Opportunities for foreign companies. Xi has further strengthened his grip on China’s three largest economic hubs – Shanghai, Beijing, and Guangdong – by elevating their party secretaries to the very core of party power. However, Xi insists China will further open its economy, which shows the party still accepts the need for foreign expertise to support high-quality development. We believe this means there will still be significant opportunities for foreign companies in the Chinese market.
Travel could be opening amid continued Covid restrictions. The elevation of the above party secretaries to the standing committee—all of whom have enforced rigorous pandemic restriction —implies China will continue to practice strict Covid policies that could impact the economy and business operations. That said, some easing for inbound travel could occur, facilitating person-to-person business and diplomatic exchanges.
Stated policy priorities and personnel appointments indicate China is prepared for a more confrontational relationship with the U.S. and its Western allies, particularly on hot button issues such as Taiwan. At the congress, the party adopted a passage to "resolutely oppose and contain Taiwan independence" – a longstanding position – into the party charter for the first time.
In our view, China remains an important market for multinational corporations (MNCs) and a key player in the global economy. De-risking or significant pullbacks from the Chinese market are not necessarily the best strategy. China has over the past decade modernized its regulatory environment and established a better business environment for MNCs.
Economic growth remains a key policy priority for Xi and the new leadership in the coming years. The rapid digitization of the Chinese economy means many MNCs are taking their innovations in China into overseas markets. But they will find that more than ever they are caught in a tight spot between the West and China. Many Western analysts are also increasingly convinced a state of "economic warfare" between China and the U.S. (and some key European allies) is developing.
China Calling
The 20th National Congress of the Chinese Communist Party was a major political moment that will shape the business environment in China for the foreseeable future, with major implications for multinational and Chinese firms alike.
Our China experts across the firm have distilled observations and recommendations for our clients in a comprehensive report, which we’ve adapted here.
To access the full report, email GlobalChinaBridge@fgsglobal.com.
By the Numbers
Business Takeaways
MNCs should not "give up eating for the fear of choking." From our perspective, the fundamental advantages of the Chinese economy have not substantially changed. Its market size, consumption capabilities and potential and its skilled and disciplined workforce are still evident. There are clear concerns about China’s short term economic outlook as outlined above. But as long as China has the ambition to become a "modern socialist nation" by 2035, there is no way for its leadership to forego reliance on private capital and markets, despite current headwinds.
"Crossing the river by feeling the stones." It is imperative for businesses operating in China to map out both risks and opportunities as well as prepare executable scenario plans. Extensive "win-win" opportunities have gone. It’s time for a new strategy of careful analysis and gradual iteration of opportunities.
The "real economy" is the apple of Xi’s eye. The 20th Party Congress highlighted again that a significant area for economic development will be in the "real economy," i.e. strategic emerging sectors such as aerospace, transportation, cyberspace and digital development, as well as agriculture and green energy.
The "stakeholder economy" is coming. Expect a boom in ESG, CSR and stakeholder engagement for businesses in China. The expectation and requirements from the Chinese government around "wealth accumulation" reform, carbon footprint reduction, and for Chinese companies to become more internationally engaged means corporate citizenship will become an indispensable trait for businesses operating in China.
Engaging a wide variety of Chinese stakeholders will be more important than ever.
Our Recommendations
To optimize opportunities and balance risks, foreign companies must proactively protect and promote their reputations and engage stakeholders – both in China and at home.
Chinese companies must differentiate themselves from peers and build trust, emphasizing their corporate governance and decision-making as independent and not unduly government influenced.
MNCs will need to underscore that they are guests in China and supportive of China’s overall development. These messages for a domestic market will require a difficult balancing act given hardening views among politicians and the public back home.
Stakeholder engagement must do more to connect with Chinese people. Strict COVID policies mean China has become increasingly disconnected from the outside world. The lack of interpersonal connections alongside tightened restrictions over news media and social media have further narrowed understanding of the world at large and how the world is talking about China beyond sensationalist news headlines.
By the same token, the outside world is missing contact with China.Senior executives increasingly struggle to understand what is happening on the ground, which complicates conversations with China counterparts. Without regular access to China, foreign media are becoming increasingly distant from their core beat and the companies they cover.
All China communications must be clearly thought out with an understanding of how messages in one stream impact others. Communications and government relations teams in overseas HQ must be plugged into the teams in China – there cannot be any room for divergence or independent actions on critical messaging. By the same token, Chinese corporate headquarters must consider how their communications will land with Western audiences.
Internally, CEOs and the C-Suite in HQ must have regular and intimate engagement with China managers to find alignment on business issues. Meanwhile, internal comms teams must be able to communicate effectively with Chinese employees, while also considering how to talk about China in Western markets.