Ilan Alon: US or China – hard choice awaits Europe

Important | 2019-10-18

According to the World Bank, China has the second-largest economy ranked just below the United States (US); on the purchasing power parity basis, China is the world’s largest economy. The experts believe that this might pose certain challenges for European businesses.

The European Union (EU) is governed by the principle of representative democracy. Ever since World War II, European countries have pursued free trade, democracy, corruption reduction and integration into the world economic system.

“To some extent, China’s rise challenges European values because what happens now is that China is becoming the largest investor in the world. These investments now have to be looked at for whether they are contributing to economic and political development in the country”, says Ilan Alon, professor at Agder University, Norway.

Professor Ilan Alon, Agder University, Norway

Professor Alon was one of the key-note speakers at the International Business Central Eastern European (AIB-CEE) Chapter Annual Conference, which took place at the Kaunas University of Technology (KTU) Santaka Valley. At the conference, several noted scholars spoke on challenges and opportunities facing international business today.

“China is not only the biggest polluter in the world but also a consumer. The ongoing trade war between China and the US can have a major impact on the European economy”, says professor Alon.

Globalisation: the world is divided into two camps

Today, Europe faces many challenges. The impending trade war between the worlds’ largest economies, the US and China, will bring multiple changes to European businesses. The professor explained that Europe is moving towards a decision point: to follow the economic ideology of China or the US.

According to the World Economic Forum, globalisation is a phenomenon driven by economic, political and cultural exchanges. The rapid growth of all types of information related to manufacturing, industrial and technological activities takes us to the fourth stage of globalisation, also known as Globalisation 4.0.

“I suspect that Globalisation 4.0. will split the world into a bi-polar world again as it used to be. This was the case after World War II: Soviet Union versus the US, now the bipolarity is exhibited by the difference between the US and China – two very large and very powerful economies and two very different ideologies”, says Alon.

The US is a capitalist state whose political system is based on liberal ideology. China is a socialist country, whose underlying ideology is Marxism. A key difference between the US and Chinese ideologies is the concept of freedom; liberalism privileges individual freedoms while socialism privileges public ownership.

Alon believes that the US will increasingly tell the EU nations not to allow Chinese companies to buy technologies, particularly sensitive duel used technologies, that could be dangerous to the security of each country.

A great example is Huawei technologies and services. The US President’s Donald Trump’s administration says that Beijing may use this company’s equipment for espionage. For this reason, the US is pressuring European countries to ban Huawei’s access to mobile networks.

“On the other hand, the US might insist that countries who chose to collaborate with China, would forgo the opportunities with the US,” said Alon. “And most European nations don’t want to make that decision, we’re just open societies.”

The professor illustrates this dilemma with the case of Africa. Chinese are investing in countries where governments are corrupt and often run by dictators. These Sub-Saharan countries are not asked by the Chinese to improve their system, even though they provided by various.

According to the professor, there are two choices. One: to accept US support from the International Monetary Fund (IMF), which would commit the country to improve human rights protection and democracy. On the other hand, to take the money from China with no strings attached.

Political purpose trumps the economic one

World Bank data shows that China was able to lift over 850 million people out of poverty. It has contributed singularly to the world economy. On the other hand, China’s entry into the World Trade Organisation (WTO) and its engagement with the world trading systems in the United States has been uneven.

Professor Alon says China has agreed to lower trade barriers and abide by the trading rules of international business, including the protection of intellectual property rights. However, the Chinese market has become a bigger trading partner, also more dictatorial and less democratic.

The professor says that China’s participation in the WTO and the global trading system, started by the administration of former US President Bill Clinton, was supposed to convince China to reform its political system, making it a free country. But that has not happened.

He emphasizes that the nature of Chinese companies should not be confused. There are small and medium-sized businesses, such as restaurants – their development should be encouraged in Europe. However, people usually talk about the business that is regulated by the government and affected by the interests of certain parties.

“We’re talking about of a small group of people in a communist party. Creating and deciding everything for everyone they are able to obtain a lot of wealth of the expense of at others”, explains Alon.

Most of the Chinese multinational companies are owned by the government, a lot of them serve a political and economic purpose. According to professor Alon, in China, the political purpose trumps the economic one.

He gives an example of China’s Belt and Road Initiative. It is a trade route aimed at connecting Asia with Africa and Europe via land and marine networks. Such a project would strengthen China’s influence worldwide.

A cleaner world – not for another ten years

China’s fast-moving economy has also been the subject of environmental outrage – China is now the biggest polluter in the world. According to the World Health Organisation, 9 out of 10 people worldwide breathe polluted air.

China has more coal-fired power plants than any other country. Data show that China emits over 27% of carbon dioxide. However, the country is also putting up more renewable energy types of installations from wind and sun than any country in the world.

“While it claims to take leadership in the Paris agreement, China is still one of the biggest polluters in the world. It wants to be treated like a developing country even though it has the second-largest economy and if we measured by purchasing power parity, it’s the largest economy in the world”, says professor Alon.

According to him, China will not become cleaner soon; it is been estimated that China will not achieve this result for another 10 years.

The 6th Academy of International Business Central Eastern European (AIB-CEE) Chapter Annual Conference on “International Business in the Dynamic Environment: Changes in Digitalisation, Innovation and Entrepreneurship” brought together over 150 researchers from 36 countries. The conference featured the latest research and discussions among academia, practitioners and policymakers interested in international business.