No limits, p.5
No Limits, page 5
It set off a flurry of activity. The economics minister, Angela Merkel’s former top aide, Peter Altmaier, personally wrote a set of contentious proposals for the state to step in to intervene in comparable cases. But for the people involved in coming up with the BDI’s paper, KUKA had little to do with it. The new strain of thinking was not the byproduct of a moment of political shock. It was rueful, considered analysis from the very experts, officials and business leaders who were closest to China and had seen what was unfolding over the last few years. For the cluster of paper drafters and outside advisors, it was evident that an entire way of evaluating the political and economic situation in China had come to an end, which others with a more distant vantage point had not fully understood. And that someone would have to state it clearly if anything was going to change.
As one of the paper’s authors put it: “We had a clear focus—that we have to rethink everything. We sat discussing the Xi Jinping era and said, do we really continue with the same line in 2018 as 2017, 2016 and before that about cooperation with China or do we do it differently?” A small group from different government ministries, businesses and think-tanks duly gathered at a retreat outside Berlin to think harder. But a little gang of critical voices would have had limited traction if the wider context was not permissive. “The surprise was that there was no real hurdle to get a consensus on the paper, we expected more challenges on the industry side,” as one of its drafters admitted. “In fact, the more China knowledge the firms had, the more supportive they were in the process. They all said: “We don’t want our name in the paper but it’s exactly the right direction.” There was one exception, the CEO of one major firm who called the president of the BDI to try to get it stopped at the last minute, claiming it would endanger German business in China. But by then it was too late.
The paper opens starkly with the description of “China as a systemic competitor.” “For a long time it looked as if China would gradually move towards the liberal, open market economies of the West by integrating into the world economy and reshaping its economic system. This theory of convergence is no longer tenable.” Instead, it argued that China was “in the process of consolidating its own political, economic and social model [and is now] shaping other markets and the international economic order.” “Politicians and companies must adapt” to a “conflict” between the Chinese model and the “liberal and social market economy principles of the EU and many other countries.” It would have been one thing if it had been an NGO report or a think tank policy paper. Coming as the consolidated product of a year-long process of consultation across German industry, it represented something almost revolutionary in its implications for economic relations between China and the advanced industrial democracies. There was a “division of labor,” as one of the experts close to the process noted: “As individual companies, we can’t afford to stick our own heads out. But we must support business associations and think-tanks to say the unpleasant things.”
One of those think-tanks was MERICS. Founded in 2013 with the intention of being a “bridging institution” between Berlin and Beijing, and “filling the void” in Europe as the demand for high-quality China analysis now vastly outran supply, it was easily the best-resourced and largest cluster of China researchers working on the continent. It would decipher and translate dry Party papers into sharp data visualizations and was informed by a “principled approach of not treating politics and economics separately.” As Sebastian Heilmann, its founding director, put it:
The Party writes a lot of these things down: their goals and instruments have become more transparent than before. We read all these Chinese documents. It’s not easy to communicate a text on ideology or “the main contradiction.” China experts would say wow, this is a new stage in history, but most people wouldn’t understand it.
A few years later, MERICS would be one of the only think-tanks in the world to be placed under Chinese sanctions.
Heilmann had worked for much of his academic career on the distinctly unfashionable topic of Chinese industrial policy. “It was a no-go area. It was always seen as unproductive, a dead end. Industrial policy was not a topic in the US at all, a blind spot. Yet it was a center-piece of China’s whole thinking.” Some of the policymakers that Heilmann had dealt with during his research were now taking on even more prominent roles under Xi Jinping, from Yang Weimin to Liu He, Xi’s top economic advisor:
They became market-friendly but they started out as planners, and were very influenced by Japan’s experience. They always had a long-term view. They see themselves as guardians of economic and social stability, of China’s stability. We saw our systems as superior, and believed that they would absorb anything we taught them.
In the aftermath of the financial crisis of 2008, that was no longer true:
This was a watershed event for them. Before that they said: the West has found the solution for leading society and the economy into the twenty-first century. After that they thought: the West has no idea, no solution for these problems. “This must never happen in China. We have to go it alone.”
Relatively soon after launching MERICS, Heilmann wrote an op-ed in the leading center-left German daily Süddeutsche Zeitung that identified precisely how this was translating into Chinese strategy under Xi. He argued that China was in the process of closing down, that ideological content was being taken increasingly seriously, that we were seeing the end of the “reform and opening” era. The infamous internal “Document Number Nine” had been leaked a few months earlier.[6] Bearing Xi’s imprimatur, it warned of a comprehensive threat from Western democratic and liberal ideals and heralded a devastating rollback of what little political space remained. Yet Heilmann’s article attracted considerable criticism in Germany, outrunning the still-sanguine consensus at the time.
