of your choice.
In the next episode, we'll be divinginto the world of US China technology
competition with Jimmy Goodrich,one of the US's leading experts on
China's semiconductor industry andtechnology strategy.
(35:08):
[MUSIC]
[MUSIC]
>> Elizabeth Economy (00:06):
Welcome to China Considered, a podcast that brings fresh
insights and informed discussion to one ofthe most consequential issues of our time,
how China is changing andchanging the world.
I'm Liz Economy, Hargrove Senior Fellowand co-director of the US-China in
the World program at the HooverInstitution at Stanford University.
Today I have with me,
Joerg Wuttke, who is a partner at theconsulting firm DGA Albright Stonebridge.
(00:31):
But he's also spent more thanthree decades working in China,
most recently as the vice president and
chief representative of the powerhouseGerman chemical company BASF.
And for much of that time,
he was president of the EuropeanUnion Chamber of Commerce in China.
Joerg, thanks so much forjoining me today.
>> Joerg Wuttke (00:47):
Wonderful to be with you.
>> Elizabeth Economy (00:50):
So you actually started working in China in 1988 for ABB,
a Swiss-Swedish engineering andpower company.
That was really a pioneering time formultinationals in China.
Can you give us a sense of whatit was like to be living and
working in China duringthose sort of early years?
>> Joerg Wuttke (01:07):
Well, it was the best and the worst of all times.
It was really pioneering days because 88,I came for the first time in 82.
I was there moonlighting a bit in 87 for,at that time, BBC,
then later ABB and88 to June 89 was just fantastic.
I mean, the cultural life was so rich.
You had spectacular TV programs.
(01:29):
It was very open discussion.
Of course, then June 89 happened andthe whole house came crashing down.
That's why I also left in summer 1990,because business absolutely took a major
hit and only recuperated whenDeng Xiaoping took his 1992 Southern Tour.
So 88 to 90, it couldn't bemore different in these years.
(01:49):
But again, you experiencea China which was very poor,
which was humble, andpeople were super curious.
And that's very different from today.
Nobody's humble anymore andfew people are curious in China.
>> Elizabeth Economy (02:02):
But how was it sort of establishing the venture in terms of
just setting it up?
And were there rules and regulations?
Was there a lot of corruption?
What was sort of the businessenvironment for you early on?
>> Joerg Wuttke (02:17):
It was mostly trading, it was mostly exporting to China, selling
into China, very little investment,because the law was not really there.
And China was very reluctant toopen the door for foreigners.
They felt like foreigners take advantage.
Again, the Chinese interlocutors were veryinexperienced and the market was very,
very small.
So ABB, at that time was selling switchyards, everything around a power station,
(02:40):
also some train components.
And that's what China needed gradually.
But of course, it was all aboutnegotiations about payment terms and
so forth, investment, in essence,only started in the mid-90s.
>> Elizabeth Economy (02:52):
Okay, so let's talk about then,
sort of moving forward from thatlate 80s period through to today.
What did you see were sort ofthe major inflection points or
shifts in the business environment formultinationals?
Were there certain moments in time whenthings just seem to open up or close down?
(03:13):
How did the environment change, you know,
over the course of the sort of threedecades or more that you were there?
>> Joerg Wuttke (03:19):
I left in September 1990.
It was grim, depression was really inthe economy and in the mindsets of people.
Foreigners did not really look atChina as a possibility anymore.
It looked all very grim.
And I came back in March 93, andof all cities across Shanghai,
which at that time was sort ofthe vanguard in opening up China again,
it's all down to one man, Deng Xiaoping.
(03:41):
And I recall how I was invited by themayor to see the Shanghai of the Future.
It was March 93 andit was in a huge warehouse in Pudong.
Nothing around it, only mud.
And there was an incredible city builtout of wood, carved out of wood.
And I said to my assistant, let's go.
This is crazy, this will never happen.
(04:03):
Now of course, not only did it happen,
it happened faster thanI thought it would be.
And that has never left my mindthat actually when the Chinese puts
their mind to it, it's going to help,it's going to develop.
And that's when actuallyinvestment started.
China was discussing then in late 90s,
the accession to WTO,there was a better legal framework.
(04:26):
China actually came out of the Asianfinancial crisis much better than all
the other countries.
Japan took a hit.
