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China’s Crackdown On Tech Is Germany-Inspired, Economists Say

According to some experts, China’s crackdown on tech companies is inspired by Germany-style regulation. The Asian giant has veered towards anti-trust rules, an emphasis on manufacturing over services, and an approach to education that resemble those of its European counterpart.

Q2 2021 hedge fund letters, conferences and more

China’s Crackdown

Chen Li, a senior strategist at brokerage Soochow Securities Co said in a presentation that China has turned from “the American way” to “the German way.”

His assertion is backed by Chris Leung, chief China economist at DBS Group Holdings Ltd, who says that the German-style regulation attracts China for various aspects: “Germany has large state-owned banks, a strong manufacturing export sector, and it hasn’t experienced a financial crisis since World War II,” Bloomberg reports.

“The departure of Beijing from the Anglo-Saxon model has already begun,” Leung wrote.

“The German model is a strong contender as a guiding development model.”

China is aiming furiously at reducing the power of the biggest tech and real estate firms by continuosly revising its anti-trust rules to cover Internet services. Last week, the government announced a five-year regulation plan to tighten its grip on digital economy.

Regarding Facebook Inc (NASDAQ:FB) and Twitter Inc (NYSE:TWTR), Rogier Creemers, a Chinese studies professor at Leiden University in the Netherlands says that these and similar companies “don’t necessarily contribute to the common good” and their business model is about “operating in a low regulation space.”

Strong Industrial Base

Like Germany, China wants to grow its economy while keeping its industrial sector in full swing. The five-year plan aims at maintaining manufacturing as a solid source of income by “keeping the share generated by manufacturing basically stable at 25%.”

The European giant has a similar approach, as manufacturing represents nearly 18% of the economic output, well above when compared to the U.S., where the same rubric represents about 11%, according to World Bank data.

For Doris Fischer, chair of China business and economics at the University of Würzburg, there is a Chinese admiration that “comes from the idea that Germany has never given up its industrial core, and that it may be more important than the service industry.”

Economists find strong similarities between China’s “Made in China 2025” program and Germany’s Industry 4.0, as both focus on growing domestic manufacturing in tech industries.

Bernard Kemper, chief executive of EEW Energy from Waste GmbH, says: “Chinese people have a strong view that the basis of the German economy is not the large listed companies, but middle-sized businesses that are ahead in technology.”