‘A long-term view is the way around protectionism’
On 30 September, Crowe Foederer, ABN AMRO, and Brainport Eindhoven held a joint China event in Eindhoven. For the first time, Chinese and Dutch high tech companies came together to talk about challenges and opportunities. ‘A long-term view is the way around protectionism.’
Protectionism is giving rise to an American, European, Russian, and Chinese trading block, observed Rob de Wijk, Professor of International Relations and Director of The Hague Centre for Strategic Studies. ‘Businesses have to consider the fact that they are increasingly a part of the political arena. This means that companies are being used for political ends, and are suffering as a result.’ An employee of a tech company in the room responded: ‘Just to be clear: this isn’t just coming from China, but from the other side too.’ Nonetheless, De Wijk noted, the upshot is that businesses find themselves tangled up in geopolitical tensions. ‘For that reason, we have to look beyond those tensions and truly seek to understand each other’s businesses and forge ties,’ argued another participant during the seminar. ‘That means looking beyond our initial fear, to steady ourselves in these turbulent times.’ De Wijk wholeheartedly concurred. ‘Those are wise words.’ But he also warned against naivety.
Why hold this event?
For the first time, Brainport Eindhoven, ABN AMRO, and Crowe Foederer brought Chinese and Dutch high tech companies together. As Chen says, the aims are severalfold. ‘How can companies help us do business together? How should I handle the political environment? How do I decide my strategy? Plus: How can we come together, to work together? It’s about allaying fears, broaching difficult subjects, and finding the win-win situation. It’s also a simple matter of networking, so you get to know each other. That’s the first step towards forging trust. Building trust is so important.’
Global power shift
Master of Ceremonies Albert Jan Swart, Manufacturing, Transport & Logistics Analyst at ABN AMRO, had kicked off proceedings at Sioux Labs in Eindhoven. ‘In our sector, we’re looking at twenty to thirty per cent growth.’ He smiles: ‘Which means you’re twenty to thirty per cent busier. It’s a wonder you’ve found the time to attend this event.’ Swart then handed over to De Wijk, who drew on the observations in his latest book entitled De slag om Europa (The Battle for Europe). He talked about a global power shift: from the West to Asia, and China in particular. China is well on the way to becoming the world’s biggest economy. ‘Because the Chinese have different values, the European Union and the United States feel compelled to push back. Now it’s game on.’
Who holds the power?
Trump started a trade war with China. The European Union is suspending the trade agreement with China. Huawei is under scrutiny. Says De Wijk: ‘These are all signs of the power struggle. The modern-day war isn’t chiefly about flexing military muscle, although we’re seeing plenty of that, but about technology and data. Whoever emerges victorious sets the standards. The first industrial revolution took place in Great Britain, but the United States claimed revolutions two and three. Now, the battle is for the fourth industrial revolution, that of data and digitization. Who will be the winner? I think China. That isn’t to say China will take over the world, but that the US and EU will have to adapt more.’
De Wijk believes that the pushbacks by the EU and the US are causing China to become more entrenched. ‘More protectionism, increasingly on the defensive. This is also a reflection of legislative pressure from within China on its domestic tech companies. The Ant Group, Didi and Tencent are prime examples.’ De Wijk is amazed by what he sees as Europe’s ascendency. ‘They’ve become more of a geopolitical player than I thought they would. They’re taking out billions in loans through eurobonds, which they’re then handing out to bolster member states. They might become a big player on the European debt market.’ De Wijk also cites the EU’s green deal and the fact that the EU sets rules for the entire value chain – from raw materials and semi-finished goods to the end product. ‘As a business, this means you have to know where your raw materials are from. And make sure they weren’t obtained from forced labour.’
The forty attendees were presented with statements via the website Mentimeter. One of those was: Geopolitically, it is harder to do business between China and Europe. 21 per cent did not agree with this. Says De Wijk: ‘If you’d asked that at a conference six months ago, it would have been fifty-fifty. A study by an audit firm also found that CEOs cite dealing with geopolitical tensions as one of the top three challenges.’ A Chinese participant disagreed with the statement. ‘Doing business isn’t getting harder, just different and more uncertain. It was already hard. So we need to focus more on uncertainties.’ He also suggested reading analyses of China’s fourteenth five-year plan by various countries. ‘Then you’ll have a better understanding of the different viewpoints.’
