The vanishing allure of doing business in China

4 min read
The vanishing allure of doing business in China

It is nothing new for foreign firms to endure shakedowns by the Chinese Communist Party. As far back as revolutionary times, Chairman Mao’s victorious troops did not directly confiscate foreign-owned assets as their Bolshevik forerunners had done in Russia. Instead, they wore them down with higher taxes and fines so big that eventually companies gave away their assets for nothing.

In one memorable case dug up by Aron Shai, an Israeli academic, a British industrialist in 1954 professed to be handing over everything to the Communists from “large blocks of godowns (warehouses) down to pencils and paper”. And yet, he complained, Comrade Ho, his opposite number, continued to haggle “like a pre-liberation shopkeeper”.

Though multinationals have flocked back to China since, the government’s nit-picking has continued, encompassing everything from technology transfer to how freely firms can invest. There have been big improvements, but the pettifoggery is a constant reminder, as one American puts it, that companies should not get “too big for their britches.” Western firms operate in China on sufferance, and one day China may try to replace them.

As a result, some people Schadenfreude President Xi Jinping. Recently, a new type of the main victims of the economy was an effort to social engineering, rather than the Western companies, is that it is Chinese companies.

Last week alone, the government took steps to reduce the barrier between tech giants Alibaba and Tencent. They ordered the dissolution of Alipay, a financial superapplication owned by Alibaba’s sister company Ant. Some even go as far as complimenting Mr. Xi’s efforts to castrate China’s tech “oligarchy” and how the US and European governments are chasing Western tech giants. ..

However, the dominant hand is unusually cold. So is the whim. Kenneth Jarrett, a veteran Chinese watcher in Shanghai at consultancy Albright Stonebridge Group, asks, “Who’s next?” The crackdown arises against rising tensions between China and the West, which are stalling multinational corporations on a sort of semi-legal issue. For many, China’s appeal remains attractive. But the danger is catching up with the promise.

In addition to banks and asset managers, some of which have made some of their investments in China a big hit in recent months, several types of multinationals are at risk. One group includes people who make money in China to the golden elite who show off their $ 3,000 handbags and sports cars.

The other includes companies that frustrate customers by being able to interpret it as Western arrogance. Electric car maker Tesla is one example. The third category includes European and American manufacturers of advanced manufacturing equipment and medical devices that China feels it should produce in its own country.

As always, threats come in the form of seemingly bland policy announcements. One is “common prosperity,” a comprehensive phrase that ranges from reducing social inequality to more hugs of workers and customers, and the ridicule of overstressed young people.

Its most obvious impact is on Chinese technology, tutors and gaming companies that have lost hundreds of billions of dollars in market value as a result of government crackdowns. Still, multinationals are also involved in fallout. In the days of August, the evaluation of European luxury brands such as Kering, the supplier of Gucci handbags, LVMHThe boring and bubble sellers fell $ 75 billion after investors eventually took Mr. Xi’s common prosperity agenda seriously.

Mr Xi does not intend to force Chinese consumers back into mao suits. But his war on glitz, especially among the rich, who can spend at least $ 100,000 each year on foreign brands, threatens the most lucrative end of the market. It also jeopardizes the luxury mark that charges Chinese consumers more than their stores in Milan, for example.

Investment bank Jeffreys Flabio Sereda hopes that the government will continue to support the growing middle-class luxury markets as ambitious purchases reflect economic success. If China ruins the experiment, the shock can be enormous. He says that consumers make up 45% of the world’s luxury spending. “There is no China or party.”

“Double circulation” is another topical phrase with annoying overtones. This is an attempt to promote independence on natural resources and technology, in response to concerns that dependence on Western suppliers could make China vulnerable to geopolitical and trade pressures. is.

But it also poses a threat to multinationals in western China by reducing technology imports and creating the idea of ​​”buying Chinese.”Friedlin Struck BDIThe German Industrial Federation reports that Chinese state-owned enterprises have been given procurement guidelines that mandate the domestic supply of devices such as: NS-Ray machinery and radar equipment.

Between blocks and difficult places

It’s all becoming catch 22. Meanwhile, the United States, Europe and allies are participating in a geopolitical dispute with China condemning human rights abuses in places such as the Xinjiang Uighur Autonomous Region, where the oppressed Uighur minority lives.

The West wants to limit the technology it sells to China and the procurement of materials such as cotton in China. Meanwhile, China has claimed the right to retaliate against companies that appear to be entering geopolitics.

Jörg Wuttke, President of The Chinese Chamber of Commerce says the size of the Chinese market makes it uncomfortable.

“The biggest risk is not in China,” he claims. Still, anyone with a long-term perspective has good reason to think of Mr. Xi’s apparent personal authority, his bet to reshape the Chinese economy, and the dark geopolitical background. You may see it as. It may never happen.

But, as in the post-revolutionary era, sometimes even the most stubborn businessmen need just too many shakedowns to convince them to throw a towel.

Source: The Economist

Tony Simon

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