So in a way, China all of a suddenlooked cool and looked much better.
Courtesy also that the othersactually had really problems.
And then of course, nobody looked backuntil recently, it was just the wild 90s.
>> Elizabeth Economy (04:45):
And if you had to sort of pick a time that you thought
was the most challenging, putting asideCovid, which we want to talk about in
a few minutes, was there a moment whereyou felt like, this is really difficult,
this is just not working?
Was there a particular challenge thatyou faced where you felt like BASF,
because by then you were working forBASF, right?
>> Joerg Wuttke (05:07):
Yeah. >> Elizabeth Economy
felt like, this isn't reallygoing to work for us here?
Well, 89 was really difficult.
June 89, we had to withdraw people.
We had to close down construction sitesbecause of the shooting in Beijing.
And basically getting these constructionsites up and running to negotiate with
(05:28):
the Chinese on these situations where wehad to catch up, it was really difficult.
And I will remember these longnight sessions that we had.
So 89 with ABB definitely was the worstperiod that I negotiated ever in.
The second was in 9798Asian financial crisis,
BASF I joined them in late 96,basically decided to have
(05:50):
a $3 billion project developedin Nanjing which was incredible.
It was basically viewed as are you crazy?
Because the economy aroundChina went down in flames.
The market had no real regulations todeal with monster projects like that.
And of course a headquarter nervous andthe capital markets got very nervous.
(06:12):
What are you doing there?
And that's when I learnedentrepreneurial spirit.
The CEO at that time andthe Asia board member Mr.
Hamreich, who actually employed me in 96,
they showed how it is possible in asituation like that to develop a project.
And it worked out.
It's now by far one of the most profitableoperations that BASF has globally.
(06:34):
It's a 50-50 joint venture.
Also something interesting,most people say joint ventures never work.
So in a way you all of a sudd thatif you have a long term vision and
if you actually see the fault lines ofthe economy, the market development,
if you hang in there and if you dothe right things, invest when nobody's
investing, buying cheaper machinery,you actually can get going.
(06:56):
So in a way I'm sure this these dayswill not repeat themselves anymore, but
it is just somethingabout entrepreneurship.
>> Elizabeth Economy (07:04):
So okay, let's just drill down on that for
a minute because you know the investmentenvironment you're suggesting was quite
different in China from what maybe youwould experience in Germany, for example.
Can you talk a little bit about what thatentrepreneurial spirit meant like on
the ground, what is it that you had todo to get the venture up and running?
>> Joerg Wuttke (07:26):
Well, first of all, you had to find the right people.
We were lucky to have an empathetic,very, very considerate,
along German, an engineer whoreally had lots of patience.
Lucky to actually have a company that cansort of scan the operations back home,
who is a possible person.
People underestimate the importance ofindividuals in situations like that.
(07:48):
The second is just to be convinced thatbasically the market is gonna be there,
you just have to hang in there andjust do it.
Strategy has to be right, butthen also tactics has to be right.
And at that time.
It was primarily also reachingout to the Chinese leadership.
It was our patron at thattime was Prime Minister.
He looked after BSF,he wanted the project.
(08:10):
He came to our headquarter in Germany andwe basically then had a gentleman
who helped us to find the confidenceto do this $3 billion project,
while the capital markets actually lookedat BSF as if they have lost their marbles.
So in a way, the other one is,of course, to have a joint venture
partner that you can trust andtrust building takes a long time.
(08:33):
You just don't get itright away in particular,
not with a state run enterprise.
And trust is, again, human to human.
It's about the chairman of Sinopec atthat time who actually when this whole
Sinopec in the Northwest Petrochina wasfalling apart and then got regrouped,
put together.
He came to Germany in order totell the top management and
(08:53):
the stakeholders guys the market is good.
So in a way, at the end of the day,it boiled down to people to people that
actually got projects going despitevery adverse circumstances.
>> Elizabeth Economy (09:05):
And without saying whether you actually had to pay anybody
any bribes, were you approachedto sort of pay people off?
We hear a lot about corruption inChina and sort of endemic corruption.
And obviously, Xi Jinping, current leaderhas had an ongoing anti corruption
campaign, one that seems to haveno end even now, 12 years into it.
(09:28):
How important was sort ofnavigating that corruption over
the course of your time there?