But it was MERICS’ study on China’s turbo-charged industrial policy plans that really broke through. As one German analyst put it:
The single most decisive thing that led to a shift in thinking on China for the people that matter in Germany was “Made in China 2025.” While “Change through trade” had long been discredited, they could live with an authoritarian China as long as they could profit from it.
That view changed once the nature of the ambitions in the coming years was clearer: “they were out to get us.” Heilmann adds: “We were the first to make clear that this is a full-scale plan not just to substitute foreign competition but to get rid of foreign technology leaders, and in very aggressive terms.” When they talked to German ministries, their line was: “You may not believe in industrial policy. But your most important trading partner is relying on this.” The detailed work on each of the individual pieces of the puzzle in China, from Xinjiang to the social credit system, was adding up to a dark picture. “What we had once seen as authoritarianism, even soft authoritarianism, was instead becoming totalitarian control. From then on people said: “We have to fight this, not just analyze it.”
As well as its invocation of this darker vision of the China that was now a competitor of a systemic nature, two other things were striking about the BDI’s paper. Previous iterations addressed China with their recommendations. This one did not. That seemingly small distinction in fact encapsulated the entire shift in the way thinking in so many major capitals was now moving. There was no point in pretending that China was going to change. There was no point in spending so much time and political capital trying to induce it. Energies should be directed elsewhere. The bilateral relationship was no longer where the action was in China policy. It was a question of what could be done if Beijing continued on precisely its current course.
It was also a question of who should do it. For the German business association, this would usually have meant Germany itself. When it came to dealings with Beijing, Berlin had a special set of channels that were better developed than those of any other European state, from elaborate joint cabinet meetings to Merkel’s role as the single leader in Europe whose voice carried weight at the highest levels in China. Yet as the BDI team batted ideas around, it was also evident that most of the essential steps would have to come at the EU level, with the full weight of the economic bloc behind them, rather than from Berlin alone. “The longer we worked, the more deeply convinced we were that we needed to change any language about the ‘German government’ to ‘the EU,’ that a stronger EU was essential.” A few weeks after the BDI paper came out, the action would switch to Brussels.
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Much like papers from the BDI, documents from the European Commission don’t usually make a splash. They are typically lowest-common-denominator products of twenty-eight rounds of consultation. Even when they have bite, it is often hidden behind the deadliest of prose. In March 2019, two months after the red alert from German business, there was a distinct exception. One senior British official described it as the single best paper he had ever seen the European institutions produce on any subject. It would be cited near the top of the Trump administration’s own China strategy as the very encapsulation of shifts in thinking by US partners. The document was a punchy ten-point plan that promised to rebalance the EU’s strategy in light of the “growing appreciation in Europe that the balance of challenges and opportunities presented by China has shifted.”[7]
And it had a kick. It introduced a term, “systemic rival,” that has become part of the European lexicon ever since, to China’s deep disquiet. The language itself had already appeared in an in-house document prepared by the German Foreign Office’s planning staff the previous year, a first effort to rethink the terms of the relationship from the ground up. The diplomats tasked with the exercise introduced what would be dubbed by some the “holy trinity”—that while China was still a partner in some areas, it was a competitor (which even the Chinese accepted), and rival too (which they decidedly did not).
The notion that the rivalry was “systemic” had an entropic quality to it, as the idea that China could also be a real “partner” started to look decreasingly plausible the more one faced up to what the nature of that rivalry really amounted to. The notion of “systemic rivalry” would later become foundational to European thinking about China, so socialized into common use that it was part of the intellectual furniture. But at the time the concept was still at the furthest edges of the debate. As one of the drafters admitted, “when we included the term, I wasn’t sure it would survive.” The German policy planning document was internal. This would be public.
The paper was put together in barely two weeks, with most of the work being undertaken in a few crucial days, masterminded by Martin Selmayr, the Commission’s gray eminence and most senior official. The manner in which he wielded power across the EU bureaucracy had won him a legion of critics, but his deployment of this approach in the cause of reshaping the continent’s approach to China was widely credited as essential to the success of the process. He was single-mindedly intent on demonstrating that Europe—and the EU itself—needed to be treated as a player in the emerging geopolitical landscape. As Selmayr put it: “I was always puzzled how weak the EU must have appeared to the Chinese, and how they treated us—as an irrelevant factor. It was a reproach to us. China sees weakness and treats weakness as weakness.” He described sitting next to Juncker through meals with Xi Jinping, who would be slurping his food (as is common in China) while explaining how great China was, and at the same time teasing the Europeans, saying that he had heard that Le Pen was now stronger than Macron in France, and making clear that he saw the European Commission and the European Council president as a sideshow. He would say: “We have made a deal with Merkel”, which his dining room companions understood to mean, as Selmayr put it: “ ‘So what do you dwarves want here?’ And at the same time they were buying the 16+1.”
