Mar 17, 2016 06:45 PM

China, Germany Working on Cybersecurity Deal, Envoy Says

(Beijing) – China and Germany are working to reach an agreement this year to strengthen cybersecurity as both countries seek to upgrade their manufacturing industries with advanced digital technologies, says Michael Clauss, the German ambassador to China.

The countries' separate strategies – which China calls "Made in China 2025" and Germany refers to as "Industry 4.0" – will generate a tremendous amount of data that need to be safely stored and communicated, the ambassador said in a recent interview with Caixin.

"We will witness an exponential increase in industrial data flows," he said. "This is why cyber and data security have become such important issues."

Clauss said that in October Premier Li Keqiang agreed with visiting Chancellor Angel Merkel to prepare a Sino-German agreement on cyber matters that is expected to be finalized around June, when the cabinets of the two nations meet for joint governmental consultations.

Clauss also addressed the concerns about the data security of some German companies operating in China, and explained why the two nations are cooperating even though they are potential rivals in manufacturing.

The following are excerpts of Caixin's interview with the ambassador.

Caixin: What do you think will be the highlights of this agreement on cybersecurity?

Michael Clauss: There are two key elements. The first is refraining from economic cyberespionage. The second element consists in developing a mechanism for dealing with possible breaches, e.g., when we face a case of espionage.

Who proposed the agreement and why?

The issue was addressed by the German side during the visit of chancellor Merkel. Cyberattacks against our companies have been on the rise quite dramatically over the last couple of years, and recent developments with regard to cyberespionage are worrying us.

A further reason for addressing cyber and data security is the digitization of industrial processes, Industry 4.0 as we call it. Industry 4.0 will induce much greater data flows in future. We will witness an exponential increase in industrial data flows. To illustrate this point: An autonomous car, i.e., a car which is steered by itself, requires a massive increase in the flow of data for measuring the distance to other cars, analyzing the road conditions, circumventing traffic jams, calculating passing maneuvers, to name but a few. Now, against the backdrop of the data generated by only a car, picture the data volume which the digitization of the whole industry will generate. This is why cyber and data security have become such important issues.

What's the current status of negotiations on the agreement?

We have urged the Chinese side to quickly nominate a negotiator so that talks can start without delay.

How do you think the government can strike a balance between the needs for national security and the protection of personal information?

All governments in the world will have to find a balance between security and the protection of personal information. A government may want to set limits on the protection of personal information, e.g., for fighting terrorism. It is, however, also safe to assume that a government that solely focuses on security will hamper innovation. Every government has to strike a balance for itself. But it is clear that a too narrow focus on security will harm business and innovation. For instance, if German companies interested in investing in China are required to locate their servers in China and to hand over their encryption codes, they are likely to look for alternative investment locations.

Some German CEOs have told me that they are hesitant to engage in Industry 4.0-related activities in China since they are concerned about data security. When talking to members of the Chinese government and party officials we therefore stress that the cybersecurity law and other security-related measures could hamper innovation and should therefore also take account of the needs of business.

Has there ever been a dispute similar to the one involving Apple Inc.'s refusal to help the FBI unlock a dead terror suspect's iPhone?

In Germany, cybersecurity and data protection are extremely important issues. And we pay huge attention to it. Government access to information protected by law is subject to strict controls by independent bodies. In Germany, this function is, inter alia, fulfilled by a parliamentary committee which is not subject to instructions by government of any kind and by independent courts. Individuals in Germany have the right to know which personal information is stored by governmental bodies, the right to have it deleted or blocked, if illegally stored.

Germany's Industry 4.0 initiative seems to have attracted a lot of attention from Chinese companies. What's your comment?

There is definitely enormous interest in Industry 4.0 in China. A lot of Chinese investments are especially targeting companies engaging in Industry 4.0. This is obvious, and I think these investments are also triggered by the policy of the Chinese government to invest in advanced and innovative industries. In today's world, the most advanced concept on innovation in industry is probably Industry 4.0.

We know that the United States and Japan are also quite advanced, and I think the three of us are leading with regard to the digitization of industry. However, Industry 4.0 is the most advanced concept. Our cooperation also makes a lot of sense with regard to our economic structure. China and Germany are both export nations and we are both the ones with the highest share of industry in GDP.

Has there been any discussion between the Chinese and German governments regarding cooperating on the initiative?

Germany and China have signed a memorandum of understanding outlining our cooperation on Industry 4.0. The MOU was signed on the German side by the minister for economic affairs and the minister of science and technology. There is intensive government-to-government contact on Industry 4.0.

The Chinese concept Made in China 2025 and the German concept Industry 4.0 are highly compatible and partially even overlapping. I think the Chinese government and the party have understood that digitizing industrial production is key for future industrial competitiveness. Failing to gain the lead in this development might mean falling behind quite dramatically.

How is Germany's Industry 4.0 different from the industrial development in the United States and Japan?

Let me illustrate the different approaches again with the example of a car. The U.S. is very strong in the field of IT, and the Internet giant Google is reported to be building a car. This car will mainly be based on Google's IT knowledge. Traditional manufacturing such as the auto body will only supplement Google's IT.

Germany comes from a different angle. We are very strong in manufacturing. We will thus base the production of the future car on our knowledge in automotive manufacturing and integrate IT in it.

In the end, the country that wins the race in digital manufacturing will define its future standards. Given that China and Germany have similar economic structures and are both strong in manufacturing, it makes sense to join our forces and define the standards together.

Some people in Germany wonder why we should cooperate with China on Industry 4.0. In the end, we are all competitors and we may just be helping China to outcompete German companies. That may be true, but we will also be competing with the United States. And the advantage of our cooperation with China is, first, our similar approach to the digitzation of industry, and, second, the size of the Chinese market. Germany has 82 million inhabitants and consumers compared to China's market of 1.4 billion.

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