CHINAMacroReporter

Chinese Boycotts are the Least of Your Worries

‘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.’
by

|

CHINADebate

March 31, 2021
Chinese Boycotts are the Least of Your Worries

‘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.

More

CHINAMacroReporter

September 26, 2022
China Coup: How Worried Should Xi Be?
‘Xi and the phrase #ChinaCoup trended on social media after tens of thousands of users spread unconfirmed rumors that the president was detained and overthrown by the China's People's Liberation Army.’
keep reading
September 18, 2022
'How do you spy on China?'
Many of you have asked about my own take on the issues I analyze in these pages and about my background. Today is some of both.I am honored to have been interviewed by the terrific Jeremy Goldkorn, editor-in-chief of The China Project. Below is part of that interview.
keep reading
September 5, 2022
Xi’s Dangerous Radical Secrecy
In a world of political hardball, investigative reporting, and tabloids, we know a lot (if not always accurate or unspun) about world leaders, especially those in functioning democracies. Not so with Xi Jinping.
keep reading
December 30, 2021
Q&A 4 | Is China Exporting Inflation?
'‘China has its own issues. If you look at the CPI inflation, it looks more moderate. ‘If you look at the producer price inflation, it looks more severe.’
keep reading
December 30, 2021
Q&A 2 | Will the Gender Imbalance Keep Housing Prices Firm in the Medium Term?
‘The part of housing prices caused by gender-ratio imbalance is not going to go away in the medium term. But the government has ways to create volatility in the housing market.’
keep reading
December 30, 2021
Q&A 3 | Property 2022: Stabilization or Growth?
‘The goal is to stabilize housing prices while having housing sector grow.’
keep reading
December 30, 2021
Shang-jin Wei Presentation-3 | Analyzing the Gender Imbalance Data
‘Compare these with graph showing the impact of the same factors on rental prices...'
keep reading
December 30, 2021
Shang-jin Wei Presentation-2 | Gender Imbalance as a Driver of Housing Prices
‘Why does gender imbalance have such an outsize impact on China’s housing prices?'
keep reading
December 30, 2021
Q&A 5 | Will Xi Continue to Favor the State Over the Private Sector?
‘He wants to see a bigger role for the state in the economy. But in the last two years, he has done some course correction. For example, after talking up the role of state-owned firms and building stronger, bigger state-owned firms, he is talking about the equal importance for the private sector.’
keep reading
December 30, 2021
Q&A 7 | Why Did Beijing Ban Online Tutoring?
‘Each policy in isolation – whether its banning online tutoring or protecting data or enforcing anti-monopoly regulations or any other - has its rationale.’
keep reading
December 30, 2021
What Are Your Top of Mind Concerns?
I asked the participants what are their top of mind concerns about China.
keep reading
December 7, 2021
Getting (Xi Jingping's) Priorities Straight
How do you make investment or business decisions in the face of the uncertainties created by Xi Jinping's reshaping China's economy? In this issue, I'll give you a few different ideas on how you might deal with that uncertainty.
keep reading
December 7, 2021
Look Through the Rights Lenses
Getting down more to the nitty-gritty, if you’re evaluating a sector or a company, get your lenses right to get the details right.. Stonehorn’s Sam Le Cornu gives a good example of this in a Bloomberg interview.
keep reading
December 7, 2021
Sometimes You Just Have to Roll the Dice
Telling someone to align him or herself with Beijing's priorities still is generally good advice.And, when I tell you what those priorities are, I know I am right - until I'm not.
keep reading
December 7, 2021
Watch What Beijing Says - and Does
Besides listening to Xi Jinping, you can discern Beijing’s priorities and its likely actions through its big policies - and this is my point here.
keep reading
November 23, 2021
'Biden Has a Summit With Xi, but No Strategy for China'
‘Neither Taiwan nor strategic arms are a hot campaign topic, and China is not yet at the forefront of public consciousness. To ensure America’s eventual strategy is workable, political leaders need to debate the challenges so citizens can appreciate the implications of the choices they will have to make.’
keep reading
November 23, 2021
Xi Jinping's Leadership: 'The Inevitable Outcome of History'
Mr. Xi is the hero of a Resolution on the history of the Chinese Communist Party that painted his leadership as the inevitable outcome of history and all but gave him his third term. Tony Saich of the Harvard Kennedy School did a terrific analysis on this - you'll find it below, after my take.
keep reading
November 23, 2021
'Xi Jinping has made sure history is now officially on his side'