>> Joerg Wuttke (09:35):
In the electrical engineering businesses was really
difficult for many reasons.
This area was quite corrupt inthe early 90s in particular.
And the second is it was tax deductible inGermany, [LAUGH] so it was actually legal.
So in a way, that was a dark period it andI will cover it in my forthcoming
next year autobiography that I was sohappy then to leave that business and
(10:00):
go to chemicals, go to a companythat never used a single agent.
Staying away from middlemen ormiddlewomen,
it's just trying to have a directcontact with decision makers.
And that was kept in the 27 years thatI was heading this office in Beijing.
Again, you have to have the guts andthen also, of course,
(10:22):
the systems in order to stayaway from these kind of people.
And the system means that you haveto have very good compliance teams,
you have to good education of your people,
because there's always the occasionalprocurement office corruption scandal.
But once it sort of gets into the headsetsof people in the government or
(10:43):
with business partners,that BSF is not to be bought.
You cannot actually get business.
If we pay customers, for example, orif a client's suppliers give us money for
these huge projects in orderto get favorable treatment,
you actually are steering a ship whichis in smooth and very nice waters.
(11:03):
If you don't do this,you are subject to corruption campaigns to
basically fashionable areas wherethis guy goes out, this guy goes in,
and then all of a sudden you havebeen connected with the wrong person.
So if you stay away from that andyou keep it this way, actually,
you're pretty in safe hands.
It's not easy though.
>> Elizabeth Economy (11:25):
So let's fast forward to today or just a year or
two ago.
Most of us here in the westexperienced China's COVID lockdowns,
you through news reports orthrough videos on the Internet.
You lived through COVID in China.
Could you talk aboutthe impact on your life,
(11:47):
on the life of the internationalbusiness community?
How did it affect your sort of daily lifeand the sort of life of your business?
>> Joerg Wuttke (11:58):
Well, I was in two important positions as heading BSF in
Beijing, as well as chairof the European Chamber.
So I couldn't just leave the country andthen go through two, or three, or
four weeks of quarantineto come back again.
So I was three years stuck in China andthe last year I was stuck in Beijing,
I couldn't leave Beijing.
And we had a situation where itwas emergency upon emergency.
(12:20):
I mean, on the one hand, communication tomembers of how to navigate that situation.
Then on the side,I had to buy 160 million masks for
BSF on behalf of Angela Merkel andstuff like that.
Every day was nerve wracking in a way.
But again, 2020 second part,2021 was the best year ever in business.
(12:40):
Turnover was incredible,because the world needed electronics and
healthcare equipment from China.
And then, of course,we went into 2022 and then, of course,
Shanghai was setting the stagelockdown and then daily testing.
And at the end, it became insane.
The kind of effort the Chinese governmentdid in order to actually keep COVID out,
(13:01):
though the game has changedwith a totally different virus.
I was writing a letter tothe Vice Premier Hu Tung Hwa,
that got leaked on purpose bythe State Council to initiate discussion.
And I could sense that there are so manydecision makers in the Chinese government
that are against zero COVID,but it came from the politburo.
And then at the end,basically, it was policy.
(13:22):
And until the 7th of December,
it was then basically a countrywhich was under tremendous lockdown.
Then it opened the floodgates andyou know what happened?
Million people possibly died.
So it was bizarre.
And I think during this process,a lot of psychological damage happened,
particularly for people in Shanghai,particular also for the economy.
(13:43):
And it was overlaying also the otherchallenges that China was facing.
A real estate market, which was overblown,was deflated and then crashed, in essence.
And then the world doesn't neednecessarily all these medical equipment,
electronics.
So in a way, we came back in 2023,first quarter, and thought, okay,
come back story as usual.
There was a brief restocking andthen [LAUGH] we were on a plateau.
(14:07):
Nothing really happened,not in economics, not in politics.
In October 2022, this infamousparty congress triggered this point
that actually reforms are notgonna be around the corner.
The leading out of Hu Jintao wasthe visual about the old days are gone.
And then ever since,China's economy has been limping along.
And it's just amazing to seethat instead of the past where
(14:30):
Chinese government could step in fast andfix it,
we are now seeing band aids thatare handed out for amputations.
>> Elizabeth Economy (14:40):
[LAUGH] So that's a great visual, band aids for amputations.
