Sino-Swiss Economic Relations

The Swiss economic policy approach toward China

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Inhaltsverzeichnis

1 Introduction
2 Sino-Swiss economic relations in a historical perspective
3 Switzerland’s economic policy strategies toward China
3.1 Facilitating Swiss SME’s entrance into the Chinese market
3.2 Strengthening domestic economy
3.3 The image of Switzerland
3.3.1 Switzerland as a location for investment
3.3.2 Switzerland as a tourist destination for Chinese travellers
3.4 The role of diplomacy
3.5 Multilateral and plurilateral approach
4 Conclusion
Bibliography
Autorin und Copyrighthinweis

1 Introduction
China has met with growing public attention in recent years, as the shift from an agrarian to an industrialized state moved China into the centre of global economic interests. In Switzerland, China’s rapid economic growth evokes mixed feelings, since the consolidation of China’s role as a leading player in the world economy is perceived both as an opportunity for and a threat to the Swiss economy (Roth 2005). On the one hand, China’s increasing purchasing power offers excellent market potential for Swiss products and services; on the other hand, growing Chinese importations also pose a potential threat to the local industries. Particularly noteworthy in the bilateral trade relationship is the fact that Switzerland is a small trading partner for China due to the relatively limited trade volume (cfr. annex 1), whereas China represents Switzerland’s 3rd supplier and 4th client worldwide (Kellerer 2006:5; Swiss Federal Council 2007: 20).

For Switzerland, China is though not only an important trading partner, but also a place for investment that provides Swiss companies a chance to secure their international competitiveness. Obviously, the relocation of business processes cannot merely be considered in terms of the viability of single companies. The potential macroeconomic consequences need to be taken into account, too (Roth 2005).

Considering both the scope and the dimension of this paper, it cannot be intended to assess the implications of the Sino-Swiss economic interactions. In view of the unequal dependency on a well-functioning bilateral economic partnership of the two countries, it shall instead be observed how Switzerland promotes its economic interests in the bilateral relationship and how it faces the opportunities and challenges that China’s economic power presents. The main goal of this paper is to analyze the Swiss strategic economic policy-making toward China over the past few years.

In the first part of the paper, the development of Sino-Swiss economic relations will be briefly outlined in order to integrate the issue in question in the historical context. The second part aims at identifying the strategies Switzerland has been pursuing to deal with China’s new role as a global economic leader. Finally, the attention will be drawn to the implications that can be interpreted from the illustrated strategic measures.

2 Sino-Swiss economic relations in a historical perspective
Switzerland began to develop economic interests in China in the late 18th century and established trade relations within the colonial trading system of major European powers operating in China. Under the shelter of the colonial powers, Swiss traders not only benefited from consular protection, but also from unequal contracts and extraterritoriality rights – rights that Switzerland gave up only after the Second World War as one of the last European countries. Switzerland’s trade with China had typically colonial features, as it was largely confined to the importation of textiles and foodstuff, and to a very limited exportation of watches and machinery until the beginning of the 20th century (Specker 2000: 32 – 36).

After that the political unrests caused by the establishment of the Chinese Republic in 1912 and the Japanese occupation had heavily compromised the Sino-Swiss trading relations, they had to be interrupted completely when World War II broke out. But as Switzerland officially recognized the People’s Republic of China in 1950, only a few months after the victory of the communists in the Chinese Civil War, a sound basis for the smooth development of the Sino-Swiss economic relations seemed to be established. However, the state ideology didn’t favour at all China’s foreign trade, and as foreign property was nationalized, many Swiss traders had to give up their business activities in China (Dubois 1978: 91 - 92; Specker 2000).

In the 1970s, the Sino-Swiss economic relations gradually recovered and were further consolidated by the implementation of Deng Xiaoping’s reform policy. The Tian’anmen Square Massacre in June 1989 strongly overshadowed this positive development, but hardly affected the bilateral economic relations in the long term.
In the mid-1990s, the Sino-Chinese economic relations entered a period of mutual cooperation without precedent. China’s advancing industrialization accelerated bilateral trade considerably and was predominantly beneficial to the Swiss chemical and pharmaceutical sector as well as to the machinery and watch industry (Kellerer 2006; Specker 2000:52). At the same time, also the industrial cooperation began to increase, as more and more Swiss-based companies started to establish representative offices in China’s coastal area and to found joint ventures with Chinese partners. The Swiss direct investments in China assumed though only greater proportions at the beginning of the 21th century when China’s long-term economic growth was further affirmed and the production conditions improved (Roth 2005). Today, about 300 Swiss firms with more than 700 branches operate in China, engaging about 55’000 employees, and the Swiss direct investments amounted to 205.9 million in 2005 USD (Embassy of Switzerland 2006: 8; Kellerer 2006: 8).