A win-win situation
Jin Chen who, as a partner in Crowe, is responsible for developing transfer pricing and the Dutch China Desk, pointed out the need to create a win-win situation in relations between the countries. ‘For both Dutch and Chinese businesses. I believe this can be done. Listening to Rob, it’s tempting to take a pessimistic view. But I’m hearing positive things too. From Ursula von der Leyen, for instance, President of the European Commission, who still mentioned the trade agreement between China and Europe in her State of the Union.’ Chen also observed that transfer pricing, the setting of prices within multinationals, is now under the spotlight because of the pandemic. ‘This has sometimes meant less money being available locally so, as a globally operating multinational, you go in search of any remaining cash.’
Agree rulings to create certainty
From his own experience of both Dutch and Chinese businesses, he also commented how great it is dealing with the Dutch tax authorities. The accessibility of our ruling team presents opportunities for our country as a base for European head offices. ‘You can reach an agreement on the tax position of your current or future European business model that you’re going to run from the Netherlands, so you know how much tax you’ll be paying over the next few years. This creates two-way transparency and clarity for the head office in China, and the local European management. Both know what the plans are for the next five years.’
Chen also notes that China is introducing more laws and regulations. ‘That’s a good thing because, as a company, you know where you stand.’ She also referred to the global agreement concluded this summer by 134 countries, which decided to introduce a minimum tax rate on profits of fifteen per cent. ‘That will create a lot of work for company auditors.’ She called on Chinese businesses to set up European headquarters, in order to take advantage of the Dutch Tax Administration’s innovation box and iron out differences between the Netherlands and China. ‘A lot gets lost in translation. It helps if your company employs somebody with a Chinese background, who can iron out those differences.’
New world order
Peter Potman, Deputy Director-General for Foreign Economic Relations at the Ministry of Foreign Affairs, lived in China for six years: three of those in Beijing, and three in Shanghai. ‘We are on the cusp of a new world order and, as a government, we have to respond to that. The world is increasingly becoming a village in which we can only solve global problems such as food scarcity, water shortages, the climate crisis, and the energy transition by working together. Also, technology is what gets us to the next economic level.’ In 2019 the Dutch government published a policy paper on China. According to Potman, this boils down to cooperating where possible, and protecting where necessary. This principle, which is also embraced by the EU, is bad news for business. ‘Companies benefit from a playing field that is as open as possible. I think the solution is to create enough interdependence to stabilize relations and strike a balance. Because the fact is: we can’t solve the world’s problems without China.’
Feeling the heat
In an ensuing panel discussion, Ronnie Kuppens added his voice to what was said by the speakers. He is China Project Manager at Brainport. ‘As businesses, we’re feeling the heat,’ he stated. ‘We’re being used as political tools, and this is impacting on the whole supply chain. So it’s a challenging playing field.’ Potman pointed out that Europe needs to build up its own strength. ‘European resilience. But that isn’t to say we must sever ties, on the contrary. Take the long-term view when dealing with China and the US. At the same time, governments and companies will have to take measures to protect us against the downside of Chinese economic influence. Says Chen: ‘Be careful not to lose your ties with China. Particularly as we can exchange knowledge and experiences to create what really is a win-win situation. Joint innovation is the way forward.’ De Wijk agreed. ‘But right now we’re in a transitional phase, in which China, the EU, and the US are being protectionist. A new order has to establish itself. That in itself is counterproductive, but it’s simply a phase we have to get through. Basically, there’s a lack of trust.’ Kuppens added: ‘As Brainport, we can help companies to mitigate these uncertainties.’
Hans Duisters, founder and CEO of Sioux Technologies, had the final word. His business operates in several countries, including The Netherlands and China. Duisters himself has moved to Shanghai. Sioux develops embedded software, electronics, and industrial mathematics. He believes China leads the way in the 21st century. ‘Size matters. And with a population of 1.4 billion, China is huge. It’s no longer just a case of made in China, but designed in China too. That’s something they’re working very hard on. There are so many talented students pouring out of good universities. More than the number of people who live in the Netherlands. Bear in mind, though, that a huge swathe of the population is still poor. A large middle class is emerging, and things are really changing.’ Duisters called for soft leadership to cultivate relations with China. ‘I believe in interdependence too. I believe in cooperation. But I also know that trust has to be earned. That’s something we must work on together.’
What is the next step?
The political tensions that exist don’t stop China and The Netherlands doing lots of business, Chen concludes. ‘And they are, very much so.’ Chen sees himself as a connector. ‘Understand each other’s fears, differences, challenges, and strengths. The only way to do this is to get to know each other better and join forces. Help each other move forward, because that’s the way to real, joint progress. Avoid misunderstandings. Keep the dialogue going, work together and seek out win-win situations. With my background, it gives me great pleasure to facilitate dialogue between Chinese and Dutch companies.’
Are you interested in the slides? Please contact Jin Chen for more information: [email protected]