So to what do you attribute sort ofthe failure of the Chinese government
to come in and actually just as you say,resolve the issues,
clearly they know what the problems are.
I mean,many of these problems are long standing.
It's not like they're facing new issues.
(15:01):
So what do you think is the holdup here?
What's preventing them from takingthe kinds of actions that you and
I know a number of Western and evenChinese economists have been proposing?
>> Joerg Wuttke (15:11):
Well, I mean, my position paper, I think the last one I launched in
September 2022 was ideologytrumps the economy.
They're boxed in.
>> Elizabeth Economy (15:21):
This is a European chamber position.
>> Joerg Wuttke (15:23):
That's right, that's right.
And I made it a point of thatthey have boxed themselves in.
The success story that was justified in2021 turned out to be a disaster in 2022,
but they couldn't changethe position on that one.
So they carried on with a policy,which definitely was not fitting that
particular virus that was notcirculating anywhere in China, but
(15:46):
then came like a tsunamiacross this country.
So in a way, it is something whereI can sense that the working
area there is sub director generals anddivision chiefs.
Definitely knew that there was somethingnot very well in its development,
but at the same time, at the very top,
(16:07):
I think it's one of these downsidesof having an echo chamber.
They believed the propaganda,
they believed the data set that theybelieved is the right situation.
So it was all about success, success.
And then at the end, the question is,
who is going to talk to the Emperorto say, we have a bit of a problem.
>> Elizabeth Economy (16:25):
And do you think there's anybody in the leadership that can
talk to the Emperor and say, there'sa problem, you have no clothes [LAUGH]?
>> Joerg Wuttke (16:32):
[LAUGH] Well, it's a group.
Yeah, well, it's a group of people thatdefinitely are creating this echo chamber.
And it's three or four of them.
I would say there are verysmart people in the leadership.
Definitely in the countryside,in the provinces Chongqing, Shanghai,
Xinjiang has great party leaders.
But I guess that the system is now soclearly focused on we follow
(16:56):
the Xi Jinping line that they don'tdare to waver and change from that.
The corruption campaign goes on.
You never know if that's reallybecause people are corrupt or
basically they get pushed aside.
So in a way, there is this echo chamber.
It might change in 2027 whenthe kind of leadership under
Xi Jinping might be exchanged witha more open minded generation.
(17:19):
Because also keep in mind thisleadership is socialized during
the Cultural Revolution.
And that is something which then will facepeople that have been studying abroad,
speak foreign languages, are technocrats,totally different mindset.
So I hope that in 2027 we see a change.
>> Elizabeth Economy (17:36):
Okay, so there's also been a kind of drop off,
a fairly significant drop off overthe past few years in foreign direct
investment and foreign venturecapital coming into the country.
I know that when I traveled to China,a year ago August with the secretary,
US Secretary of Commerce, all ofthe Chinese leaders were saying how much
(17:58):
they wanted foreign investment backed.
They were welcoming multinationals.
What's your sense for the degree to whichthe Chinese leadership is prepared to take
steps to get multinationals back investingand doing more business in China?
Is this a serious sort of issue for them?
(18:19):
Are they taking it seriously?
Or is this something where they'rejust kind of saying these things,
but they're not really preparedto take the necessary steps?
>> Joerg Wuttke (18:28):
I noticed a difference in the countryside and in Beijing,
the capital, it's in the countryside,
people really want tohave foreign investment.
They go the extra mile in particularcities like Chongqing, for example,
Shenyang really was rollingout the red carpet.
But there's so much they can do if thepolicy out of Beijing comes you have to
have self reliance.
30% of products in hospitalsare supposed to be Chinese brands,
(18:52):
not just manufactured goods made in China,but actually domestic brands.
It's something which actually reallyundercuts these efforts of mayors and
party secretaries in the countryside.
It's a big scheme, it's a big planthat Beijing wants to impose.
And so, yes, there's a lot of Sundayspeeches in Boao, China Development Forum.
(19:13):
We want more butat the same time we have 6,
8% of all the issues in the EuropeanChamber position paper and hey,
we talk about 1000 cases on 430 pages.
6 to 8% are being resolved every year.
So the book is swelling andwe hear these speeches and
the word that came upa couple of years ago,
(19:35):
I mentioned that in a press conference,is of promise, fatigue.
