The Changing China Is a Global Issue

An extremely complex and heterogeneous country, China is preparing to experience a moment of profound economic and industrial transformation. Consider, for example, the implementation of the Made in China 2025 Plan, which will put at risk the technological leadership of the West. We talked about this and much more with Filippo Fasulo, scientific coordinator of the Research Center of the Italy China Foundation.

by Fabrizio Dalle Nogare

Founded in 2003 by Cesare Romiti, the Italy China Foundation is a non-profit organization that aims to promote dialogue between the two countries from an economic, cultural and scientific point of view. Its members include ministries, Regions, Confindustria, as well as important Italian companies and financial groups. The Foundation – which elected a new president in June, the founder of Brembo Alberto Bombassei – includes some institutions, among which the Italian-Chinese Chamber of Commerce, the Permanent Training School and CeSIF, the Foundation Research Center. Filippo Fasulo, scientific coordinator of CeSIF and a great connoisseur of China, is one of the editors of the annual Report “China. Scenarios and perspectives for businesses”.

What are the main trends emerging from this year’s Report?
Three words allow us to summarize what is happening in China: consumption, quality and globalization. Consumption, because China is going through a phase of economic normalization, called New Normal, which provides for lower growth rates and, above all, greater attention to domestic consumption. The focus, then, moves from quantity to quality of consumption and production, and at this stage, it might open many windows for Italian companies willing to export excellence in China. Finally, the third word, globalization: China is looking for new markets and wants to present itself everywhere with new, high-tech products. The main example is that of telephony, where Chinese operators are already at the highest international level.

Are these some of the cornerstones of the Made in China 2025 Plan, which strongly emerged in the global agenda?
The Made in China 2025 Plan – launched in 2015 by the Government with the ambition to improve the productivity of the Chinese industrial sector – extends the issue of quality also to production. It is a potential revolution, which starts, at least initially, from the ideas of Industry 4.0 but has a wider field of action; in fact, it does not limit itself to meeting the demands of the fourth industrial revolution, but it rather aims to completely convert the Chinese industrial fabric, with the aim of making China a first-rate producer. The implications are mainly two: in the short term, there will be a large Chinese demand for foreign technology to fill the gap, while in a second phase ,Chinese companies will increase their competitiveness.

Will the Plan only have repercussions on the Chinese market or can the know-how be spent all over the world?
The application of the Plan will have effects throughout the world, not just in China. And here comes the Belt and Road Initiative, that is the New Silk Road, which is much more than an infrastructure issue: it is a project that aims to facilitate both bilateral and economic relations and penetration into new markets. In short, it is changing economic geography completely. The synthesis could be that, in the future, we will have more meetings with China but the China that we will meet will be a different country. And the technological leadership of the West is no longer an unchanging factor.

What can our companies do to react to these changes?
Investing in research and development, trying to cultivate the characteristics that represent the heart of Italian excellence: I think of creativity, high technological positioning and flexibility. And then, stop considering China as a single unitary element. On the contrary, China is a group of 31 administrative units, each one with its own peculiarities and with important differences, both in terms of geography and sectors. This distinction is essential to truly understand the country.

Does the ongoing transition also imply risks for China?
It is certainly a complex process, with the transition from a forty-year model to a model of a nation facing the future. The Chinese government must manage a series of very complex balances and this explains the need for reforms, the centralization of powers that President Xi Jinping is implementing.
In the Report, moreover, we have highlighted how China is a country in great ascent, but not an invincible country. The high level of indebtedness, the excessive presence of state enterprises or the need to preserve consensus throughout the country are weaknesses to be reckoned with. The current trade conflicts with other world powers, above all the United States, could leave their mark.

There is much talk of the nefarious effects of automation on jobs. Is it a hot topic in China, too?
It is an absolutely central issue for the state industry, and especially the heavy industry, which must necessarily be reconverted, with important costs to be faced. Customs duties have created problems for the Chinese executive because they affect a sector that is transforming itself profoundly.

What is the current situation of the interchange between Italy and China? And how are business relations between the two countries?
Business relations are clearly improving. This year there was a record of Italian exports to China and trade could still grow, especially for China’s quality demand. Chinese direct investments in Italy are also growing, which more and more often turn out to be positive experiences and not dictated by the desire to dismantle or by the mere search for know-how.

What should truly enlightened entrepreneurs do, in order to approach the Chinese market?
They should study a lot, be aware that China is not a market like any other, but has very complex internal dynamics and peculiar mechanisms, starting from the institutional and legal systems.
They should also be aware of the fact that China is not an option among many, but it is an unavoidable market. In short, one can not help but deal with China. Precisely for this reason, we are strengthening the activity of the Research Center, an essential tool to support business activity in China.