Is China the answer? This is the title of a 2013 Caribbean Business article in which I was quoted (sorry, no links available!). As it did back then, the question is one that must be answered with another question: “The answer to what?” The context in which the question is answered, however, has changed dramatically in the nine years since that article was published.
The article’s publication date is September 26, 2013. Those were the early days of the Xi Jinping era, when there was still much speculation about what Xi’s leadership would bring. For most foreign businesses, there was little to suggest things would significantly change, as far as their China aspirations went. If anything, a little optimism was in order, with suggestions in Western media that Xi might be a reformer:
Can Xi reform the system, without – like Gorbachev – destroying it? He has advantages that Gorbachev lacked, so it’s not absolutely impossible. But I suspect things have gone too far for traditional Marxism-Leninism to survive. The dissidents who talk enthusiastically about wholesale change during Xi’s tenure may yet turn out to be right.
In that environment, it was understandable for both businesses and countries (and U.S. states and territories) to look to China as an enticing prospect when it came to economic opportunities. An editorial that accompanied the Caribbean Business article called on Puerto Rico (CB is a Puerto Rican publication) to tap into Chinese investment capital. “Think of it,” the article urged, “billions available for infrastructure works in Puerto Rico.”
As it turns out, at the same time I was providing my comments for the article, it was being made clear to me that large-scale Chinese investment was not in the cards for Puerto Rico. I sent an email to the author of the article from a hotel room in Hangzhou, where I was attending a conference on Latin America. Conference participants made it clear that a place like Puerto Rico was just not very attractive to China, Inc. As a U.S. territory, it was just not nearly as attractive as certain independent countries where Chinese interests could be secured more robustly.
Leaving aside the specific complexities presented by Puerto Rico’s relationship with the United States, many places in the world have cooled to China since 2013. This feeling, though, is far from universal. As we noted in What the Future Holds for China:
Though the West is having an epiphany regarding China, in other parts of the world it’s business as usual. Facing icier climates in advanced economies, it makes sense for China to double down on its efforts to engage countries in Latin America, Africa, the Middle East and elsewhere and that is exactly what it’s doing.
The Caribbean Business piece also addresses China’s potential as an export destination. In this regard, I had the following advice to exporters:
Have someone you fully trust in charge of your China operations. Follow the rules and take no shortcuts. Some foreigners think China is a lawless place where you can act as you please without getting any kind of official permission. This is a foolish approach that will get your operation shut down the day after it opens. Savvy businesspeople will seek informed advice, comply with all laws and regulations, and take the long view. Personal relationships are important, and they take time to build. By having a lasting presence in China, you will also gain credibility from potential suppliers, partners and employees.
Nine years on, I generally stand by that advice. That said, events during the intervening time have made clear that there are limits to what foreign businesses can do in terms of building solid relationships in China. Business does not take place in a vacuum: What Xi and Biden (and Trump before him) do and say matters. There is simply a lot that businesses cannot control. In hindsight, a little less China focus and a little more diversification would have been a better path for many companies.
Meanwhile, we have recently seen how difficult it can be to properly leave China. For companies that were not fully committed to China as a market for their products, there was (and is) something to be said about keeping their footprint light. Back in 2013, conversations with foreign businesses were about getting someone from their own staff set up in China. Now, our China FDI lawyers more often look at how to avoid doing that.
As we said, the answer to the question posed by the Caribbean Business article depends on the circumstances. Sometimes, the answer will be yes, sometimes it will be no, and sometimes it will be something in between. For those for whom the answer is yes, the China they encounter (or continue to encounter) is one that is much changed from that of 2013. But many of the fundamentals remain the same. Keeping your nose clean is no guarantee of a smooth ride, but not keeping your nose clean is pretty much a guarantee of trouble.
What are you seeing out there?