But the situation has inthis far also changed that.
If you have a very closed market,
very difficult market with a very strongeconomic growth pattern behind it,
you still hang in there andyou have a certain optimism.
Now you have a market access problem andan economy which is limping along.
(19:57):
And another economy which is lessincredibly strong, like the US and
like India coming up,all of a sudden you've got choices.
And I think that's what some leaders,particularly in the countryside,
realize is foreign investors have choices.
And that's why we see less andless in equity investment and less and
less in real investment.
(20:18):
And when you look into the Europeandataset, 66% of European investment into
China comes from German companies andhalf of that from three car companies.
So in a way, it becomes very top heavy.
And the SMEs are basicallyputting everything on hold.
>> Elizabeth Economy (20:34):
Yeah, so
what does it take to besuccessful in this environment?
You're painting a pretty bleak picture,
which is one I have to say I hear echoedby companies in the United States.
And now you're workingwith US Companies as well.
So I think you're probablyhearing the same things.
There's a lot of symmetry between what theEuropean Chamber presents in terms of how
(20:55):
its companies are feeling aboutwhat's going on in China and
what the US chamber presents.
I've always been struck,frankly over the years by just how closely
the percentages match, both inenthusiasm and then lack of enthusiasm.
But I guess I'm just wondering,is there still room to be successful?
(21:16):
What is it you talked earlier about,you got to hang in there,
have a long term vision.
Are those still things thatcan see companies through or
is this a really just a fundamentallydifferent time where companies
are just really reevaluatingtheir entire investment?
Sort of thinking around China.
>> Joerg Wuttke (21:37):
Yeah, what has changed is definitely the economy is not as strong as
it used to be.
Certainly not 5 and 6 and 7% more.
1 or 2 or 3% at best.
Second, you have massive overall capacity.
By the way, I covered that topicin 2016 as well as and 2009.
(21:57):
Overcapacity in China is not a bug,it's systemic.
And of course then lots of people makelots of stuff, but nobody makes money and
it has a deflationary impact that is notvery helpful for European investors and
companies doing business there.
Again, you have self reliance.
And on top of it, Chinese companiesare just very strong in development,
not necessarily in research.
(22:19):
We have incredible leapfrogging intechnologies among Chinese machine
builders, chemical companies, and thenof course the famous electric vehicles.
And so what does China offer us now?
Well, it offers us pockets of growth, but
it still offers us what I wouldcall the China fitness club.
It has incredible deep benchof very good engineers.
(22:40):
50 out of 100 top end engineeringuniversities globally are in China.
In chemicals, it's about 46 out of 100.
So in a way,even if you don't sell in China,
you are very well better positioned ifyou actually manage to develop in China.
The other thing is that you learn speed.
(23:01):
Again Germany, it might take 24 months toget stuff out of the lap and in China's
15 months because the customers are morerisk savvy and are more demanding.
So what we should not underestimate isthe fact that even with a very dire
economic background, you can stilldevelop a lot of product in China.
(23:21):
You can unlearn how to build cars andyou can develop mobile phones on wheels.
You can develop chemical sites thatare nowhere else to be built but in China,
because there are half of the Chineseglobal customers are there.
And the other one is ofcourse the designability.
China has very funky ideas,very good designers.
And just if you go toRockville Montgomery,
(23:42):
where I wanted to buy a BMW andthe guy said, you're German,
you should buy the new 7Series made in Germany.
I said, yeah, it's made in Munich,but it's designed in Shanghai.
>> Elizabeth Economy (23:52):
So in a way it sounds almost like you're suggesting that
Xi Jinping's idea of dual circulation.
Is working right?
This idea that you can innovate,manufacture and
consume largely within China,you're still gonna export,
there will be a few areas ofimport of capital and know how.
(24:13):
But for the most part you're developingan entire market that is sort of
designed to produce,to consume within China.
Is that, am I getting thatright from what you just said?
>> Joerg Wuttke (24:24):
Well, you have one foot on the gas pedal and
the other foot on the brakes.
So in a way his policy actuallybrings the focus on resources again,
the government help.
But also helps in order to havethe Chinese companies competing
based on customer changes atthe same time, foot on the brakes.
(24:45):
Because it's more and more difficult for
Chinese private enterprises to operatehere, then you have a brain drain.