3 Switzerland’s economic policy strategies toward China
3.1 Facilitating Swiss SME’s entrance into the Chinese market
As mentioned above, the fast development of the Chinese market provides considerable opportunities for the Swiss economy, particularly because the growth rates of the classical European markets have been decreasing substantially in recent years (Roth 2005: 212). The relocation of Swiss companies to China cannot simply be explained by the chances of short-term profit, but many companies are forced to take the big step toward the Far East to secure their long-term viability in an increasingly competitive globalized business environment.

However, the challenges foreign companies face in China are not to be underestimated. Besides cultural obstacles and lacking knowledge about the local conditions most foreign investors are confronted with at the beginning, numerous non tariff barriers need to be surmounted, such as violations of the intellectual property rights, restrictive regulations, and bureaucracy (Embassy of Switzerland 2006). In order to facilitate Swiss small and medium enterprises’ (SME) access to the Chinese market that in many cases dispose of bounded means, various institutions and associations providing information and consultancy services have been founded. The three most important shall be mentioned hereafter:

The “Swiss-Chinese Chamber of Commerce” is a Swiss-based non profit association that has been operating since 1980 to promote the Sino-Swiss economic relations. With a network of more than 700 corporate and individual members the association assists Swiss companies in their activities in China.

In the late 1990s, the Swiss government affirmed the necessity of fostering the relationship between the two countries by establishing the “Sino-Swiss Partnership Fund” together with the China Development Bank. On the one hand, the direct investment-fund aims at facilitating Swiss-based companies’ investment activities; on the other hand, it promotes sustainable development in China.

In response to the growing attractiveness of the Chinese market, the OSEC Business Network Switzerland, commissioned by the State Secretariat for Foreign Affairs (SECO), has established in 2002 the “Swiss Business Hub China” at the Embassy in Beijing, with branches in Shanghai and Guangzhou. Experienced consular and local staff consults Swiss entrepreneurs operating in China and bring them into contact with local authorities and business partners (Calmy-Rey 2005: 5; Embassy of Switzerland 2006).

3.2 Strengthening domestic economy
Although the delocalization of labor-intensive production processes to China seems to consolidate Swiss companies’ competitiveness, the consequences on the macroeconomic level that result thereof should not be disregarded. Offshoring carries the risk of a job shakeout in the affected industry sectors in the domestic economy, a transfer of strategically relevant know-how, and finally calls for important structural adaptations in Switzerland (Roth 2005: 212 - 213).

To face these forthcoming challenges, Switzerland has adopted a policy that focuses on boosting the domestic economy. The Swiss Federal Council, arguing that a powerful and competitive domestic economy is a condition for a country’s successful foreign economic policy, pursues two main goals: first, enhancing Switzerland’s comparative advantages and second, encouraging Swiss enterprises that are willing to move parts of their production processes abroad, to adopt a long-term perspective regarding their viability and to assume social responsibility (Deiss 2005).

The first goal calls for a further specialization of Switzerland’s economy, baling its comparative advantages that lie in the domains of high-tech production and luxury items – sectors that increasingly matter to Chinese importers. Indeed, China’s growing demand for high quality investment goods and consumption products has indeed enhanced Swiss exports to China, predominantly in the areas of machinery, apparatus, precision instruments, pharmaceuticals, watches and jewellery (cfr. annex 2). Particular importance is attached to high-tech development, where the enormous potential for growth is to be exploited further. For this reason, the necessity to make further efforts in the fields of higher education and research appears evident (Calmy-Rey 2005).

The second goal aims at inducing Swiss companies to keep the main pillar of their business activities in Switzerland. This business policy doesn’t only contribute to the preservation of jobs in Switzerland, but also enables companies to take advantage of the “swissness” of their products – an attribute that is highly appreciated in China (Deiss 2005). Swiss-based enterprises in China that still have their headquarters in Switzerland, furthermore enhance the economic relations between the two countries and have a positive effect on Switzerland’s attractiveness as a place for investment. The establishment of emerging Chinese global players in Switzerland to enter the European market is particularly desirable, as this would further vitalize the Swiss domestic economy.

3.3 The image of Switzerland
Switzerland’s attractiveness for the Chinese – both as a location for investment and a tourist destination - highly depends on the image of Switzerland in China. Due to the geographic and cultural distance between the two nations, most Chinese people don’t know the small alpine country from personal experience. Switzerland’s image is therefore predominantly created through indirect experience, particularly by the mass media and other people’s reports and narrations. A recent study realized by the “Institut de hautes études en administration publique“ in Lausanne demonstrates that Switzerland has an excellent, but stereotyped overall image. In China, Switzerland is first and foremost associated with the watch industry, the beautiful landscape, and banking (Pasquier and Weiss Richard 2006: 50).

