China Shapes the Fears and Ambitions for Germany After Merkel

(Bloomberg) -- There were moments on their tour of China last year when the German lawmakers caught a glimpse of just how far behind they’ve fallen.

Through carefully choreographed visits to giants like Huawei Technologies Co. and Tencent Holdings Ltd., Nadine Schoen from the governing Christian Democrats says there was one message the group heard over and over again: the time is coming when Germany will have to choose.

As China’s technology advances and its rift with the U.S. deepens, she heard from one executive after another, there will come a point when Germany has to pick which of the two superpowers it wants to side with.

That balancing act between the U.S. and China has been at the heart of Germany’s economic success for a generation. To hear it written off so breezily, with Europe’s own industrial prowess dismissed to boot, was a wake up call for Schoen and her colleague Thomas Heilmann.

They returned to Berlin determined to spur a fundamental rethink of how their country is run. With Chancellor Angela Merkel due to step down in 2021 after 16 years in charge, their push is gathering steam at the highest levels of the party.

The book pulling together their ideas, ‘Neustaat’ -- a pun that means both new state and new start -- has been endorsed by a string of CDU heavyweights including Armin Laschet, a state premier who is favorite to succeed Merkel as chancellor. It’s effectively a masterplan for the post-Merkel era that would transform the tradition-bound public administration into a streamlined digital state. It’s inspired by the challenge posed by China but it has no qualms about drawing lessons from Beijing’s successes either.

“We definitely would not execute these ideas like the Chinese, but we should have a guiding principle and think about where the world is going,” said Schoen, a 37-year-old deputy from the state of Saarland on the French border.

Many of their ideas were gleaned on that trip to China, and some are radical.

They propose restructuring the euro around blockchain technology like Bitcoin, implementing state-wide use of artificial intelligence and dissolving state ministries in favor of data-based decision making. But it was the overall strategy of the Chinese that inspired them to come up with their own vision, which would be consistent with western democratic principles.

“We have to find our own way,” Schoen said. “We demand a stronger European self-confidence.”

Germany may well emerge from the coronavirus pandemic with more credit and more economic vigor than many other western countries, but the CDU realizes that the country faces an uncertain future all the same and needs to change.

Europe’s traditional alliance with the U.S. is fraying under President Donald Trump, the auto industry -- the backbone of German manufacturing -- is in turmoil amid the shift to electric cars, and traditional engineering is being sidelined by digital technology. Wirecard AG, a rare success story in German tech, is fighting for survival after reporting a 1.9 billion-euro ($2.1 billion) hole in its balance sheet this month and its former CEO was arrested.

Playing Catchup

Despite Trump’s efforts to drive a wedge between Berlin and Beijing, Merkel has maintained good relations with China even as Beijing has been criticized for human rights violations and an increasingly aggressive foreign policy. Indeed, the two economic models have more in common than recent history might suggest.

Merkel’s strategy for rebuilding Germany’s economy after the pandemic already draws on some lessons of Chinese state capitalism. And according to a recent paper by Princeton University economists led by Markus Brunnermeier, successive generations of Chinese officials also studied Germany’s 19th century industrialization under Otto von Bismarck as an example of using state-directed technology programs to catch up with a dominant (and English-speaking) economic power.

Now it’s Germany’s turn to play catchup again.

The treatise by Schoen, Heilmann and dozens of other CDU officials is a remarkably bleak assessment for a party that’s led Germany for most of its postwar history. It describes the country as a failed state, “too bureaucratic, too complex, too slow” to deal with the challenges of the new digital world order.

“A non-performing state first loses its competence, then its trust and finally its power,” the authors write in the foreword.

The power that their book, and ultimately their political project, is concerned with, is the power for Europeans to engage with 21st century technology on their own terms and protecting their own values.

Technology and Power

“Most Chinese don’t seem to mind being watched and controlled by the state because it gives them the feeling of security,” Laschet said during a discussion of the new book on Wednesday night. “But this is not our approach in Europe.”

The extensive surveillance technology deployed to monitor ethnic minorities in China’s western province of Xinjiang has been widely reported. But Schoen and Heilmann were still shocked at applications of technology that would seem intrusive to many steeped in western ideals of individual choice.

“We don’t want a state where data are used to direct and control the people,” Schoen said.

On that trip to Squirrel AI in Shanghai, the lawmakers were shown an application that uses artificial intelligence to monitor the learning process of children, according to one official who was present.

One delegate jokingly asked whether the software could predict if a child would become a professor or a laborer and the deadpan response from the Chinese executive left the group shocked.

Of course, said their host, that is the purpose of the program.

©2020 Bloomberg L.P.