Why business will never be the same in China again, tells consultant Gabor Holch in a wide-ranging overview of how business in China has changed after the pandemic, and how Western businesses can face those changes.
Gabor Holch is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers’ request form.
Are you looking for more experts to deal with your China risks? Do check out this list.
Innovation expert Ashley Dudarenok dives into the metaverse for business and Web3 in China and elsewhere, and introduces her book Digital China: Metaverses For Business: How Companies In China And The Rest Of The World Are Exploring Web3.
Ashley Dudarenok is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers’ request.
Are you looking for more innovation experts at the China Speakers Bureau? Do check out this list.
At the start of his third term China’s president Xi Jinping has been flexing his muscles internationally, while the country also promised to be open for private and foreign business. Ian Johnson, a scholar at the Council on Foreign Relations, tries to make sense of the conflicting messages at the CFR website.
Ian Johnson:
Over the past few months, the Joe Biden administration has limited the export of high-tech chips to China, and made a series of serious allegations against it—to date, without concrete evidence. They include alleging that a Chinese balloon blown off course was a spy balloon, and that China was considering sending weapons to Russia to help it in its war against Ukraine. The United States has also renewed scrutiny into whether COVID-19 could have stemmed from a Chinese laboratory leak.
In this context, Xi and [the new foreign minister ]Qin [Gang]’s rhetoric can be seen as evidence of China’s resolve, even as both sides try to stabilize the relationship. Over the coming weeks, the U.S.-China relationship will be further tested by a visit from Taiwanese President Tsai Ing-wen to the United States, and hearings by a congressional committee on China that seems chiefly dedicated publicizing to Chinese problems and failings.
At the same time, Xi and his team sought to show that China is back open for business after years of a highly restrictive lockdown that slowed economic growth.
In talks at the session, Xi said that private entrepreneurs are “one of us,” countering the conventional view of Xi as hostile to private business. He also has a new premier, Li Qiang, who is widely seen as sympathetic to foreign business.
Li epitomizes the tension between the pro-market growth that has made China rich and the emphasis on stability and control that Xi favors. Li was previously the reform-minded party secretary of Shanghai, and a year ago, he also experimented with ending the city’s zero-COVID policy—before an outbreak forced him to reverse course and implement a harsh lockdown.
Xi said during the meetings that there is no contradiction between the two positions, saying “security is the foundation of development, and stability is the precondition for strength and prosperity.”
Speaking at the closing press conference on March 13, however, Li gave a robust defense of private enterprise, promising to “treat companies under all forms of ownership as equals.”
Li’s concrete policies, however, are still unclear.
Ian Johnson is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers’ request form.
Are you looking for more political experts at the China Speakers Bureau? Do check out this list.
Japan is hitting China’s citizens with unfair Covid restrictions, and will in return suffer from retaliatory actions by the Chinese, says business analyst Shaun Rein to CNBC. The contrary effects on Japan’s economy will be huge, he says.
Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers request form.
Are you looking for more experts on managing your China risk? Do check out this list.
Strategic consultant Ben Cavender looks back at this 15 years in China and how he helped foreign companies to get a handle on working in the country. Some dynamic decades passed by and the future does not look less challenging, he tells at the Wizard’s Institute.
Ben Cavender is a speaker at the China Speakers Bureau. Do you need him at your (online) meeting or conference? Do get in touch or fill in our speakers’ request form.
Are you looking for more strategic experts at the China Speakers Bureau? Do check out this list.
Shanghai-based VC William Bao Bean explains that entering a new market means leaving behind the experience to collected in the past, leave behind your cultural baggage, and learn from your mistakes. William Bao Bean is a General Partner at SOSV – The Accelerator VC – the #2 most active angel and seed-stage investors in the world 2019 with US$700m under management.
William Bao Bean is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers’ request form.
Are you looking for more strategic advice from the speakers at the China Speakers Bureau? Do check out this list.
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| Shaun Rein |
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| Shaun Rein |
Such business models are successful because China leapfrogged the personal computer era and saw tremendous growth in mobile internet and smartphone users, according to Shaun Rein, managing director of China Market Research Group.
“Smartphones are inherently social devices, and many of China’s tech companies built services with the smartphone in mind. Social networking was also an area where China’s technology companies had little competition because foreign players were blocked from entering the market by the government.”
Such favourable market conditions allowed Chinese internet companies to greatly influence how social media and social networking sites operated in China.
“Social has now become a big part of the Chinese internet and the ecosystem of services. If you want to do well as an internet company today, you need to be strong on the social aspect, otherwise you won’t be able to gain any traction,” Rein said...
More in the South China Morning Post.“In a landscape where Chinese consumers are unsure of which products and services are good they are more likely to trust what their friends are using, buying or recommending,” said China Marketing Research Group’s Rein.
