Advisor insights: Doing business in China has been saved
Advisor insights: Doing business in China
Views from Kenneth DeWoskin on Chinese market conditions, M&A, and more
From policy updates to cross-border M&A, US Chinese Services Group senior advisor Kenneth DeWoskin explores the key topics affecting organizations doing business in China and the unique dynamics of Chinese markets.
Is China’s new era the new normal for MNCs?
A large percentage of official reports and announcement on China’s economy, development projects, and policy directions begin with the phrase “Xi Jinping’s thoughts on socialism with Chinese characteristics in the new era.” This formula, which has gained substantial currency since the 19th National Party Congress in 2017, has been amplified as the 20th Congress approaches. Is the “new era” the new normal for multinational corporations (MNCs)? And if so, what adjustments in the new era are in the offing for MNCs?
The pandemic and China’s zero-COVID response naturally redirected a lot of leadership attention. But the basic tenets of the new era have not changed as a rallying point in China’s modernization drive.1 Is China settling into a post-COVID environment? It may be early to answer this question with a high level of confidence, but early indications are helping to provide guidance to MNCs with major China engagement of the adaptations they should undertake.
At the core of these adaptations is a bifurcation, or dual-track, approach to China. A recent Deloitte survey reported that 62% of major clients intended to maintain or increase their investment to access the Mainland domestic market, while 88% planned to reduce dependence on China as a sourcing hub for global markets. Surveys from the European Chamber in China and American Chamber in China align with these results.2 The general approach in all the factors bearing on MNC business activities in China is to continue efforts to expand in the Mainland marketplace but undertake urgent steps to reduce concentrated dependence on China’s global supply chains.
In other words, there is a marked trend away from the concentration on China as both a growth market and a sourcing hub that has characterized the relationships since reforms began and most clearly since the early 2000s.
Global media has long discussed the potential of bifurcation in world trade and investment. That discussion has envisioned a world in which developed economies, including the United States, European Union, and Japan, operate with one set of trading rules, financial instruments, product standards, and the like, while China and a set of related nations operate under another.
There is another take on bifurcation that aptly describes difficult discussions underway in many MNC C-suites, focused not on government policy but commercial strategy, investment, and reorganization decisions. In this important context, bifurcation means balancing Mainland-based operations to preserve and even improve access to the China market while reducing global sourcing risks that have become all too apparent from highly concentrated reliance on Mainland manufacturing hubs.
This change can have implications for the Chinese organizations of MNCs, their alignment with China’s priorities, their Mainland relationship structures, and the portfolios of key C-suite executives with international responsibilities.
1 Yupu Zhang, “Three aspects of Xi Jinping’s thoughts on socialism with Chinese characteristics in the new era,” Advances in Social Science, Education and Humanities Research 415, 2019.
2 See, for example: AmCham China and AmCham Shanghai Joint Survey on COVID-19 Business Impact (2022) and European Chamber’s COVID-19 and the War in Ukraine: Impact on European Business in China (2022).
3 ChinaPower, “Will the Dual Circulation Strategy enable China to compete in a post-pandemic world?,” Center for Strategic & International Studies (CSIS), accessed July 15, 2022.
4 Greg Ip, “China wants manufacturing—not the internet—to lead the economy,” Wall Street Journal, August 4, 2021.
5 Xinhua News Agency, “During his inspection in Wuhan, Hubei, Xi Jinping emphasized that the lifeblood of science and technology is firmly in his own hands, and the country’s development independence, autonomy, and security are continuously improved,” press release, June 30, 2022.
6 Xi Jinping, “Grasp the new development stage, implement new development concept, and build a new development pattern,” Qiushi Magazine, April 30, 2021.
7 Australian Government Department of Foreign Affairs and Trade, “Regional Comprehensive Economic Partnership,” accessed July 15, 2022; Arul Kurian, “How China still controls the global supply chains,” Modern Diplomacy, June 4, 2021.
8 Michael T. Klare, “From globalization to regionalization?,” The Nation, March 22, 2020.
9 Stefan Legge and Piotr Lukaszuk, “Regionalization vs globalization: What is the future direction of trade?,” World Economic Forum, July 15, 2021.
10 Matt Hamblen, “Chip fabs are coming to the US, but will there be enough skilled workers?,” FierceElectronics, December 8, 2021.
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