Putting the question: an interview with Zheng Han.
Interview: Bernd Müller and Thomas Wagner.
To many German and European people, businesses and associations, China still comes across as distant and enigmatic, and often even threatening when it comes to technology and market power. Bernd Müller and Thomas Wagner spoke with Professor Zheng Han about economic momentum, cultural differences and the status of innovation in China and Europe.
Professor Han, you traverse different worlds. You studied in Brunswick, Germany; you have taught in Switzerland, Singapore and the United States, and you are also a consultant for high-profile companies, especially in the field of transport. Currently you are teaching innovation and entrepreneurship at Tongji University in Shanghai. What are the biggest differences in mentality and corporate culture between China and Europe?
Zheng Han: Chinese businesspeople are very pragmatic, seize opportunities and act in a very agile manner. In terms of recent history, the country began with nothing; the sole things it had were ambition, hard work, intelligent people and a certain degree of cleverness. Compared to Germany, there was very little that was inherited. However, less heritage also means less ballast. Those who are largely free of such ballast can develop by leaps and bounds, learn from scratch and profit from the best. Consequently, when China opened up, businesspeople, companies and the government looked around – and learned from the Japanese, the Americans and the Germans. They tried to pick out the best, from the best. That is the first thing. The second key difference is something I have already mentioned: Chinese companies are very agile and pragmatic, which means that they have a much clearer view of their goal.
“You have to act based on the situation, adapt, move quickly and push forward in a new direction”
That almost sounds like a description of the Anglosphere. Could a significant difference be that the people in China find it easier to think and act situationally?
Yes, absolutely. European and Western thinking is very dialectic and always based on black or white. People are determined to find out if something is true or false. However, these days there are a growing number of situations in which the true and the false remain unknown. The current Covid-19 pandemic is one of these situations. For a long time there was not a single person who could have guessed what consequences the virus would have. In situations like these it is hard to make the right decisions. You have to act based on the situation, adapt, move quickly and push forward in a new direction. An amorphous situation like this is typical in the world of digital transformation. Digital technologies can be used in all sorts of different scenarios, so there are also a lot of new risks that arise. People who apply a dialectic mindset in these circumstances wind up taking decisions very slowly because there is never conclusive information available. In my opinion, the Western world has a problem with this, though that does not mean everyone has a problem with it. Entrepreneurs such as Elon Musk also come from the West and are making daring advances into the unknown. Chinese businesses are highly flexible; they are daring, they see what works, they learn quickly and they do not wait for conclusive explanations.
Do you see yourself as a moderator who mediates between the different approaches?
Yes, indeed. Both attitudes have their strengths; neither is better or more correct than the other. The determination, principled actions and longevity of German industry has contributed greatly to the phrase “Made in Germany” being respected globally, virtually becoming Germany’s business card. However, it should also be noted that the pace of development today is much greater than it was at the time of the Wirtschaftswunder (German Economic Miracle). That means people need to pick up new skills, and they can learn a lot from Chinese agility. But on the flip side, we will not get very far with just agility by itself. At some point a moment comes where the priorities are foundational research, core innovations and key technologies, which is where China still struggles.
Is there a strong fixation on the market and little thought outside of the short term?
The market is extremely brutal in China and everything moves very quickly. “Hypercompetitive” is the word for it. There are many players at work; everyone wants to seize the opportunity, so speed really means everything. On the other hand, if everyone were to focus on speed, there would be certain issues that nobody would work on for ten years or more. Chinese companies often do not have the calmness to say, “While I cannot see success immediately, one day I will be successful in this.” They know that if they act slowly and steadily, they will soon be out of the picture.
Speed is relative. When everyone flies at light speed, they still keep pace with each other.
That is correct, and still everyone moves at full tilt.
In recent years, China has neither stood still nor has been solely a powerhouse. This has led to a special strength of its own. How is China doing currently?
China has gained an edge in many areas, particularly with digital transformation and digital infrastructure – 5G, fintech, artificial intelligence – and recently also in electric vehicles and autonomous driving. These are all strategic points that the government set as goals long ago. It lavished these areas with a lot of money and gave targeted support to start-ups in these fields.
“Ask for forgiveness later”
Let’s take a look at electric vehicles. How do things work in this sector? How do the different market players act and what role does the government have?
There are two stakeholders: the government, which lays out a five-year plan formulating industrial policy, and businesses, which develop their own ideas, discover trends around the world, pick up on these trends and then adapt or enhance them for China, independently of the five-year plans. It becomes very interesting when these developments overlap within a sector, as the government then systematically supports the companies and accelerates the whole thing with large-scale subsidy programmes. The government only attempts to intervene when something potentially dangerous crops up. Until something like that happens, companies such as Alibaba and the like have free rein to develop as they please.
An entrepreneur does not wait for a five-year plan; he or she simply gets started. That entrepreneur is relatively free in their entrepreneurial activity. The state steps in only when something is heading in the wrong direction. Is that correct?
Chinese entrepreneurs very rarely wait – if anything, they wait for the customer. Of course they watch out for what the government says, but on the other hand, many companies have learned this: when you wait, you have already lost. There is a saying that describes it well: “Ask for forgiveness later.” Start out and do something first before looking at where you have stepped on people’s toes. My favourite example is bicycle sharing. In China there were no regulations for it. Free-floating bicycle sharing means that the bicycles can be parked anywhere. Nothing like this had ever been seen before, because regulators had never envisaged that something like that would work. Start-ups, backed by venture capital, flooded the cities with millions of bicycles. They would obstruct almost entire cities, becoming a plague. Various start-ups began procuring as large a share of the market as possible. The government initially thought that it was a good idea: cycling is environmentally friendly and, moreover, solves the problem of how to cover the “last mile”.
And how did things go from there?
When they realised that the bicycles were becoming too many – when each of the ten companies put half a million bicycles on a city’s roads – and were obstructing traffic rather than relieving it, the government issued new regulations overnight, including ones that varied significantly from region to region. This put an extreme amount of stress on some businesses and led to some being filtered out. Companies that were able to respond to the new regulations survived. Others whose operations could not handle that had their bicycles confiscated and thrown onto the scrapheap. There were photos of millions of colourful bicycles. The government also made new rules every two weeks, down to the apps that had to be adapted to the new banned areas. Where are the banned areas? What happens when customers leave their bicycles in them? And so on. That is how things happen in China: start-ups are given the chance to do new things first. Legislators learn based on that and issue regulations that are updated at short notice. The government’s actions in this regard apply not only to start-ups, but to larger corporations too. One recent example is the Chinese authorities’ cancellation of the Ant Financial IPO.
And in Germany?
In Germany, the subject was first discussed for a long period of time. It is well known that anything not explicitly allowed under the traffic regulations is prohibited. That means the companies had the ideas and they also had the product ready – and then they lobbied until lawmakers said that they would loosen the restrictions. They had to spend a long time waiting, but that also led to a somewhat more regulated process. However, there were still problems in spite of that. When something is new, it is impossible to develop the perfect laws to regulate it. The impacts of that new thing cannot be foreseen. Not even the companies can predict the behaviour of the users. As a result, the start was delayed, the authorities still had to learn their lessons afterwards and then respond to the impacts. So, why not start earlier if you have to look and see what happens later on anyway?
“Authorities are cautious in Germany”
Why does that work better in China?
One explanation is that the government can issue new regulations overnight in China. No one there would say, “No, that cannot work! This group of people and that group of people have not been considered.” In Germany, the Chinese approach would bring about much greater problems. Accordingly, authorities are cautious and deal with matters slowly.
Can decisions be made faster in China due to the political system?
If you look at the topic of innovation outside of a purely macroeconomic perspective, what role do design and branding play in the Chinese market? How closely are innovation and design linked with each other?
Design wird aus meiner Sicht immer wichtiger. Als der Markt sich geöffnet hat, hatte man relativ wenig Erfahrung mit neuen Produkten, mit neuen Marken. Also hat man westliche Marken per se für gut gehalten. Irgendwann hat man dann erkannt, oh, da gibt es noch bessere Marken, Premium-Marken. Und man hat auch erkannt: Solche Marken haben ein besonderes Design. Heute versuchen auch lokale chinesische Marken sich durch Design zu unterscheiden und asiatische oder chinesische Designelemente einzubringen. Das fängt bei Automodellen an. BYD etwa nutzt für eine Modellreihe chinesische Dynastienamen. Auch ins Design fließen klassische chinesische Designelemente ein statt westlicher Geradlinigkeit. Das Design wird nicht komplett umgestellt, es werden aber einige chinesische Elemente eingebaut. Ähnliches gilt für die Mode, wo junge Designer sagen, hey, wir haben – Stichwort „heritage“ – hier doch auch etwas zu bieten.
Will the Chinese market become more strongly disconnected from the West?
I would not say “disconnected”. The brands that are at the top of the pyramid remain Western, international, global brands. There is a smattering of Chinese brands in the premium segment, in fashion perhaps also a few Chinese designers who, with the help of international brands, are trying to gain a foothold in the premium segment as a sub-brand. I find it rather unlikely that China will disconnect from the West in terms of design. It will also take some time for quintessentially Chinese design elements to gain popularity outside the country.
Will German-made products be considered less prestigious when Chinese brands become more highly regarded by consumers?
In fields where Germany is traditionally very strong, such as engineering and plant construction, China remains behind Germany. However, the gap is closing. The automotive sector is an intriguing case. The car is one of the few consumer products in German industry. The country does not make any smartphones, maybe still a few Miele refrigerators and ovens, but that’s about it. There is not much technology consumption besides that in Germany; most of the technology is B2B products, where German industry is strong. Germany was highly successful with cars for a long time, yet now it is under pressure. Tesla and others have understood that trivial details such as the gap between panels will not necessarily be convincing sales arguments for future generations. Rather, what count are the digital experience, digital services and so on. The digital dimension can be used to make up for a great deal of things in order to win over future customers who will likely become less loyal to brands. This is where Chinese companies could take some market share away from German companies and brands.
“The Chinese are opportunistic, but at the same time also very optimistic”
What would we discover if our view of China became less prejudiced?
That is a good question. You would discover that the Chinese generally have an extremely positive attitude about their future development. The Chinese are opportunistic, but at the same time also very optimistic. People think that things will keep moving up and getting better. That is of course because China has moved in only one direction over the last 30 to 40 years. That leads people to say: “Whatever happens, even if things proceed more slowly, they will get better.”
Is this optimism being tarnished by climate change and environmental issues?
The Chinese press spreads a lot of optimism. People see things positively, so China will overcome the next challenge – the environmental crisis and climate change – too.
For which technologies and products is China a leader?
Digital technologies, without a doubt, including digital payment systems, for example, and fintech in general. Alipay and Tencent Pay are relevant names in this sense. That is solely because hundreds of millions of people use digital payment systems every single day. It is the same with facial recognition in artificial intelligence. I read just recently that half of the world’s video surveillance cameras are installed in China. All of these cameras have been or are progressively being replaced by smart technologies for facial recognition, number plate recognition and motion detection. In doing so, huge volumes of data are created to train AI. This does not work in the West, which is why China has developed probably the best algorithms in this field.
Are there any other fields?
There is genetic engineering, for example. China possesses one of the world’s largest human gene databases because the government supports it, and the population is not very sensitive when it comes to the analysis, storage and disclosure of gene information. Again, just the volume of information here generates massive innovation. Fintech, feature recognition, gene technology – China has an enormous advantage in these fields compared to other countries.
“If something is used in a new way, even that is innovative”
If something is new, is it already innovative? Is the understanding of newness different in China than in the West?
The threshold for newness is much lower than in Europe. If something is used in a new way, even that is considered innovative. Take a look at the different categories of patents. One is the invention patent, which is truly new in the world. Another is the utility model patent. New utility models are innovative in China since different usage possibilities do arise, even if they might have existed elsewhere once before. One example from e-commerce is live-streaming. Live-streaming means being able to sell something through channels such as Zoom. If that vendor is an entertaining person, tens of thousands of people will watch and maybe 1% or 10% will order the product. Something like this existed in Europe once before: it was called teleshopping. I would not say it was copied, but rather almost reinvented for a digital format. Packaged in a new medium and made extremely successful.
Does critical questioning have no role in any of this?
For many innovators, critical questions mean more problems than opportunities for success. Where possible, critical follow-up questions are avoided for each commercial activity.
Does that mean China hosts a form of supercapitalism?
Chinese entrepreneurs are businesspeople with a very, very capitalistic mindset. That has historical reasons, too. The Chinese were excellent traders for millennia, although merchants had a very low place in the social hierarchy. One possible explanation for that is that the emperor did not support any social class that could have represented an antithesis to his power economically and financially. The Chinese dynasty held businesspeople in their place for a long time. That has now changed. Of course the party still comes first, then the civil servants – but after them it’s the businessmen and businesswomen.
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