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| Shaun Rein |
Q: The overriding message of The War for China’s Wallet is that brands need to have a real understanding of Chinese politics to succeed in today’s China. Why is that?
A: China’s market has always been big for multinationals. But a lot of brands haven’t thought about the political risk implications of doing business in China, and that’s why I wrote the book. What we’ve seen in the last three to five years is that the Chinese government is using economic carrots and sticks to punish and rewards countries, and increasingly companies. For instance, in the last month you’ve seen how Marriott called Taiwan a separate country [on its website], and what did China’s government do? They handed out punishment, with a massive hammer. They blocked all of Marriot’s websites in China for one week. That’s a massive amount of loss of revenue.
So, the thrust of the book is: China is increasingly using economic punishments and rewards, and how do companies adjust to that? Do you kiss ass, like Cambodia has done? Do you go completely against China, like India has done? Or do you go somewhere in the middle, somewhere I like to call the ‘warm partner’ category? That’s countries like Canada, the UK and France. Those countries will be nice to China, but they’ll also stand up to it, and that’s probably where you want to be.
Q: How can companies avoid being caught up in a political furore in China?
A: It’s not easy, frankly. Your employees, from the top to the bottom, now have to become political, almost State Department-like analysts. You can’t just rely on PR people to deflect anger. You have to start at the very beginning, understanding that China wants to be a superpower—you have to listen to what it wants or be punished.
It’s not an easy thing, because if you take the example of Cambridge University Press from the UK, they bowed down to China and blocked a lot of articles and books on their websites at the government’s request. But then the backlash came in the West, with people saying that CUP was censoring its content. So, you kind of have to play that middle line. You have to weigh money vs. morality.
Some companies, like Apple, are shameless. Tim Cook stands up at the World Internet Conference in Wuzhen and says that China has a flowering internet ecosystem, and doesn’t even mention censorship. That’s mealy-mouthed and pathetic. But he does that because Apple makes so much money in China and they have their entire supply chain here.
If multinationals are going to hedge, you can’t invest too much in China. You can’t have your entire growth strategy in China only. You can’t have your sales and your production in China. And this is bad, this is killing me because I’m a China consultant who doesn’t have operations elsewhere, but that’s what you need to do.Much more at the China Economic Review.
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| Shaun Rein at Amcham |
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| Ian Johnson |
China is the land of soft openings: projects are first announced to big fanfare, structures erected as declarations of intent, and only then filled with content. In this sense, developing a new ideology to unify China is similar to building a shopping mall: the deal is publicized, the building goes up, a few stores open, but only years later are all the shops and restaurants open for business, and only after a number of anchor tenants have gone bankrupt. This makeshift model differs from how Westerns like to see projects–envisioned and planned thoroughly, then completed according to that design. But it has its own logic. If viable, the project goes ahead; if not, backing out is easier.More at Andrew Batson's weblog.
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| Tom Doctoroff |
In terms of collaboration though, just how easy is it for global brands to penetrate and work with local brands? And how will the current political climate affect, for example Trump’s relationship with China?
“The Chinese do not play favourites; they will deal with different types of companies fairly. And they are pragmatists. When it comes to doing business, politics doesn’t make a huge difference. The Chinese are always looking to occupy their own piece of the sky. But they are not aggressive; China does not want to take over or conquer. It wants to stand tall on the world stage, shoulder-to-shoulder with the United States.
“But they are focused on their own people, elevating living standards and securing stability. It’s not an expansionist power. So when you look at how commerce and politics intersect, for example the relations between China and Korea, the effects are going to be minimal except in a few specific industries – like travel for example. But Korean brands will remain just fine as the Chinese consumers are pragmatists. Plus Chinese brands are not as cool as Korean brands.”
Given this pragmatism and China’s positioning as major player on the global stage, do you anticipate things becoming easier for businesses to set up in China in the near future?
“It will not become easier because China has a different worldview. It marches to the beat of a very different drum. The relationship between the individual and society is fundamentally different from the West and it impacts everything from the role that brands play in life, the hierarchy of corporations and the way trust is established – which affects contract development and negotiation.
“All these things are challenging for someone who does not open up to a different way of viewing things. If you do not bring your operations, your mentality and your brand into alignment with this worldview then you make many major mistakes, from pricing to rent negotiation. But the Chinese are extremely adept at establishing a strong negotiating position. Although unless people become more open to understanding [China] then it will not get easier than it is today.”More in Mumbrella Asia.
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| Zhang Ying |
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| Shaun Rein |
To swap yuan into foreign currency and fund outbound investment, Chinese companies need the approval of the State Administration of Foreign Exchange (SAFE).
But Beijing has adopted tougher rules on overseas investment applications since late last year, as the sharp depreciation of the yuan accelerated capital outflows, draining the country’s foreign reserves.
