In-Depth

by Malcolm Riddell

Chinese Boycotts are the Least of Your Worries

CHINADebate

CHINADebate

Malcolm Riddell
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Founder of CHINADebate

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March 31, 2021
Chinese Boycotts are the Least of Your Worries
Chinese Boycotts are the Least of Your Worries
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‘For chief executives [and boards] around the world, watching the Chinese government go after Swedish clothier Hennes & Mauritz AB is excruciating — facing the evaporation of your hard-won China business over political issues largely out of your control,’ writes Michael Schuman in Bloomberg.’

  • ‘But it could be the new normal.’
  • ‘As relations between China and the U.S. and its allies deteriorate, Western businesses could increasingly get dragged into the fray.’

Mr. Schuman is of course right.

  • His comments though only capture one aspect of the challenges facing companies doing business in or with China or relying on Chinese supply chains.

George Mangus of Oxford gets a little closer. Writing in the Financial Times,

  • ‘Business risks for foreign companies in China are increasing after the recent exchange of sanctions between Beijing and western governments.’

‘For foreign companies in China, the options seem delicately balanced.’

  • ‘If they stand up for principles, they may put revenues at risk and will incur extra costs as they develop new supply chains.’
  • ‘Yet if they prioritise their China profits, they could do irretrievable damage to their brands at home and in other markets, falling foul of shareholders and changing governance requirements.’
  • ‘It is an invidious choice but the latter is likely to be far more damaging to longer term performance and earnings, and corrosive of trust in the brand.’

Matt Pottinger, former Deputy National Security Advisor, broadens Mr. Magnus’ point in a Wall Street Journal op-ed, ‘Beijing Targets American Business’:

  • ‘American businessmen, wishing for simple, lucrative commercial ties, have long resisted viewing U.S.-China relations as an ideological struggle.
  • ‘But strategic guidance issued by the leaders of both countries make clear the matter is settled: The ideological dimension of the competition is inescapable, even central.

Mr. Pottinger also captures an additional dimension: ‘Another notable element of Beijing’s approach is its explicit goal of making the world permanently dependent on China, and exploiting that dependency for political ends.’

  • ‘In a speech Mr. Xi delivered early last year, published only in late October in the party’s leading theoretical journal, Qiu Shi, he said China “must tighten international production chains’ dependence on China” with the aim of “forming powerful countermeasures and deterrent capabilities.” ’

Drawn into an ideological struggle; threatened with boycotts or worse; caught between the China market on the one hand and shareholders and consumers on the other; faced with the possibility of weaponized supply chains – that’s a lot of new stuff for CEOs and directors to integrate into their strategic planning.

  • But it’s even tougher – and more uncertain - than that.

A lot of what China is doing just doesn’t make sense for China itself.

  • As John Promfret points out in a Washington Post op-ed:

‘Across the globe, Xi’s diplomatic representatives in Europe, Beijing, Hong Kong, Canada, Australia and elsewhere, are lifting up rocks and smashing their own feet.’

  • ‘The moves are befuddling — with a buoyant economy and a practically covid-free country, China is poised to see its influence rise if it plays it smart.’
  • ‘But it’s not; instead, it’s alienating individuals and nations across the world.’

‘I’ve been studying China for my entire adult life and I have to admit to being bewildered by China’s performance.’

  • ‘But I’m in good company. Thirty-one years ago, the great political scientist Lucian Pye wrote, “Just when all appears to be going well, Chinese officials create problems for seemingly unaccountable reasons.” ’

Because China seems so willing to smash its own feet for ‘seemingly unaccountable reasons,’ it’s hard to predict – and plan for - what China might do next.

All the while the environment that businesses are operating in globally is in flux.

  • The battle lines between China and the U.S. and other countries are far from settled.

For its part, China, after some advancing and retreating, seems to have decided to go full ‘Wolf Warrior.’

  • ‘Under Xi, China appears to have adopted the mantra that it is better to be feared than liked. China is committed to sending a message that it will not take a punch without throwing a counterpunch,’ says Ryan Hass of Brookings.
  • So much for Robert Zoellick's hopes for China's becoming a 'responsible shareholder' in the current world order.

The U.S. appears to be firming up a policy of straight confrontation with a few pauses for issues like climate change.

  • With China both ready to punch and counterpunch, expect rapid escalation in tensions.

As for the EU, careful to preserve its distance between the U.S. and China, China has now, as the Financial Times puts it, ‘forced the EU to reassess its China strategy.’

  • ‘China’s response to the EU’s stand on Xinjiang abuses still feels like a turning point in EU-China ties.’
  • Which way will the EU turn? Stay tuned for the outcome.

And across Asia, China’s aggressive attitude and actions are causing countries there to rethink their relations with China.

  • At the same, with the Biden administration’s interest in firming up alliances, many of those countries – even unlikely ones, like Vietnam - are inching to closer to the U.S. as a counterweight to China.

Until each of these settles into a discernible strategy for dealing with the others, flux will continue to equal uncertainty.

Finally, add to the mix flashpoints like Taiwan, the South & East China Seas, the Sino-Indian border, and North Korea.

  • If any of these points flashes, commerce will collapse; or markets will tumble; or supply chains will be cut; or any and all of these.

All by way of saying, CEOs and boards are encountering new, unprecedented levels of complexity and uncertainty.

  • And with this, a nuts and bolts problem of developing systems and methods to track and understand each of these moving parts as it moves and how it interacts with the others.
  • Then adjust and adapt quickly - until the next part moves.

And that goes for the rest of us too.

For those of you who haven't kept up with the current Chinese boycotts, we start with short pieces from Bloomberg and The Economist.

  • Then expanded insights from George Magnus, Matt Pottinger, and John Pomfret, all quoted above.

Note: I especially like John Promfret's essay.

  • Makes me feel better to know I'm not the only one who can't understand why doing what it's doing.
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