Understanding Doing Business in China: Why It’s Not Going to Change Soon But Why It Might Change You

I may be later to the party than some of you, but I recently read the lengthy transcript of a speech given by former Australian journalist and later diplomat to China, John Garnaut, entitled Engineers of the Soul: Ideology in Xi Jinping’s China, which was printed on Bill Bishop’s Sinocism website in 2019. Though this speech was given in 2017, it is more relevant and predictive today than it was during the entire President Trump administration leading up to the 2020 U.S. presidential election.

I say that because with President Trump exiting and President-Elect Joe Biden in the wings, we have been fielding more inquiries from companies seeking to reengage with China, deepen their existing ties with China, or enter into business in China for the first time in a long time. In my work, I am seeing this mainly through strategic acquisitions.

I urge you to read John Garnaut’s speech in full, even though it is quite lengthy and you may need to refresh yourself on your USSR and China history and look up some unfamiliar terms like “dialectical,” and “discursive.” But your time spent reviewing what happened at Yan’an in Mao’s and in Xi’s eras will be time well invested. I am of the school of thought that understanding the history and motivations of people in power like Xi Jinping provide insight into why they adopt policies and make decisions the way they do.

John Garnaut’s speech reinforced what I have been reading and seeing in my practice, as well as what we have been blogging about recently, which is that if you want to do business with China, whether as a buyer or seller of goods or services, do not expect a smooth road. In essence, China will continue to paradoxically provide both significant opportunities and upheavals in its business environment. Why? Because the CCP needs to continue to justify its existence as a single party governor over China without growing too big (and in the wrong ways) to result in its failure as a governing body. In China, the struggle is real and the struggle needs to continue. Those of us who are doing business with China and want to do business with China will continue to reap both the benefits and the negative byproducts of this system.

We have been blogging about this pattern – especially the risks – recently:

We have also provided guidance on how to protect your company as you deal with China:

If you are even a casual student of Chinese politics and you do business with China, you will watch with both fascination and trepidation as you see Xi Jinping continue to cement his grip on power within the CCP as the CPP continues to permeate every aspect of Chinese society. We like to call that “governing with Chinese characteristics.”

You will also watch with consternation China’s international influence campaign through its Belt and Road Initiative and vaccine diplomacy. This is called, “international relations with Chinese characteristics,” and Australia is currently in the crosshairs, which may mark the renaissance of doing business with China for U.S. companies.

We are all looking into our crystal balls to determine how specific events will play out under Xi Jinping’s continued governance and Joe Biden’s presidency. I predict many companies doing manufacturing business with China who have continued to wring their hands over the U.S.-China trade war without diversifying their supply chain will be rewarded for not leaving China. I’ll cover that in my next post about Asian supply chain diversification.

But as I alluded to in the title of this post, doing business with China may change you and not for the better. The CCP will continue to influence the way business is done in China, and you may find yourself less worried about IP theft, forced labor, and China’s increasingly bellicose way of engaging with the world. And the optimist in me thinks that all of us doing business with China may be able to exert a positive influence there, one business engagement, one dinner, and one WeChat message at a time. It is increasingly looking like a total divestment from China is not possible or likely, which means that we are back to deciding how we as individuals and businesses will exert our influence on China. Under CCP rule, prepare for the worst and expect something slightly better than that in the near term.