You have lots of people, particularChinese top end engineers leaving China.
So in a way the picture generatesa lot of smoke and a lot of noise.
But as a matter of fact they could do so
(25:06):
much better if they would focus again onwhat they did best from 2000 to 2020 or
2015 is let the Chineseentrepreneurs develop stuff.
So in a way we still seepockets of development,
I mean CATL, BYD, FA and so forth.
But at the same time you can clearlysee where the loans are going,
(25:27):
you can clearly see who's going bankrupt.
Soes get the money andthe private enterprises go belly up.
And that is not what brings youinnovation that Xi Jinping wants.
And on top of it,it's all about manufacturing,
as if China doesn'tproduce enough already.
>> Elizabeth Economy (25:42):
[LAUGH] So let me just pick up on this last point that you
made about the sort of the braindrain because China is experiencing
a significant loss of expertin the expert community.
And you are a prime example,
someone who left just this summer after sotime in China.
(26:03):
But I think others too who really hada deep commitment to the country and
to the sort of economicopportunities in China.
And just this year, last year,
all of a sudden there seems tobe this exodus of foreigners.
And as you're suggesting of Chinese,
is there something in particularthat's driving at this moment?
(26:24):
Is it just this post Covid sort ofrealization that this is a difficult time
and it's not gonna get better?
Or is something else going onthat sort of producing this
groundswell of people leaving the country?
>> Joerg Wuttke (26:39):
Well, there were not many people to leave China in the first place.
We did a survey in 2021 andshowed that there are 60,000 Europeans,
including children, living in China.
So you could fill the bird's nest andstill have space for the Brits.
And so in a way, I would say inGuangdong and In Southwest China,
(27:00):
2/3 of expats left also,not only because it fel.
It doesn't have the right system anymore.
The hospitals are not up to it.
The schools were shrinking,schools in kindergarten, foreign schools,
kindergarten were closing.
But also, yetthe feeling is like it's no fun anymore.
China was a lot of fun all the way untilCovid and then it became the stifling
(27:22):
country that also was approachingeverything in your life with surveillance.
So it wasn't that good anymore andyou had other choices again
other countries were doing quite well,opening up faster, having better economy.
And then on top of it, of course,you have Chinese leaving.
It might be a trickle, butit's a couple of 10,000 very rich Chinese.
(27:45):
My neighbors in Beijing,one third of the houses was dark at night.
Many of them left forSingapore, Thailand, Tokyo or
United Emirates because they were fed up,fed up with political surveillance.
And secondly also they just wantedto make money elsewhere and
not be afraid about common prosperity,
that maybe the party that has talkedabout it is reaching for their pockets.
(28:09):
And these are actually the catalysts inthe Chinese economic development that
are missing right now.
So in a way it's still, it's a richcountry when it comes to brain power,
but boy, it could do so much better.
>> Elizabeth Economy (28:21):
It sounds like a lot of self inflicted wounds here from the top
leadership.
Okay, solet's just do a quick lightning round.
Let me get your take on a few questions,
if you had to have one must read book orarticle on China,
aside from all of your excellent EUchamber reports, what would it be?
>> Joerg Wuttke (28:47):
Besides your own book list, of course.
Yeah okay, thank you.
I would say that Kevin Rudd justbrought out a fantastic book about
Xi Jinping's thinking.
It's not an easy read, buthe makes it easy for you.
You can read the first two orthree chapters and the last two or
three chapters in between youhave to digest a lot of Marxists.
But it is, I think, the best bookabout where China's coming from and
(29:10):
definitely where China's heading.
So if you actually are able todeal with political language,
then read this book clearly.
And the best article is written by myfriend from Rhodium, Logan Wright.
The article is called Peak China andhe clearly lines up where the problems
are and that we have to be realisticthat China will not bounce back and
(29:34):
will basically limp along.
He has a great data set in there.
I think these two booksare just reality checks.
So there are too many people out therewho want to see the good news or
want to see China cracking and crashing.
These two basically are individualsthat see China as it is.
And that's why I can recommend these,this book and this article.
>> Elizabeth Economy (29:57):
Terrific, so what do you miss most,
and least about your time in Chinanow that you've been out for.
I guess it's been, what,four months or so since you left?
>> Joerg Wuttke (30:06):
Four months, exactly.
