World Economy

German-Chinese Industry 4.0 Cooperation Entails Risks

German-Chinese Industry 4.0 Cooperation Entails RisksGerman-Chinese Industry 4.0 Cooperation Entails Risks

Germany and China have agreed to intensify cooperation on digitization of industrial processes, or Industry 4.0. That entails risks to German industry, since the two countries are destined to become competitors.

Germany’s economy and energy minister, Vice Chancellor Sigmar Gabriel, was in Beijing on Tuesday to advance German-Chinese economic cooperation on the development of Industry 4.0 technologies in a meeting with China’s Minister for Industry and Information Technologies Wei Miao, DW reported.

Gabriel and Miao signed an agreement promoting cooperation in “intelligent manufacturing and digital networking of production processes,” according to a statement from Germany’s Economics and Energy Ministry.

That will involve developing links between the German government’s “Industry 4.0” strategic industrial development program and China’s “ Made in China 2025” initiative.

 Cooperators, Competitors

Some observers think cooperation with China in this area entails serious long-term risks for German industry because Germany and China’s economies are both based on industrial production.

The two countries are expected to increasingly become direct competitors for global market share in many sectors, now that China’s government has decided to add an increased focus on production innovation and quality, rather than quantity alone, in the country’s vast industrial development effort.

“Industrial production is Germany’s main economic strength. The USA is the leader in digitization and infotech in general, less so in industrial production. In that sense, the two countries have complementary strengths. China, in contrast, directly competes with Germany in industrial production,” said Christian Growitsch, director of HWWI, the Hamburg Global Economy Institute, a think tank.

“That suggests maybe Germany should consider approaching the US as its key partner on Industry 4.0, more than China,” he added.

Growitsch said he supported cooperation between Germany and China on Industry 4.0 initiatives anyway, but “with due regard for the risks” as well as the opportunities.

He added that cooperation with American firms on digitization of industrial processes also entailed risks. If American infotech firms cooperate with German machine-tool makers on development of Industry 4.0 systems, those infotech firms could at some point decide to apply their knowledge to joint ventures with American machine-tool makers.

 Agreement of Good Intentions

Tuesday’s ministerial agreement sets out “general bases of cooperation.” Those include effective protection of intellectual property rights, voluntary decision of companies on whether or not to transfer technologies, joint German-Chinese development of norms and standards, data security for the firms involved and efforts to improve the framework conditions for entrepreneurs.

All five points taken together add up, in essence, to a German request that Chinese firms refrain from abusing cooperative projects by illegally copying German technologies and that China improve general business conditions for German enterprises doing business in China.

The question is what such an agreement of good intentions is really worth in the hurly-burly, mercantilist Chinese business world. The history of Chinese-European joint ventures doesn’t provide much basis for believing that in future, intellectual property rights will be respected and foreign firms consistently treated fairly, Growitsch suggested.

 Common Norms and Standards

Since Germany is a major supplier of production technology and machines to China, German firms could see benefits if China works with Germany to adopt common norms and standards for the digitization and networking of industrial processes. That removes any roadblock that might otherwise stand in the way of Chinese factories continuing to buy–preferentially–German production equipment.

That’s why Mercator Institute for China Studies, in a “China Monitor” report published in March 2015, accordingly suggested that German standards agencies should work with their Chinese counterparts to jointly develop Industry 4.0 standards–but in clear awareness of the risks.