3.3.1 Switzerland as a location for investment
Considering Switzerland’s outstanding image in detail, a more differentiated presentment emerges: Whereas Switzerland’s quality of life and political stability are rated very positively, the country’s international competitiveness, its innovative strength, and the investment opportunities it provides are considered rather critically by the Chinese.

Adequate measures of “country advertising” are therefore required to raise the Chinese awareness of Switzerland’s attractiveness as a business location. For this purpose, a range of promotion activities have been undertaken.

Among the most important projects appears “Location Switzerland: ‘China’”, an initiative launched by the SECO and sixteen cantons aimed at encouraging Chinese investors to set up business activities in Switzerland. “Switzerland is most actively advertised with emerging globalizing Chinese companies as a location for international headquarters and business control centre” (Embassy of Switzerland 2006: 10). In addition to systematic PR-work, “Location Switzerland: ‘China’” carries out market analysis, provides consultancy to Chinese investors, and organizes high-level seminars for target groups.

Also projects that are not directly linked to the Sino-Swiss economic relations can contribute significantly to the promotion of the location of Switzerland. Educational exchanges and scientific cooperation is attributed particular importance, and several initiatives are planned to attract more Chinese students in spite of the high living costs in Switzerland (Calmy Rey 2005: 9; Embassy of Switzerland 2006: 10).

Even sister-city arrangements have demonstrated to be beneficial to the Sino-Swiss economic relations: The partnership between Kunming and Zurich, initiated in 1982 to promote mutual cultural exchange, has been extended to a close technical cooperation in projects in the field of urban development, and has created a positive climate for investments, as indicates the growing interest of major Chinese-based companies in investment projects in Zurich (Bichsel 2000: 25).

Last but not least, “Presence Suisse” – an organization set in by the Federal Council, and responsible for raising the Swiss awareness abroad – intends to take advantage of the forthcoming opportunities that the Olympic Games 2008 and the World Expo 2010 offer to enhance Switzerland’s overall presence in China (Embassy of Switzerland 2006: 9).

3.3.2 Switzerland as a tourist destination for Chinese travellers
Whereas Switzerland has still a long way to go to be perceived as an attractive place for investment, Switzerland’s attractiveness as a tourist destination is already deeply-rooted in the Chinese population. The Swiss tourist industry benefits from the widespread famousness of Switzerland’s “beautiful scenery” and its “high quality of life”. In China, Switzerland is indeed one of the most favored European tourist destinations – right after France in the first place (Pasquier and Weiss Richard 2006: 68).

Recent political and economic developments both in China and in Switzerland further enhanced the positive prospects for the Swiss tourist industry, and confirmed China as a key market with high potential for development: The fast-growing Chinese outbound tourism and the conferment of “Approved Destination Status” to Switzerland by the Chinese government in 2004, allowing Chinese tourists to travel to that country with a simple tourist visa, led to an increasing number of Chinese visitors (Krauer-Müller 2005). Beneficial effects on the Swiss tourist industry are also expected from the establishment of a new branch of the national tourist office “Swiss Tourism” in Shanghai in 2005, in addition to the already existing branches Beijing and Hong Kong, as well as from the opening of a new Consulate General in Guangzhou (Deiss 2005: 3). Switzerland’s accession to the Schengen-Agreement that enables Chinese tourists to enter Switzerland with a Schengen visa should further boost the Swiss tourist industry. What is still hampering to a certain extent the Chinese tourist flow to Switzerland is the lack of a direct flight link between China and Switzerland (Calmy Rey 2005: 6). According to the Swiss Embassy in Beijing, respective negotiations with China have been opened and first results are to be expected by 2008 (Embassy of Switzerland 2006: 9).

3.4 The role of diplomacy
In a country like China, where the economy is still strongly controlled by the state despite the gradual transition toward a more market-oriented economy, political relations play an important role for safeguarding and promoting another country’s foreign economic interests. Especially the grant of licenses and export quotas tend to depend to some extent on the political goodwill (Bichsel 2000: 19).

The Sino-Swiss diplomatic relations, being built on a sound basis from the beginning due to Switzerland’s early official recognition of the People’s Republic of China – a fact that is still highly appreciated by the Chinese –, have witnessed a favourable development for trading and the investment climate since the implementation of China’s reform policy in 1978 (FMPRC 2006, Roth 2005: 210 - 213). Regular mutual visits were paid in the subsequent two decades, but the political relations intensified only in the mid-1990s. Frequent visits by high-ranking government members from both countries and the adoption of important politico-economic agreements should have contributed significantly to bilateral trade and economic cooperation (Kellerer 2006). Despite a few politically critical matters that characterize the Sino-Swiss relations, such as the human rights issue, Switzerland pursues a policy of dialogue and pays great attention to being on good terms with China. The maintenance of regular personal contact between the two countries’ government representatives is indeed crucial for Switzerland’s economic interests, as this allows addressing challenges jointly and discussing eventual problems at a high level.