As of early March, Chinese companies have announced US$19 billion of acquisitions abroad, a 74 per cent drop on a year ago, according to Bloomberg data.
“The Chinese government is sending conflicting signals to businessmen,” said Shaun Rein, the managing director of China Market Research Group.
“On the one hand, it wants Chinese companies to become global players and help build the belt and road initiative, yet at the same time the government is stopping companies from converting yuan into foreign currency. The conflicting policies are hurting business confidence,” Rein said.
More in the South China Morning Post.“China needs to decide whether it wants to lead and be part of the international economic system and fill the power gap left by a protectionist America under Trump or if it will let short-term fears of capital outflows destroy what should be a multi-decade initiative to create power and economic well being for China,” he said.
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| Jeffrey Towson |
Chinese Internet giants like Tencent and Alibaba have struggled to replicate their domestic dominance overseas.
But Meitu said it had 430 million overseas users as of October last year, compared to around 500 million claimed by Instagram.
Yet profits remain elusive. Meitu lost CNY 2.2 billion ($320 million) in the first half of last year.
"Meitu's big problem has always been that it came up with this killer app - and the usage is unbelievable. It's crazy. But they never had a clear business model underneath it," said Jeffrey Towson, professor of investment at Peking University.
Meitu did not respond to requests for comment.More at AFP.
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| +Paul Gillis |
(What the figures show) is that over the last ten years, revenue of accounting firms in China has grown at an average annual rate of 22%. Big Four and local firms have grown at the same average rate, but their annual performance varies quite widely. GDP growth during this period averaged 10%, meaning that the invest-ment in accounting services was more than double the GDP growth. That is great news. Not only has investment in accounting kept up with the growth in the economy, there has been additional “catch-up” investment. Clearly, the catch-up investment is needed and it probably needs to continue for another decade at least.
The difference between Big Four and local firm growth rates is telling. Big Four firms had a higher growth rate than local firms until 2009, when the financial crisis hit. The Big Four actually shrunk by 12% in 2009. Local firms also slowed down in 2009 but still grew at 24%. The Big Four returned to growth in 2010, but have not been able to match GDP growth since. I think that is the future for these firms in China. The Big Four will struggle to find growth equal to GDP growth, while local firms will grow faster.
But I see a continued investment in accounting, and that is good.More at the China Accounting Blog.
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| Paul French |
"Foreigners have been doing business in China for a long time," he says. "But the thing I find interesting is that, as foreigners in China, we have no collective memory. People are making mistakes in 2012 in China that their great-grandfathers made in 1926."
It's a memory lapse, he argues, "that has cost us a lot of money and, given some of the books I've written and some of the books other people have written, there's not really any excuse any more. You're just lazy if you haven't caught up with that stuff."
It's French's belief in the importance of collective memory too, that compelled him to focus on a 75-year-old murder mystery in his recent and ninth non-fiction book, Midnight in Peking. This page-turning probe into the brutal slaying of Pamela Werner, the 19-year-old daughter of a British diplomat, in Peking in 1937 has attracted the interest of both the BBC and ITV, as well as Oliver Stone, and is the result of a five-year-long trawl through the archives on three continents.More strong arguments in The West
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| Bill Dodson |
One of the brothers and an assistant, a young woman in a factory smock, brought out two great ledgers, hand-written. Two books? the Europeans queried.More in Bill Dodson's weblog.
“Oh, one book is for us and the other for the tax authorities,” one of the brothers answered blithely. “They don’t want us to report too much income, so we have to keep the records elsewhere.,” he explained. Apparently, the difference in actual vs. reported was negotiated and channeled to tax patrons. Neither of the brothers considered maintaining at least two sets of books or tax negotiations or contorted shareholding structures at all improper. It was just the way things ran in China. Visits to the remaining two targets revealed the same modus operandi.
It’s no wonder, then, that Chinese businesses seem genuinely aggrieved that Western shareholders and stock exchanges consider their business dealings improper at best, down-right illegal at their most dramatic. After all, what’s worked for a society for thousands of years must be good for the rest of the world.
Tom Doctoroff Fantake via FlickrIs Tang Jun without moral scruples? To westerners, the answer is, of course, yes. He built his reputation on, at best, half truths and, at worse, outright deceit. Further, former colleagues at Microsoft and Shanda describe Mr. Tang as a pseudo-leader, perpetually detached, more interested in managing his image amongst foreign bosses and investors than generating lasting shareholder value.
Interestingly, however, the post-scandal reaction of many ordinary Chinese was far more ambiguous, sometimes sympathetic. Although this case unleashed a tidal wave ofschadenfreude, the masses were more titillated than up in arms. According to one 35-year-old professional, “He was only doing what anyone in his position would do.” And another: “Tang Jun got caught. He pushed it too far. But, today, it’s so competitive. We have no choice but to play the damn game. Face is everything.”More about Tang Jun's moral dilemma's here.