So, yeah, well,35 years was a long time and
I was really lucky getting intoChina when China took off.
And I wouldn't say I leftbefore China lands, but
definitely heydays wereuntil I would say 20, 21.
I left but I missed the most food,of course, the Chinese cuisine.
(30:31):
That is really a challengein Germany as well as here,
despite the fact that youhave very good Chinese cooks.
Let's see if Rockwell can swing the needlebut the other one is definitely friends.
I was back in Beijing in November.
I met lots of friends, I was catching up.
But it was a strange visit becausein a way, I saw my old city again,
(30:51):
where I lived more than 32 years,and I was not coming home.
I was on a visit, and I felt like that.
And the thing I miss, definitely willnot miss, is this surveillance thing.
At the end I took it personal thatthe Financial Times, New York Times,
Wall Street Journal, all these printpapers came in bits and pieces.
And then we had the idea,the FT correspondent, Joe and myself,
(31:14):
that maybe we should cover my house.
There's a Weekend edition on House andhome where basically he featured me with
furniture, but I could actuallysay what I thought about China.
And sure enough, the sensor did notlook into the Weekend Edition House and
home and there it is.
>> Elizabeth Economy (31:31):
I'm gonna be looking for that now.
I missed that one.
So that sounds great.
Okay what China issue dowe not know enough about?
Like what?What are we missing here outside
the country?
What don't we reallyunderstand about the country?
>> Joerg Wuttke (31:47):
That the Party is not the country.
It's the people.
It's the culture, it's the civilization.
Certainly the party has done a lot of goodsince Deng Xiaoping came into office.
But again, it's the people.
So read, read novels, read,look at the culture of China,
go into museums,visit China, try the food.
(32:11):
And don't always think that whatever youhear about China, all this party slang and
jargons, that is China,it's much, much more than that.
>> Elizabeth Economy (32:20):
Completely agree with you.
Last question.
How likely are we to see a new opening ora breakthrough in EU China relations,
particularly with the return ofPresident Trump in the United States?
There's a lot of, I think,
hope in Beijing that this is going togive a new life to EU China relations.
(32:44):
What are your thoughts?
>> Joerg Wuttke (32:46):
Well, on a scale to 1 to 10, I give it a 0.
I see no chance.
Definitely it's first of all,China has little to offer.
We can see that in the socalled negotiations on these EV tariffs.
Second, the mood in Europe has changed.
Ukraine war is to be blamed on that.
And then Trump will definitelynot give the Germans and
(33:07):
the French wiggle room in orderto do a separate deal with China.
So the relationship in the next fouryears between Europe and China will
be very much under Trump's shadow andlet's see how we come out of that.
But certainly I don't expect anything.
It's very sad to say.
As a European and
especially someone who was in a primeposition in order to steer business.
(33:32):
I still hope that we in Europeremain open to Chinese investment,
which is quite differentfrom the United States.
I hope that China realizes that itcannot cause a rift between us and
the United States, something they are soskillfully trying every year.
But again, I don't know, maybe it's just amoment of depression, but I see no chance.
>> Elizabeth Economy (33:54):
Okay, well, on that somewhat dark note, let me thank you, but
also say I'm very much lookingforward to your autobiography.
Do you have a title or.
>> Joerg Wuttke (34:04):
Not yet?
Not yet.
In a way it is really covering my parentsalready as refugees from the eastern
part of Germany, growing up ina small village in southwest Germany.
And then ending up as chairman asan illustrious guy in Beijing and
now even coming to Washington.
(34:24):
Sometimes I wonder whathappen happen to me.
>> Elizabeth Economy (34:27):
Well, I can't say, but
that we are extremely grateful tohave you here in the United States.
Jorg, you are a true international asset,I would say so.
Thank you fortaking the time to speak with me.
And I look forward to featuring youagain when your book comes out.
>> Joerg Wuttke (34:46):
Thank you.
>> Elizabeth Economy (34:47):
If you enjoyed this podcast and
want to hear more recent discourse anddebate on China.
I encourage you to subscribeto China Considered via
The Hoover Institution YouTube channel orpodcast platform of your choice.
In the next episode, we'll be divinginto the world of US China technology
competition with Jimmy Goodrich,one of the US's leading experts on
China's semiconductor industry andtechnology strategy.
(35:08):
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