Interview With the Recently Appointed President of the European Chamber Go back »
2007-05-15 | All chapters
In May, the European Chamber’s new President, Mr. Joerg Wuttke, held an interview with the European Chamber’s monthly magazine, EuroBiz, about the future of the European Chamber, the role of the Working Groups and how European companies successfully operate within China’s market.EuroBiz: What are your priorities for the Chamber as its new president?
Joerg Wuttke: I want to find a new strategy for the Chamber to see what kind of value-added propositions we can find for our stakeholders who are the members, the employees, Chinese and European government officials. I’ve been with the Chamber since it was founded in 2000 and the most interesting point for me has always been the Working Groups. This is where members meet; it’s where they discuss business-related issues and find common ground on issues to be lobbied to Beijing and to Brussels. We have to strengthen the Working Groups.
EB: Will there be more Working Groups, or do you think you have enough of the right kind of Working Groups?
JW: I think Working Groups now are reflecting China’s economic development. There may at some stage be fewer, because there’s less interest in groups to lobby or to meet. Maybe there will be more because some business areas move into significant problems and members feel they need a platform to discuss this and to have their voices heard. So it’s very fluid. But I think some of the Working Groups are performing really well. Banking does very well. Petrochemical, Oil and Gas is recovering. IPR is one of our star performers, partly because of the chair. And then there are some others and you wonder why they meet.
EB: Is it a star performer because of the lobbying the group does?
JW: The quality of the papers they produce, the quality of the information they make available to European decision-makers. The way they are lobbying Chinese organisations is in a very cooperative spirit. They aren’t just outlining problems and that’s it. They really try to engage Chinese authorities and try to actually assist in the process of improving IPR. The benchmark Working Group is IPR for me.
EB: What will be the really sensitive sectors in the future in terms of Working Groups?
JW: I assume that automotive will remain important. It’s a very important European business which has been highly regulated. Chemicals will remain important because it’s a strategic business and a strongly growing business, because chemicals is the industry of industry. China is becoming the factory of the world so there will be far more of it here. The Legal Working Group will be important because there are so many changes taking place in China’s legal framework and especially in the supervision in what is being implemented, the spirit of the law versus the letter of the law and finding out if China violates its WTO commitments. A group which has a very strong European flavour is the Wine and Spirits Working Group. The most important issue for them is that their products are distinctive to their region, [like] Parma ham and cognac. They can’t accept competition where a Chinese competitor comes up with a Parma ham, or champagne. I think these kinds of very important products with a distinctive European past need a very strong lobbying and awareness.
EB: Is the expansion of the Chamber going to come in increasing numbers of members or chapters?
JW: We have seven chapters and we are now entering a consolidation period. If something comes up with someone who has 50 members lining up we might consider, but at this stage we would rather strengthen the chapters rather than expand. I feel it’s like a franchise and we have to watch that people get value from the European Chamber. It’s like a brand; if we have too many of these we can’t control the quality.
On the members side we wish we could have more. The strategy is not just going for numbers but to come up with programmes and products to make it so interesting people want to join us. We have to get to a different kind of membership.
EB: What would such a programme or product be?
JW: We are still thinking about it, but from my observation already there are few China knowledge networks that are well placed, in seven cities. I foresee a lot of visiting delegations and businesspeople, with the [2008 Beijing] Olympics and [2010 Shanghai World] Expo and there will be a lot of people demanding, ‘Please explain China to me,’ that kind of product. As we are well-placed with our staff, with our members and our position paper and this network of companies, I could foresee the Chamber could come up with a product, ‘Explain China to me’. But we are non-profit and serve the members first, so let’s see where the strategy discussion takes us.
EB: A lot of sectors here are over capacity and flooded by competition. Is China such an attractive market anymore?
JW: The problem is a severe one. Whenever there is technology available, liquidity is high in China, domestic business creates often overcapcity, duplicates projects. The Chinese financial system is not very good in assessing loan qualities and we are heading into massive overcapacity in many industries. We are even now in a situation where we have too much electricity generation capacity. The system is not geared towards profitable growth. In many segments companies grow by market share. Luckily this does not refer to the entire economy and European businesses are not necessarily in these segments that are facing overcapacity.
EB: Which sectors are most affected?