‘While there are murmurs of opposition, the historic plenary session would suggest that the future is in Xi’s hands. However, when politics is so deeply personalised and centralised, there is only one person to blame if things go wrong. Unless, of course, we get a new resolution on history that tells us who led the party astray, despite Xi’s earnest attempts to keep policy on the straight and narrow.’
keep reading
November 9, 2021
'America's China Plan: A Proposal' by Clyde Prestowitz
Outcompeting China and avoiding global extension of its authoritarian and coercive policies and practices is not really about China. It’s about America.
keep reading
October 27, 2021
Why China Won't Invade Taiwan - Yet
Forget Evergrande and the energy crunch. After the recent flurry of alarming headlines, here’s the question I get most often these days from CEO’s and institutional investors: Will China invade Taiwan in the next few years?
keep reading
October 17, 2021
An Energy Crunch. China's Latest Crisis. They Just Keep Piling Up.
‍‘Over the next six months or more, the energy crunch in China will be an even bigger challenge than Evergrande. Will make the Evergrande problem look tiny and has huge global implications. The lights go out in China!’ one experienced and very well-respected reader of long residence in China wrote to me in response the last issue on Evergrande.
keep reading
October 7, 2021
Just How Contagious is Evergrande?
Just as a personal crisis can lead you to dig deeper into yourself, so the rapid-fire events in China - with trillions of dollars of business and investment on the line - have led us to (finally) go deeper into how China works – and to come to grips with uncertainties caused by Xi Jinping’s recent moves to reshape the Chinese economy and the Party’s social contract with the Chinese people.
keep reading
September 27, 2021
'This Time Feels Different'
Just when we thought we were getting used to Xi Jinping’s tech reforms and social-engineering regulations, the Evergrande crisis heats up.
keep reading
September 19, 2021
AUKUS: A New World Order?
‍In case you passed over the news of AUKUS, the new strategic alliance among the U.S, the U.K., and Australia, here a few headlines to encourage a deeper look.
keep reading
September 7, 2021
Xi Jinping: Today, video games. Tomorrow, well ... just be good.
Today's issue is a heads up on what may be Xi Jinping's efforts to reshape Chinese society.
keep reading
August 28, 2021
The Taliban: 'China's Perfect Partner'?
Breaking through the blow-by-blow reporting that started when the Taliban began its sweep to victory are the geopolitical analyses of who gains and who loses in Afghanistan.
keep reading
August 15, 2021
'Xi’s Dictatorship Threatens the Chinese State'
‘Mr. Xi is determined to bring the creators of wealth under the control of the one-party state.’
keep reading
August 15, 2021
'Are you tired of losing yet, America?'
As I write this, Taliban forces have entered Kabul and are reportedly occupying the Presidential Palace.
keep reading
August 15, 2021
China Economy: Industrial Production Down, Demand Resilient
China’s industrial production down 10%. Demand resilient.
keep reading
August 15, 2021
'China Signals More Regulation for Businesses in Coming Years'
‘The State Council’s statement provides a guiding context to interpret current regulatory thrusts. The blueprint as an attempt by Chinese authorities to help investors understand the motives behind the regulatory push.’
keep reading
August 5, 2021
‘Global investors shocked to have discovered that China is run by Communists.’
‘Global investors are shocked to have discovered that China is run by Communists.’
keep reading
August 5, 2021
'Shocked Investors Scour Xi’s Old Speeches to Find Next Target'
‘While China’s policy moves can feel ad hoc particularly to foreign investors, the changes are quite targeted on certain sectors.’
keep reading
August 5, 2021
Don't Say Xi Jinping Didn't Warn You
‘Global investors are shocked to have discovered that China is run by Communists.’
keep reading
August 5, 2021
'China Wants Manufacturing—Not the Internet—to Lead the Economy'
‘Social media, e-commerce and other consumer internet companies are nice to have. But in his view national greatness doesn’t depend on having the world’s finest group chats or ride-sharing.’
keep reading
August 1, 2021
'Stock Market: China Doesn’t Care How Much Money Investors Lose'
‘Does Beijing not care how much money foreign investors have lost? Does the government really want to close China Inc.’s access to the deep pool of global capital? The short answer is, no, the government doesn’t care.
keep reading
August 1, 2021
'Xi's Four Pillars of Regulation'
‘Broadly, Beijing is concerned about four pillars of stability: banking, anti-trust regulation, data security and social equality. All of Beijing’s major interventions reflect these concerns.’
keep reading
August 1, 2021
China's Tech Crackdown: 'Nobody Saw It Coming.' — Huh?
‘Carnage in China's financial markets signals the beginning of a new era as the government puts socialism before shareholders, and regulatory changes rip apart the old playbook,’ writes Reuters’ Tom Westbrook.
keep reading

Heading

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.