Category: Commentary

In 2023, China continued its inward turn as optimism for a post-Covid recovery, both economic and spiritual, ceded to malaise. The Communist Party no longer espoused prosperity, or even its own competence, but instead trafficked in insecurity. Xi Jinping warned of the need to prepare for “worst case scenarios” and the Ministry of State Security called for the “mobilization of all members of society” against espionage. 

The apparent triumph of the national security state gives license for the subordination of rational policy to its dark imperatives. China’s own modern history demonstrates how systemic insecurity feeds upon itself; how overwatch devolves into misgovernment; distrust into disorder; and economic frictions into decay. 

In the year ahead, the peat fire pervading China’s financial system will especially challenge the country’s shadow banks, which combined with multiple de facto local government bankruptcies, may cause widespread unrest. Diplomatically, China may benefit from countries, including close American allies, seeking to recalibrate their ties after a period of distancing. America’s election will be a contest between keepers of a global order towards which China is ever more hostile and agitators of chaos in which China has no greater certainty of success.  

Continue reading “The year in China 2023”

The past several years have been an unrelenting challenge to multinational CEOs determined to profit in China. Covid laid bare the vulnerabilities from overreliance on the country as a supply hub. Western governments, which increasingly see the country as an adversary, have made it more difficult to do business. Beijing, with its mix of targeted capriciousness and self-destructive macroeconomic policies, has been little help. And Russia’s invasion of Ukraine has made the prospect of conflict over Taiwan tangible enough to prompt hedging. 

Some CEOs are even becoming more outspoken in their frustration about doing business. “There is growing political interference in the way we do business as a Western company in China,” Carlos Tavares, CEO of carmaker Stellantis, recently complained. While a refreshing change from vapid boosterism, remarks such as these still betray a fundamental ignorance about multinationals’ presence in China. From the vantage point of the CCP, multinationals have always been political instruments. 

Multinationals know why they are in China – to profit. But ask why their businesses are permitted to operate there and their answers may be less assured. The CCP scoffs at the invocation of trade reciprocity. Advancing China’s development may have once been an acceptable answer, but no longer. Yet it at least acknowledges a degree of heightened conditionality that differs from nearly every other market in which multinationals operate.

Continue reading “What CEOs don’t get about China”

Even as American public opinion on China reaches generational lows and political rhetoric allows for ever fewer shades of grey, most policy makers recognize the need for greater nuance in bilateral policy. This nuance increasingly takes the form of positioning the relationship as operating on three parallel paths: one in which collaboration is possible, one in which competition is necessary, and one in which confrontation is unavoidable. More than a catchphrase, framings such as these often take on lives of their own as active organizing constructs for policy. As Secretary of State Antony Blinken and national security advisor Jake Sullivan engage their Chinese counterparts in Alaska, they may find the framework wanting. 

This ‘3C framing,’ which Secretary Blinken endorsed in his first speech as Secretary of State last month, should be understood more as a reaction to calls for containment or decoupling than an affirmative vision for American policy. Matters such as public health, artificial intelligence, and human rights issues are generally considered to respectively fall in the collaboration, competition, and confrontation domains. In some cases, a single issue area might involve some combination of all three; for instance: cooperation on more aggressive climate targets, competition to lead the new energy economy, and confrontation over China’s export of dirty power to developing countries. (In a similar spirit, some Chinese commentators use the term, chandou, which translates as “fighting while embracing.”)

Continue reading “Why a ‘Collaborate, Compete, Confront’ China policy won’t work”

The proxy statement is an annual rite of shareholder democracy. Votes to elect directors and, in recent years, approve executive pay routinely receive support greater than 90%. In addition to the matters put before investors by companies, investors too have the opportunity to put issues up for a vote. These proposals run the gamut of environmental, social, and governance matters. With rare exceptions, these shareholder proposals fail. One proposal that ought to be put before investors – and pass – is the extent to which companies are exposed to China.

Until recently, American corporations have been one of the most consistent advocates for engagement with China. This was driven largely by genuine enthusiasm about the potential of the country’s market. Even as corporations privately complained about theft of intellectual property or unfair competition, they justified their continued presence in China because they believed conditions would improve and also because investors expected them to be there.