JW: The most noticeable industry is automobiles. This industry has an overcapacity of 2m units, mostly lower segment. The capacity building plans show an additional 2.2m units which leads to a 2007 capacity of 6.65m sedans. Yet sales will be only around 4.5m sedans. Last year’s survey showed that 75 percent of EU businesses in China were profitable, which shows that overcapacity and other threats are not necessarily having a huge impact on EU companies. Some suffer from it but most because of technology advantages stay away from this market share frenzy which is destroying Chinese companies. As a whole overcapacity problems are based on the Chinese economic system. China rules by administrative measures but this country is so big that to control for example the establishment of steel plants in the province of Hebei seems mission impossible. There are 200 steel plants there but maybe the country just needs 20. So what the European Chamber, AmCham and I’m sure Chinese economists are asking for is the development of more market based instruments, like interest rates, stronger credit growth control, credit assessment, things that function in our societies which could take care of a major chunk of this overcapacity.
EB: Which sectors then are least affected?
JW: High-technology products. The chemicals industry is high-capital, high-tech and 50 percent of chemicals are still imported into China. And notably there are segments which are subject to overcapacity, such as PVC and chemical fibres. But in the segment where EU companies are there is still a huge import demand. In pharmaceuticals it’s not an overcapacity issue but rather a licensing problem. Do you get the licence or not? And there Europeans definitely have a strong position. The car industry is a challenging one, especially as local companies like Geely and Chery are coming in very aggressively, especially in the lower market segment. European companies have to see that they stay in the high margin segments and the technology benefit should stay with them.
EB: We hear a lot about China becoming an innovative society. Will European companies’ technological advantage wane?
JW: The technology advantage of Europe is not necessarily waning. The technology gains of European companies are still significant. Globally Europe suffers from a high euro, but in exports it is doing well, partly because Europe has great high tech products.
EB: Is that lead narrowing?
JW: In some segments it’s narrowing. In some it remains the same and in some it’s increasing. It’s hard to say whether the China-based industry is closing the gap or is it Chinese industry closing the gap. Three years ago 80 percent of all high technology was exported by multinational companies. The figure for 2006 was that was 85 percent was exported by multinationals. Even in that important segment Chinese companies are losing market share. There is a lot of innovation but unfortunately it is not spilling over into Chinese industries. There are always exceptions, like Huawei; Haier is very innovative. So is Lenovo. But overall Chinese companies are suffering from a lack of technology. Why? Primarily from lack of IPR protection. If a Chinese company comes up with a great idea the chances they will be copied by another Chinese company are very high and this is their only marketplace. If a European company develops a product they will sell in 180 markets. Amongst them is China, which may be an important one, but if they get copied here and lose this market they still have others.
The other issue is lack of market knowledge and data. Chinese companies don’t have the mechanisms to find out what Chinese consumers really want, the AC Nielsens, the Gallups of this world. So how much does a Chinese company really know about the marketplace? And then because of fierce competition and lack of margins there’s no money for research and development. The major difference between Korea and Japan was that they closed their domestic markets and put a lot of money into R&D and were selling it on third markets. China has been pretty much open all the time and has been subject to fierce competition.
EB: Companies in India have been shown to deliver far greater returns on investment than their Chinese counterparts. Why?
JW: It has to do with who is listed. India’s stock exchange system is far better and longer established. In China most of the listed companies are still state-owned where you have a small float, in Sinopec’s case 10 percent and in Petrochina’s 20 percent. The rest belongs to the government. Government-run entities are far less profitable than if they’re in private hands. India has developed some very good companies listed in Mumbai which are not government-run, like Tata and Reliance. Chinese stocks are soaring, but there is no company performance behind it. The Chinese stock market is disconnected from the real economy, which has been running at a 10 percent growth in the last years while the stock market has stayed absolutely stagnant. And now all of a sudden the economy is still at 10 percent but the stock market takes off like a rocket. In India there is a correlation. Also, in India there is very little multinational presence, unlike China, but this chunk of well-performing companies in China is not reflected in the stock exchange – they’re listed elsewhere. Also, most of the well-performing private companies, like those in Zhejiang, don’t go near the stock market. So the best performers aren’t on the exchange.
EB: What do you see as the tensions in EU-China trade in the coming period?
JW: In Europe now there is a ‘we are afraid of China’ campaign, in titles of magazines and politicians being lobbied to protect the region from Chinese imports. And you have the same in China. People are saying, “There are too many multinationals, they are too dominant.” The two regions are headed in this way of being scared of each other, which leads to protectionism, which leads to trade wars and increased costs of doing business. So everyone loses. That worries me greatly.
For more information on the European Chamber’s new President, Mr. Joerg Wuttke, please click here.