Forty-one years after Deng Xiaoping kicked off the ‘Reform and Opening’ movement, China remains relatively closed in a world that is more open (see China and the World: Open or Closed?). Under Xi Jinping, the party has reasserted itself over many aspects of society and the economy. Today, China is the number two power with immense scale, but a tendency towards illiberalism and economic self-sufficiency. Yet in today’s interconnected world, going it alone is difficult.
China has the scale
- China is the world’s second largest economy.
- It became the world’s largest trader of goods in 2013.
- It has nearly as many Global Fortune 500 firms as the US.
- It has the world‘s largest banking assets and its stock market capitalisation is the third biggest
- China is the second biggest R&D investor in the world. It spends almost half as much (US$225 billion) as the US (US$500 billion)
… but it is not well integrated into the world economy
- Compared to previous countries that have the held the number two spot in the world economy, China has much lower rates of urbanisation and GDP per capita.
- It may be the largest goods trader but internal consumption drives more than 70% of China’s growth.
- It has a large number of globally-sized companies, but China’s largest firms primarily serve the domestic market and struggle abroad.
- Its banking assets may be among the world’s largest, but China’s financial sector has low cross-border flows and foreign ownership of banks as compared to developed economies.
- China is making huge investment in R&D, despite this imports of intellectual property are six times more than exports.
Will we tumble into a crisis?
Further integration by China into the global economy and more global collaborations could unlock more growth opportunities for both China and the world. Conversely, the global economy would face increased downside risk if China engages less and diminishes trade, technology and people flows.
The rise of China is causing consternation in the US, holder of the world’s single superpower position for the last 30 years. Frequently in history, the rise of a challenger causes fear in the established power, a fear that triggers hostilities. But in the last 100 years, the world has avoided violent conflict four times when it could have gone the other way. The deciding factor for peace: the challenger was well integrated into global systems.
So where does this leave foreign firms in helping spur China’s global integration and avoiding a global crisis? Business has been at the forefront of China’s integration into the world, and continuing dialogue is essential for progress. As one China CEO of a foreign firm remarked,
‘You cannot just be a guest of this country. You must be a part of the country and speak up to show that there might be a better way than following every policy to the letter. Do not give up on China, China can change for the better.’
Make your case
At a recent IMA Asia meeting, China CEOs from companies big and small shared tactics on how they have successfully worked with Chinese officials. Our ‘Deep Read’ has a checklist of tactics from these experienced executives in China. Please click on ‘Deep Read’ at the top of the page to read more.
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