However, a recent example illustrates that good political relations among countries are in fact a condition for favourable economic relations, but not a guarantee for a trouble-free economic partnership. In April 2006, as the Chinese government introduced a consumption tax of 20 percent on luxury watches sold in China – of which 99 percent are of Swiss origin –, Switzerland’s intervention on the diplomatic floor was without success (Laubscher 2006).

A stronger integration of Swiss representatives of industry and commerce in China’s political milieu could presumably attenuate or even prevent in some cases such problems. In order to reinforce ties between economic and political realms of the two countries, the Swiss Federal Council plans to attach more importance on the involvement of mixed business delegations in bilateral meetings at governmental level (Swiss Federal Council 2007: 28).

3.5 Multilateral and plurilateral approach
Although the above-mentioned approaches are all of bilateral nature, Switzerland acts also on a multilateral and plurilateral basis, working within international organizations and with like-minded countries to favour China’s integration into the global economic system. China’s economic opening to the outside world and its membership in international organizations have in fact beneficial effects on trade regulations and on business conditions for foreign-based companies in China.

A milestone in this integration process represents China’s accession to the World Trade Organization (WTO) in December 2001 that advanced China’s compliance with international norms. Tariff reductions and the diminution of non-tariff trade barriers intensified China’s economic relations to other countries considerably. Improvements in transparency and legal certainty further facilitated market entry of foreign-invested companies.

Switzerland, for its part, benefited in particular from Chinese concessions in the domains of insurance licences and inspection services. Most recently, new business opportunities arose for the Swiss financial sector, when China opened the retail banking market to foreign invested financial institutions in December 2006 to meet its WTO accession commitment (Embassy of Switzerland 2006: 2).

Although China largely complies with the WTO rules, a number of problems still exist in the areas of intellectual property rights enforcement, protectionist practices and anti-dumping regulations. Switzerland has set priorities, and lobbies within the WTO for further facilitations in merchandise trade and easing of restrictions in the services sector. In view of the great extent of product counterfeiting in China, Switzerland places also emphasis on intellectual property rights protection. Given the high financial losses for the affected industries and the potential risks for customers involved, Switzerland is committed both within the WTO and the World International Property Organization (WIPO) to enforcing intellectual property rights protection in China (Federal Council 2007: 26).

On the plurilateral level, Switzerland promotes its economic interests jointly with the member states of the “European Free Trade Agreement” (EFTA). As the other EFTA members, Switzerland is interested in a free trade agreement between EFTA States and China to raise bilateral trade. However, China reacted with diffidence on Switzerland’s proposal to contemplate a feasibility study about a free trade agreement with EFTA, pointing out the increasing number of bilateral free trade negotiations with other countries (Embassy of Switzerland 2006: 3).

4 Conclusion
When recapitulating Switzerland’s foreign economic policy-making toward China, emerge two main strategic objectives.

First, Switzerland is willing to benefit from the potential of development that China holds in terms of trade and foreign investment. For this purpose, Switzerland seeks to enhance business conditions in China that favour the market access of Swiss products and services, and to encourage Swiss investments. The illustrated measures demonstrate that Switzerland has not only been operating on a bilateral level, but that also multilateral and plurilateral practices have been adopted.

Second, Switzerland is eager to boost domestic economy. The Swiss foreign economic policy aims indeed at attracting Chinese investors to consolidate the position of Switzerland as a location for investment. For this more recent objective, Switzerland has been using methods of country advertising. Further emphasis is placed on the promotion of Switzerland as a tourist destination for Chinese travellers.

The scope of strategic activities shows that Switzerland has been making considerable efforts to counter-balance the unilateral dependency on a well-functioning Sino-Swiss economic partnership by stimulating China’s interest for the small alpine country and encouraging Chinese business activities in Switzerland.
In summary, it can be concluded that the strategic approach exposed in this paper manifests Switzerland’s attempt to enhance mutual Sino-Swiss interdependency by establishing a close, stable and possibly balanced relationship of economic cooperation that matter to both sides.


Bibliography
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Autorin und Copyrighthinweis

Dieser Beitrag wurde von Annette Ryser im Februar 2007 an der Universität Genf im Rahmen einer Seminararbeit erstellt.

 

Annette Ryser aus Bern, 23 Jahre alt, ist Kommunikationswissenschaftlerin (B.Sc.) und Studentin des Masterstudiengangs „Interdisziplinäre Asienwissenschaften“ an der Universität Genf. Ihre Studienschwerpunkte liegen im Bereich der chinesischen Politik und Chinas wirtschaftlicher Entwicklung.

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