The New China looks a lot like Old China (i.e.: Mao)
Doing business in China has changed since 2012 when Xi Jinping ascended to leadership. It requires new strategies. The signs have been there all along, but Western business is still slow to acknowledge reality. The CCP is going back to the bad old days of dogma over data. In March 2018, the National People’s Congress sent the world a clear message when they eliminated presidential term limits. The Chinese Communist Party is returning to rigid Mao-era control under Xi Jinping. Engaging with China now differs starkly from the pre-Xi period.
With indefinite power, Xi imposes ideological conformity and strict internal command. This centralization has major implications for foreign business ties in China.Lasting Tensions Between China and the West
Relations between the US and China are now adversarial by default at the governmental level. Mao-style politics assumes that there will be conflict with the West, and the party must act now to secure victory. International trade will continue. The bilateral relationship, however, will become more suspicious and hostile. Suspisious of YOU.
This isn’t the “New Normal” – these are the new “Good Old Days”. It gets tougher from here.
Political tensions with China will get worse– and your compliance costs and transactional risks will rise. China business risk is on the rise. Contracts or partnerships with Chinese firms continue, but the previous hope of broad collaboration is past. Now each interaction is competitively viewed through a national security lens.
The hot new trend for Western business in China is getting out of China. Smart managers will be leveraging their in-China network for out-of-China connections. Independent (i.e.: non-Party) businesses know what’s happening, and they are setting up shop in Vietnam, Thailand, and Mexico. They’re waiting for you. Find out where.
Suspicion of Foreign Business is Job #1 for Xi’s Apparatchiks
Secondly, the people running the show behind the scenes are political operatives. The apparatchik class emerging under Xi differ profoundly from previous generations that were focused on economic planning. Xi’s team seems more devoted to Communist ideology than pragmatic growth. The New China feels it’s already got a handle on Western (non-semiconductor) technology and know-how, and doesn’t need you that much.
Deng Xiaoping did the heavy lifting to reform China’s economy. At his side, though, was Zhu Rongji. He is the one who turned the mindset of local leaders away from CCP dogma and towards rational, data-based decision-making. That’s all changed, as the technocrats seem to be taking a back seat to idealogues.
This new group views private business and foreign access with suspicion. They prioritize party control and stability above all. US multinationals should thus moderate exposure to China, avoiding over-reliance or naivety. Your personal assistant and driver and factory agent may all seem to love you, but that doesn’t mean your future in China is secure.
Contrast With Previous Administrations’ Outward Focus
Previous Chinese administrations sought to attract foreign technology, know-how, and investment to fuel China’s economic growth. They implemented comprehensive policies like special economic zones specifically designed to draw in investment, talent and to build domestic industries. While maintaining party control, their primary concern was pragmatic development.
In contrast, Xi’s apparatchiks are focused inward on Communist Party power dynamics and their own internal political fortunes. Their default tool is attacking foreign influences to bolster credibility within the Party. They prioritize ideology and personal loyalty over sound economic policy.
This core difference is one of focus – outward economic progress versus inward party control. International managers need to recognize the new Chinese political environment for what it is: a giant leap backwards. Where previous administrations saw prosperity through foreign partnerships, Xi’s cohort sees risk. This changes the entire framework for how foreign businesses engage with China.
US Leadership Shaping Global Commerce Norms – Again
Lastly, as China’s economy declines under rigid state dominance, America is regaining (by default) its status as the primary superpower shaping global commerce.
This is a chance for US leadership to promote free markets and trade integrity. On the management level, this is the time for savvy American companies to start taking advantage of the new global disorder. China business risk is a widespread problem, so your USA brand looks a little better. Everything is in flux right now – including market leadership. One of the unfortunate by-products of the “China Miracle” was a herd mentality among Western investors and decision-makers. We all did the same things in the same way. Now, old relationships are breaking down – but somehow the US still seems relevant (by default). Use your new powers wisely.
Innovate New Directions As China Disengages
In summary, executives worldwide must adapt to new realities when engaging China. Lasting US-China tensions, reduced business intimacy, and renewed US influence on global trade rules are the status quo. Navigating this landscape demands pragmatism, principles and cultural awareness to seize transient openings. With planning, delicacy, and flexibility, international managers can still prosper through the storm. But the old days are gone. A new age has begun.