For many officials in Brussels, China’s approach to this grouping of sixteen (and, for a time, seventeen) Central and Eastern European states exemplified Beijing’s shift from subtle power maneuvers that exploited intra-European differences to openly drawing dividing lines across the EU. For Selmayr, though, it was an earlier moment of European vulnerability that had left its imprint:
The experience that woke me up was during the financial crisis, when we were trying to keep the eurozone together. I saw the harbor of Piraeus being bought by the Chinese while we were arguing about how to help. I found it a shame, that we were not showing solidarity, that we were not being geostrategic, and I thought it was dangerous. We are still paying for some of those mistakes.
European political leaders had placed China on the agenda for their meeting in March 2019, one month before the EU–China summit. Merkel and other heads of government wanted to allot time to discuss the big issues that had so often been swamped by Europe’s internal crises in the preceding years. “We had been shaken up by Brexit, and several leaders said to us—look, we have a summit coming up and this time we have to prepare it. We should not speak with twenty-seven voices.” Selmayr and the Commission president, Jean-Claude Juncker, planned on far more than a careful unity text though. As Selmayr described their goal: “China is very assertive. Let’s be as assertive as we, as the EU, can manage to be. Let’s have a document that China will read, and that they will not immediately throw into the bin. That will wake them up. That will not be talk. That will have teeth.”
This was not about China alone. It was the culmination of a year of intense efforts to demonstrate the EU’s capacity to be a geopolitical protagonist, from its ambitious new trade and data deal with Japan to a painfully agreed tariff truce with the United States: “We saw the Chinese as the biggest challenge to the international rules-based system, but there was also Trump.” The G7 summit in Canada in June 2018 had been a bruising experience, immortalized in the German official photographer’s image of the US president sitting alone with his arms folded, glaring up defiantly at an exasperated-looking cluster of European leaders. Juncker himself was dubbed a “brutal killer” by Trump in the course of the meeting. “In our hearts we are always more transatlantic, even then we knew what side we were on. We share the values of the West,” noted Selmayr: “But this [China paper] was a message in all directions: we don’t shy away from calling a spade a spade.”
It was written by a small, closed group, with only six people formally permitted to see the full text before it was sent into the formal adoption procedure among the twenty-seven members of the European Commission—who liked the document so much for its clarity and concreteness that they adopted it without changing a comma. Selmayr killed an earlier version of the paper, “very nice diplomatically, very thin operationally,” and sent the drafters back to deliver something with more communicative and operational heft. It arrived whole and intact, the outcome of a tight political-level process rather than consultations across the full bureaucracy, and without any opportunity for EU member states to soften the edges. One of the paper drafters noted gleefully that while a document like this would usually have been picked to pieces by various EU senior officials from across the bureaucracy, “Selmayr terrified them all. It was fantastic.”
Even more importantly, Beijing had no opportunity to lobby any of them to water it down, and no warning of the paper before its publication. It came as a shock. The EU is not generally set up to keep secrets. When documents kick around twenty-seven member states, they leak. As a result, China was used to inserting itself and acting as a shadow party to exercises of this nature. And while strategy documents come and go, it was clear that this represented something more. As well as using language about China that would have been unthinkable only a short while ago, the approach it outlined was no longer constructed entirely around the classic areas of trade and foreign policy. It promised to deploy the entire spectrum of European economic, political and security instruments behind it and looked like the first inklings of how China might recondition European grand strategy rather than being a China policy paper alone.
As one French official put it:
When we got the EU document, we were taken aback by its sharpness. It was so to the point. No paraphrasing. Tough but not unfair. But the surprise for us, even more than the paper itself, was the European Council. We thought it would trigger never-ending discussions. That it would be torn apart. What surprised us was that the Council accepted. That was even more striking. The fact that the overall assumption now was that everyone agreed.
The “systemic rival” terminology was expected to be one of the biggest points of contention and was the subject of fierce debate in the final stages of the paper’s preparation. While it was European diplomats who inserted the language in the first place, their higher-ups were skittish. “The diplomats in the negotiations were all against it,” Selmayr stated, “But Richard Szostak and I insisted that it was inserted. And Juncker insisted on it. We had a mandate from the president to put it in there.” When EU member states met in the aftermath, they were still too cautious to endorse the text wholesale; that would only come the following year. Even then, some European leaders could never bring themselves to echo the language themselves. But none of them, from Merkel to Viktor Orbán, objected to it. There was a slight headiness to being able to describe reality as it was with China without this bringing about the end of the world. “No-one challenged it,” Selmayr noted, “in fact, the member states lauded it. They said ‘can you really say that?’ We had never dared to say it.” This included the German chancellor:
