Welcome to FEB Stokes, the podcast series of the Foundation for European Progressive Studies. Find out more about us on FEBs-Fear.u. Hello, this is FEB Stokes, the podcast series of the Foundation for European Progressive Studies from Brussels. My name is Laszlo Andorra, I'm the Secretary General of FEBs, and I have the pleasure today to welcome in this program Professor Jeffrey Henderson from the United Kingdom.
We've known each other for a long time, and I think if I need to recall when I heard Professor Henderson first time speaking about China, it's probably more than 30 years ago. Some of our listeners might not be aware of his extremely rich CV, which goes through a number of universities. Currently, he is Professor Emeritus of International Development at the University of Bristol and co-founder and Vice Chair of the EU-funded China in Europe Research Network.
But previously, he held positions among others at the University of Hong Kong, California, Melbourne, Manchester, as well as the Free University of Amsterdam. And his publications include Globalization with Chinese Characteristics from 2013, as well as The Wind from the East, China and the Economic Future of Europe from 2021. And I think these titles already speak volumes, explain quite well what we want to talk about and why we want to talk about China.
I think it's quite straightforward in these days. There are very few discussions about international affairs, especially international economics, where China would not be either explicitly or implicitly a subject of the discussion. But I think we should start from some basic questions, definitions. Professor Henderson, I would like to hear some kind of quick and short definition from you. Who is exactly China? What is, in your view, the nature of the Chinese state?
Well, Laszlo, you're absolutely right to indicate the significance of China today. In my view, other than climate change and AI, it's amongst the greatest challenges that we actually confront, certainly in Europe and globally also. Who is China? Well, if I were a member of the Chinese Communist Party, I'd actually say it's the party, because that is a central element in the party's narrative. And that's been a claim that the party has made, certainly since the revolution in 1949.
However, it seems to me that we have to resist that claim and that narrative. In other words, we must distinguish between the party and the Chinese people. So the point that I'm making here, obviously, is that China is the Chinese people. That's a crucial distinction, it seems to me, for a whole variety of reasons. And let me just indicate a couple of those, right?
First of all, unless we distinguish the Chinese people as China from the party and the Chinese state, we are immediately in a situation of perceiving as China as monolithic effectively. As a country where all 1.4 billion of them see the world in the same way and sort of speak with essentially the same voice. That clearly is no more true of China than it is of any other country.
There are plenty of people in China who profoundly disagree with the party in general, but lots more probably, who would separate off the party and support that in various sorts of ways from its current leadership under Xi Jinping and his faction, who basically took over the party in Xi having been elected to the general secretary of the party and president of China in 2012.
So in other words, China in that sense is no different from the former Soviet Union or the former state socialist societies of Eastern Europe, right? It is no more monolithic than they were, and there is lots of internal opposition within China itself. But that's something which often gets lost when people think about China and in terms of standard governmental, more widely international relations discourses on China.
But it's an issue which I'm becoming increasingly concerned to try to insist on because with the increasing possibility of conflict with China and perhaps most importantly around the question of Taiwan, it's really crucial that the broader publics, the policy makers in Europe and elsewhere, really understand and operate according to that distinction. Because if we don't, we're in danger of assuming that it's somehow, it's something to do with the Chinese people and Chinese culture.
That is the problem here. And once we get in that situation, it's very easy to slip into racism. That's particularly important. That's clear in many national cases, of course, but it's particularly important from the point of view of China because China is, after all, the world's first great power since itself, you know, 2000 years ago, right? It's the world's first great power in the modern world to be populated by people who are not white.
So there are always those dangers of racism lurking behind perceptions of China and, you know, China does this, China does that, it does this because it's, you know, Chinese people with some sort of cultural essentialism here, which is a problem, right? So that distinction between the party's narrative, the party is the equivalent of China, and the idea that China is the Chinese people is important to make and important to repeat in whatever reasonable contexts, right?
I'm clearly going to have a lot to say about the Chinese Communist Party, and a lot of it will be critical. But before we go any further, let me make one thing very clear. For an awfully long period of time, I had a lot of things that were positive to say about the Chinese Communist Party, and I still do in some ways, you know.
And one of the reasons for that is that if we think about the Chinese process of economic and social development over the last 40 years in general, but perhaps in particular, that the party has overseen the lifting of something like 700 million people out of poverty, then we realize that that has been amongst other things an extraordinary contribution to human rights, right? But often in, you know, discourses, discussions around China, that gets lost. It's not mentioned, right?
And I think that it's important to make that point right at the beginning. Yes, if I can just interrupt you. In the previous comment, you made a comparison with the Soviet Union. And is it a correct observation that, especially now, nobody really refers to the Soviet Union as a civilization? But when it comes to China, a lot of people say that in reality, it's not a country with a civilization. Would you agree with this and does this discourse have a relevance in your view?
Yes, it does, actually. China, with the exception of relatively constrained periods during its history, has never really been part of the, what for better or for worse, became the western induced mainstream in terms of values, the whole issue around the questions of human rights and etc. etc. So in that sense, it does represent a great power apart, as it were, with the exception of relatively small periods.
In other words, towards the end of the final imperial dynasty, the Qing, for instance, and the forces that produced the Republican Revolution in China in 1911 were obviously influenced by, you know, ideas and values emanating from Europe and from the United States. Socialism, of course, is part and parcel of that. It's coming from Europe, political and value system.
But generally speaking, China is, I'm hesitating to use the term civilization here, civilization apart. I wouldn't necessarily go down that route. But it is very, very different from the old Soviet Union, of course, which was significantly influenced by the sorts of values that were circulating then in Europe, in North America, and indeed elsewhere.
China, yes, less so, I think. That's one of the issues, actually, Laszlo, that can easily feed in, by the way, to a racial discourse around China and what China does, etc. etc. It's one of the things that's actually quite dangerous here, I think. Right. Can we shift to economics? Because I think what people are trying to come to terms with is what we call the rise of China, especially from an economic perspective. And this incredible speed of GDP growth, what can sense the last 40 years.
There are two sides of this question. First of all, if you could sum up what made this possible in the first place. But what is also a more topical question about Chinese growth is whether it has peaked or not. Has it run its course? Or is it something which continues? Okay. To answer the first question, what were the dynamics behind China's rise as what it is now, the second largest economy in the world after the United States? And that I can respond to with really three points.
The absolutely key context which made China's economic rise possible was neoliberal globalization from the 1970s onwards. And particularly within that, the drive initially by US companies to outsource the significant parts of their production processes. I'm talking about manufacturing companies here largely to the developing world.
I don't want to go particularly into the history, but that began in the 1950s with regard to Japan. It was picked up subsequently, in other words, the outsourcing of production by American companies to Taiwan and to South Korea, for instance. But with the economic reforms that were introduced into China under the regime of Deng Xiaoping in the late 1970s, early 1980s, China became increasingly the major focus for those types of outsourcing of production processes.
So that was absolutely crucial from the point of view of cheap labor that's certainly true and all the rest of it, but also very rigid work regimes, trade unions, yes, massive trade unionization of the Chinese labor force. But one of the things that the official trade unions in China, those affiliated with the oil federation of trade unions have rarely done is they've rarely mobilized around questions of wages and working conditions, for instance.
Very unlike European trade unions from that point of view. So that was a key issue. And so there's the outsourcing initially of garments and textile production, subsequently of electronics, automobile manufacture components, etc, etc, etc. So by the time you get into the 1990s, China really has become the key location for the manufacturer, a whole slew of products that were in global demand.
So neoliberal globalization in general, but in that particular sense of the outsourcing of the production processes. The second thing was of course the size of the Chinese market as it's as foreign companies outsourced their production that invested within China. They generated employment that's creating income, the market gradually grew, and it became fairly rapidly the case that China was a major market for the purchase of commodities from North America and from Europe, for instance.
And that lure of the size of the Chinese market was one of the key things that resulted in in Western companies increasing their investment in China to produce those automobiles or whatever it was for the Chinese market. But the third thing which was relevant here, in addition to those two, was the significance of the Chinese government's industrial strategy.
This can't be emphasized too much, because what they did rather unlike many other countries in the developing world and certainly totally unlike European companies, for instance, before or the same time or even now, is that they insisted that in order to invest in production facilities in China, if you were say Toyota or Honda, for instance, or if you were a semiconductor company, for instance,
or if you were a computer company, Hewlett Packard, or what have you, is you had to agree to transfer your technology to Chinese companies which were then developing and beginning to grow, for instance. So a number of Chinese companies, of course, that are now major global players benefited from that regime, that industrial strategy regime of picking up from the transfer of Western technologies, for example, for instance,
and that has been an obvious case in point here. But so that was that was crucially important. And it was from there that it spiralled into the, you know, industrial beam off that the China is today. And the Chinese growth peaked at this very moment in time on clear, but quite possibly one of the problems, of course, is you if you have this export oriented industrialization strategy which China initially had and right.
And certainly in relatively recent years that is industrialization processes become much more in oriented to the domestic market as the source of as the principle source of growth is that if you become the workshop of the world, you of course, generate vast amounts of revenues. And capital, of course, by its very nature has to be used, right, it has to be invested in in ways that themselves are lucrative. Otherwise, it becomes a dead weight and the system begins to implode.
So one of the consequences of that was a shift in resources. It's not only China, this is true, pretty much every country going through this type of development process. There's a shift of resources into other areas of which, of course, real estate was a key one.
So one of the, you know, anybody that goes to China today is typically amazed by the extraordinary, you know, high rise buildings that, you know, concrete over the vast majority of Chinese cities and indeed smaller cities and smaller towns for that, for that matter. And one of the problems with real estate development, of course, is it is tends to be fundamentally a speculative activity.
In other words, you build on the assumption of the market continuing to grow and expand when in fact real estate markets are typically highly unstable. And if they begin to slow down and they begin to contract, you've got a problem as a real estate developer. It means you're stuck with buildings that are not earning, that are not earning rents, right? So there are downward pressures on your income.
If you've actually borrowed large amounts of money to help you, you know, engage in that real estate construction, as Chinese real estate companies have, you're potentially in trouble at some point or another. You're difficultly servicing the debts. There's a consequence, the banks, for instance, that have lent you that money have problems themselves in terms of their own financial stability is right. And what you tend to get from then onwards, of course, is a downward spiral.
This has now become clear with the near collapse of a couple of the largest Chinese real estate companies, for instance, that has sent revoverations through the Chinese banking system. The government is clearly attempting to step in to deal with that. Right. So what you have in the case of China is really a classic in emerging classic over accumulation crisis, but triggered initially through real estate speculation.
So in that sense, there's close similarities between what's happening in China now and what happened in the United States and European countries in 2008 and for similar sorts of reasons. Or in Japan in the 1990s. And Japan in the 1990s also. Yeah. But you have differences, right? In other words, China is not as no where near as globalized financially as obviously European countries or the United States or Japan, right? The currency is not freely exchangeable, for instance, right?
And that gives the Chinese government all sorts of levers to deal with contagion from real estate speculation and the problems associated with it, that Western governments effectively do not. The financial system is, of course, entirely state owned. But even so, so significant, could this developing over accumulation crisis become is that it could still threaten the Chinese financial system, which remains for a whole variety of reasons, structurally weak.
So there are considerable dangers there for the Chinese economy. And if those the emerging crisis deepens, of course, that will have enormous implications as it does anywhere else for companies closing down capacity, making people employment, unemployed. Sorry, I beg your pardon. And when that happens, of course, that presents serious party problems for the party. Because people that don't have jobs or declining standards living often get angry and tend to mobilize, right?
And this is the party's greatest worry that it will be challenged from within by the Chinese working classes, basically. But so that's a possibility. That's certainly a trajectory that we should keep an eye on for the next few, certainly months and next few years. Yes. I thought we should highlight that about halfway through this long period of high gross, China was brought into the World Trade Organization.
And obviously, that was US policy, right? Without the Americans leading this, it would not have happened. But I'm sure at that point, the American policymakers did not think about this emerging, what we call systemic rivalry, which started to happen just 20 years later. So how do you see this so-called systemic rivalry between the US and China? The US government made the same mistake with China as it did with Japan when Japan was an equivalent period of development, in the 1950s and 1960s.
What they thought would happen with Japan is that it would become a prosperous country. Certainly, it would continue to be a supporter, both politically, certainly, but economically, of the United States. But I think that people in the Department of Commerce, for instance, and the Federal Reserve in the United States did not anticipate that Japan would grow business corporations able to challenge American ones. That was not part of the ballgame, or the supposed ballgame.
And similar things, of course, have happened with China, and that has impacted significantly on US-China relations, not merely geo-economic relations, but also geopolitical relations. So, for instance, the United States certainly encouraged the growth of China, and you're right about it. It encouraged its growth.
century into the WTO. And for a long period of time, in other words, since the first so-called opening up of China in the early 1970s, through to the early 2000s, as a matter of fact, 2005, 2010 or thereabouts, the United States' relationship with China was a relatively positive one. They certainly cozyed up the Chinese regime and of course, vice versa. They did so because
China had not grown globally significant business corporations. Once they did, and once they began to challenge US corporations in terms of global markets, in other words, around about 2010, let's say, then US government attitudes began to change. One of the first things we get, which is geopolitically significant, is President Obama's so-called tilt to Asia, a concern to try to control Chinese expansionism. This was, I would argue, entirely driven by intercapitalist competition between
American corporations, global corporations and their Chinese equivalents. There are other things to say about the developing systemic rivalry, one of which, of course, is that if Donald Trump were to become president again after the elections in November 2024, then expect, I think we expect, a significant turn for the worse in terms of US-China relations, potentially very dangerous. Within all this, and certainly if that were to happen, there in my view ought to become a very
significant role for Europe. In terms of Europe here, I'm talking about the European Union, obviously, but I'm talking about a number of other European countries that are not members of the European Union, including Britain actually. It seems to me that in that context, where rivalry, including geopolitical rivalry between the United States and China intensifies, then some type of international grouping, some type of international agency,
will become highly important in terms of stepping in between the United States and China. We know that the United Nations, our big department, cannot do that. It's always been unable to act when the rivalry has been between our permanent members of the Security Council. It seems to me that there's only one agency that could perform an intervening role, an immediate role, if you like, between the United States and China. It is the European Union and other European countries.
My argument would be similar to President Macron's here, is that I think very quickly, as a matter of absolute urgency, Europe needs to be built as a third power, positioning itself between the United States and China. You used the word challenge as a logical consequence of the increased economic power of China. I think this has probably two sides, at least. One is investment. Because of the enormous
Chinese surpluses, there is a huge amount of investment. Maybe we can say flooding the so-called global south. On the other hand, we also have a kind of technological competition, which a lot of Western actors consider as a kind of threat. How do you see these two angles, investment and technology? Does Chinese investment represent a different quality in the world? Is Chinese technology a threat to other countries, whether it's north or south?
If we focus on the developing world, or as it's usually called these days, the global south, there is no question that Chinese investment in the global south from the late 1990s, very early 2000s, has been massively beneficial to development in a number of the poorer countries around the world. That investment, of course, has not been altruistic on the part of the Chinese government or Chinese companies, be they state-owned companies or sometimes privately-owned companies also.
It's been investment chasing particular types of resources in the global south, especially minerals, various types of metals, for instance, oil, foodstuffs to some extent also. China, along with the number of other countries, Japan would be a case in point, for instance, have in recent decades brought up huge tracts of land in East Africa for foodstuff production, for instance.
So the investment in the global south has really been connected with those sorts of things. So in addition to mining, for instance, lots of investment has gone into infrastructure, ports, railways, highways, etc., etc. And this has been brought together more recently under the slogan of the Belt and Road Initiative. And it's important, again, to emphasize how significant that investment has been to development and partial still, of course, but partial poverty alleviation in parts
of the developing world. In the context of Europe, that investment has been of a similar sort here and there. There certainly has been investment in port facilities, for instance. The port of Piraeus, alongside Athens and Greece, has been largely Chinese-owned for some period of time. There are major Chinese investments in Rotterdam, the port in Rotterdam, for instance. There are significant Chinese investments in highway development and railway developments in parts of the
central and eastern Europe. So there have been aspects of similar types of investments by Chinese companies in Europe. But the European economies are very different from those in the developing world. They are much more technologically sophisticated, for instance. They are much more diverse. They range across a whole series of product areas that are largely undeveloped or undeveloped in the context of the Belt and Road. And it's on the technological prowess of European
companies that Chinese investment has tended to concentrate. Since around 2010-2012, there has been a growing drive amongst Chinese companies to acquire European companies, particularly those that are at or close to the global technological edge in their respective areas. Let me give you some examples. So, for instance, the state-owned company, ChemChina, took majority ownership of the Italian tire manufacturer Pirelli around about 10 years ago, or there about no more recently,
probably more 2016-2017. The same company, ChemChina, acquired a majority ownership in the Swiss pharmaceutical giant, Singenta, around the same time. The technically privately owned Chinese company, Geely, of course, acquired Volvo, again, around about 2008-2010, I seem to remember. It may surprise your listeners to know that Chinese companies are now the single largest owners of Mercedes-Benz. Geely, for instance, the company that owns Volvo, owns 10% of Mercedes-Benz,
another 10% is owned by the state-owned company, Beijing Auto. This goes on and on and on.
One of the interesting differences between Chinese investment in Europe, or direct investment in Europe, in other words, and earlier waves of direct investment in Europe, for instance, from US companies or Japanese companies, whereas the US and Japanese companies brought their own technology with them and set up their own factories, for instance, on what's usually called greenfield sites to produce cars, to produce electronics, to produce products, etc. etc.
What overwhelmingly Chinese companies have done, they haven't gone down that route. They have taken over or they've heavily bought into high-performing cutting-edge technology companies in Europe. Another case in point, for instance, would be the acquisition of the Dutch semiconductor producer Nexperia by Chinese interests a few years ago. Nexperia, for instance, is again close to the cutting edge in fabricating the wafers that form the chips that go into everything that,
through which we live, allies from phones to cars to whatever it is. That example is repeated time and time again. One of the things that needs to be indicated here is that Chinese companies can access European companies because the investment regime in Europe remains much more liberal
than it does in the United States or Japan. Basically, the three principle global sources of technological innovation in all, basically all of the technologies that are absolutely central to countries either achieving or remaining as advanced industrial countries throughout the 21st century. The innovation comes overwhelmingly from three parts of the world, from the United States,
from Europe, and from Japan. With regard to the United States and certainly Japan, Chinese companies are basically close to being closed out of acquiring major equity stakes in key US and Japanese technology companies. In the case of Japan, you simply, if a foreign company attempts to acquire more than 1% of the equity of a Japanese company in areas in strategic technologies, that acquisition, 1%, goes over 1%, can be blocked by the Japanese government.
In Europe, in the British case, for instance, at 25%, in Germany, I think it's similar. So Europe remains open-season for Chinese companies in that sense. Well, yes, exactly. I think what you explained justifies what in the European Union language
we call the de-risking. This policy was introduced sometime in the autumn last year, and maybe not sufficiently explained before the general public, but the evidence you just presented suggests that it's absolutely timely to bring forward a kind of recalibration of the investment policies and the openness of the European economy. So what would be, in your view,
the best way to pursue a de-risking policy? First of all, European governments need much more information about what the companies within their domain actually do and what they produce in order to identify those of them which may be at risk from Chinese takeovers of the company's concern. So that literally needs to be some sort of record of this. That certainly doesn't happen in Britain. Maybe other European countries are better at this, but perhaps they're not.
So in other words, you've got to know which companies are potentially targets for Chinese investment, which of them are involved in producing strategic technologies. And I mean strategic here, not merely in the military sense, but also in the commercial sense. And once you've got that record, you can begin to identify which companies are now at risk. And many of these companies
just may be quite small. Maybe startups, for instance. For instance, the German auto components company KUKA, which was acquired by Chinese interests a few years ago, was not in itself. It wasn't a huge company. So it's not merely the larger companies that potentially at risk here. It's also some of the smaller ones, not least of which because it's in many of the smaller companies, the startup companies in the growing process where most of the technological innovation
actually takes place. So having identified those firms, then you need some sort of strategy for protecting them in the various ways of going about that. It could be like in the Japanese case, for instance, much more restrictive legislation that allows whatever age government agency is responsible
here to intervene to block takeovers. Or it could be something as simple, for instance, as governments having identified the company's potentially at risk of governments taking a golden share in those companies and therefore having a government's pointy on the boards of those companies. If you have that, then you don't actually have to wait to find out whether a company is potentially in the embrace of a Chinese company. You will know about that very rapidly,
right from the beginning in other words. So that's one of the things that's necessary here. Another thing that's necessary, it seems to me, is you've got to monitor and if necessary, intervene in terms of the research collaborations between European universities
and their Chinese equivalents. There clearly is a lot of research collaborations in sensitive scientific and technological areas, which academics and European universities engage with for the usual reasons because they believe in knowledge as an open process, effectively. But I think with regard to China, those days, not across the board, but in certain terms of
some scientific and technological areas, may be over. There are real dangers that are, for instance, I'll give you one example from the British University in London Imperial College, for instance, has been involved in it, now been disbanded, but in a research collaboration with the Chinese Institute, out of which have come Chinese maritime vessels that controlled by AI and can be relatively small, heavily armed, can be produced in large quantities and just sent out to do whatever.
That's simply one example of unknowingly, I guess, British scientists being involved in a collaboration which is potentially detrimental to European and wider military security. One of the problems we have, of course, China is the world's principal source of a series of rare metals, which are essential for the production of the electronics equipment that are essential to our lives. Clearly, alternative sources of those rare metals
need to be found and pretty quickly. But on the other hand, it seems to me that European countries need to leave perhaps a lot of room for the greenfield production of commodities of various sorts, in which Chinese companies have a significant presence, from consumer electronics to whatever it happens to be, for instance, perhaps for investments in factories that assemble Chinese automobiles. China as a commercial challenge is not a commercial challenge across the board.
There are a whole series of areas, it seems to me, where Chinese investment can be welcomed and would be beneficial to European countries. Right? Right. Does that mean that we spoke about rivalry, but at the same time, the rivalry leaves a lot of room for cooperation? But also, as you described, also learning. And the learning must be mutual. I think it's maybe a euphemism that China has learned a lot from the advanced industrialized countries.
Maybe they still want to learn more from Europe, but maybe also Europe can learn something from China. So how do you see these kind of learning opportunities? Well, this is one of the areas in which, again, we have to distinguish between the Communist Party and the Chinese government on the one hand and the Chinese people on the other. I think what you're really referring to here is what can the Chinese government and Chinese corporations possibly learn from Europe? Let
me respond to that initially. I think it's clear what they want to learn from Europe. And that is scientific and technological knowledge. A lot of efforts are oriented precisely towards that. Beyond that, I don't know what they would actually want to learn. They're clearly not that interested in learning, particularly from many of the values that we consider to be at the core of European civilization. But that's for today. The point is that we have to anticipate in the future,
we have to be optimistic about development of China. And one of the things I think we have to be optimistic about is developments within the Chinese Communist Party itself. What I think it's unreasonable to expect with regard to China is that some point in the next 10, 20, 30, 50 years, that China is somehow going to morph into a country governed by a state that looks like Germany or even Hungary for that matter. It's not on track to some sort of representative to
liberal or less liberal democratic regime, it seems to me. So the best possibilities for the development which we in Europe would want to see in China are developments within the Chinese Communist Party, the emergence perhaps of some Gorbachev type figure. At the moment, that looks like serious long shots. It is not out of the question, it seems to me. And again, I refer back to my comments about internal oppositions within China. They get crushed, of course, but they
reemerge. Xi and the faction around him that currently control the party seem to be unassailable, but in the future, that may not be the case. Well, thank you so much. I think this should be an excellent conclusion for this discussion because very often when it comes to international rivalries and conflicts, there is an inevitable dystopian ending. And I think we managed to avoid that. We learned a lot about the nature of economic development, competition, but also
cooperation. And indeed, you gave us also some positive potential paths which are possible for the future. And I think this is very important to work for reinforcing those which are positive trends and not allowing escalation towards more conflict and the downward spiral. And especially under the year, the people and the listeners would appreciate this type of positive end of the
discussion. Yeah, if I could say one more thing on that, Lazlo. Go ahead. As always in politics and geopolitics, but certainly with regard to China, we absolutely need to operate on the basis of Antonio Gramsci's dictum, which you will know well, that we need to act politically in terms of pessimism of the intellect, but optimism of the will. And boy, do we need lots of optimism in the contemporary world. Indeed. Well, thank you so much for this additional quote. Indeed,
we should bear this in mind. I thank you so much for this deep analysis and summarizing basically this 40 years economic development and the potential continuation of that and the role of China in the international system and the relations with Europe. And let's follow up in the new year. I wanted to talk to you, Lazlo. I hope that's been pretty useful. And I thank the listeners for their attention and wish them all the best before the holiday season.
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