But if corporations looked beyond the next quarter of their Excel spreadsheets, many might find that the net present value of their continued presence in China’s market is negative. This is not only because western corporations are confronting declining market share in a slowing Chinese economy. Indeed, the decision would be justified even if deteriorating US-China relations were not putting them at risk of being collateral damage.

Continue reading “Let shareholders have a say on decoupling”

In 2018, the outlook for China regarding its politics, economy, and relationship with the United States darkened considerably. The removal of presidential term limits and Xi Jinping’s interactions with the Trump administration prompted rare instances of internal Chinese dissent in a year marked by deepening repression. U.S. policies toward China gained in cohesion and assertiveness, demonstrated by an expansive levying of tariffs. China’s global influence continued to grow in the wake of U.S. withdrawal. But China, which in recent years has been masterful in playing geopolitical offense abroad, appears to lack the same sure-footedness now that the United States and other nations are finally making it play defense too. In an era of great power competition, China and the United States are testing the resiliency and adaptiveness of their respective systems.

Continue reading “The year in China 2018”

It has been a momentous two weeks for Chinese politics. The elimination of term limits from the country’s constitution, long-rumored though it may have been, still sent shockwaves around the world. Xi Jinping also promoted a number of trusted figures into prominent roles, further securing his hold on power and demonstrating that it was possible to further marginalize the country’s premier, Li Keqiang. The third major announcement, of sweeping changes to the Party’s and state’s bureaucracy, has not captured anywhere near the attention of the other two. But, in time, it may prove to be just as consequential. To understand why that is so requires that these changes be seen not from the perspective of a sinologist, but that of a humble MBA. Continue reading “Change management”

In 2017, Xi Jinping moved China closer to one-man rule while most of the world maintained an uneasy holding pattern in light of a diminished American presence. Many of China’s developments center on the theme of control. Domestically, the subordination of all corners of society to the Party continued. Abroad, what some consider an ethnonationalist foreign policy gained greater definition. China is no longer “hiding its light” and is unapologetic about the prerogatives to which it believes itself to be entitled.

Under collectivist rule, the Party allowed a degree of purposeful incoherence to accommodate the great ideological differences on its path from Mao to the market. This created a modest space for debate and afforded those who sought change a place within the system. Xi is signaling that it is now decisiveness that is needed, even though the ideological differences have in many ways only become more pronounced. There are two interpretations of Xi’s push for decisiveness. One is of a country moving triumphantly towards supremacy. The other is of a country racing against time to seize what it can before growth, the basis of its strength, is exhausted.

In tying the Party closer to his person, one can no longer disagree without doing so with Xi personally, risking the alienation of those who sought change within the system. Xi has, perhaps fatefully, greatly linked the survival of the Party to his own mortality.

Continue reading “2017 year in review”

No one believes that China’s economy is sustainable in present form – not even its government. Beijing and most external experts agree that continued growth is possible, just not from the combination of cheap labor, exports, and infrastructure investment it historically depended on. In its place, the economy must transition to higher value-added goods and services. But for China’s workers to become more productive, they must be better educated. A host of worrying studies, many led by Stanford’s Rural Education Action Program, suggest that China’s young people are not being educated broadly enough to make that transition.

Continue reading “China’s education crisis”

Next month, China will host its national equivalent of the Olympic Games. This year, for the first time overseas Chinese nationals will also be able to participate. More telling is the inclusion of foreign athletes of Chinese ancestry. The initiative is one of many attempts, some subtle and others not, by Beijing to signal control of its citizens abroad and effectively nationalize ethnic Chinese regardless of citizenship in service of Beijing. How aggressively China pursues this strategy will impact the country’s relationships with nations that are home to significant populations of both overseas Chinese nationals and ethnic Chinese. Already, some nations are sounding alarms not heard since the end of the Cold War. For their part, overseas Chinese worry how the influence campaign may put them at risk in both countries.

Continue reading “The overseas Chinese agenda”