‘China-first’ policies raise B.C. business concerns

National congress provides a glimpse into the blueprint for a new Asian economic landscape

Beijing’s People’s Congress hall | HelloRF Zcool/Shutterstock

The recently concluded 19th National Congress of the Communist Party of China – at which Chinese president Xi Jinping consolidated power to a degree not seen since the 1970s – provided hints about the world’s second-largest economy that Canadian business should heed, observers said.

And the key word appears to be “caution,” as several analysts noted that Xi’s three-hour-plus speech carried significant populist sentiments, favouring the growth of China’s domestic businesses and economic benefits to the Chinese domestic market before the interests of foreign-owned multinationals.

That populist sentiment could add uncertainty for non-Chinese companies (including those from B.C.) operating in or looking to enter the China market, one academic said.

“I don’t want to make this a political discussion, but what Xi Jinping has done is concentrating more power, and I think he will implement an even stronger ‘China-first’ business policy,” said Andreas Schotter, professor of international business at the Ivey Business School at the University of Western Ontario. “It is clear that China provides stability, but it also appears clear that it is all about ‘Chinese firms first.’ And as a foreign company, you have to be concerned.”

Schotter, a former business executive in China, said it would also be prudent for B.C. businesses to track how surrounding economies react to Xi’s speech, which stated clearly Beijing’s intention to be among the most influential voices, both regionally and globally.

As the global supply chain transforms into a collection of regional-centric chains, Schotter said awareness of the geopolitics in Asia becomes crucial if businesses want to succeed in the region overall.

“The question now is, what is going to happen with the neighbours?” he said, while noting that China has been relatively quiet on the military front in the last year. “What’s going to happen with Taiwan? Are they also going to increase military power? As soon as [Beijing] touches a gun, a ship, whatever, the economic links would be in trouble because all of [China’s] smaller neighbours are going to be much more concerned.”

New York-based analyst Sean King, a noted critic of China’s policies, said that regional tensions are worsened by the apparent pullback of the United States under President Donald Trump – something that businesses looking at the region should be aware of.

“In Beijing’s near abroad, I expect Xi not to give an inch on issues like the South China Sea,” said King, vice-president of consultancy Park Strategies.

“Xi’s muscular world view can mean trouble for the PRC’s [People’s Republic of China] immediate neighbours, who typically look to America for security but who now almost openly question [the American] commitment to the region.... Our [United States’] quitting the Trans-Pacific Partnership – which didn’t start out as such but evolved into an economic power play against Beijing – only furthers these fears.”

But despite a backdrop of uneasiness, the University of British Columbia’s (UBC) Pragmatism amidst Anxiety: Canadian Opinions on China and China-Canada Relations survey of 1,519 people released on October 17 showed 69% support for a Canada-China free trade agreement, despite considerable concerns about Chinese foreign direct investment and other factors.

John McCallum, Canada’s ambassador to China and a former veteran of Parliament in Ottawa, spoke in Vancouver on November 1 and referred to the survey as a hint that Canadians are ready to do more with China – despite value differences that Ottawa will continue to defend.

McCallum noted that former governor general David Johnston, during his summer visit to Beijing, had a 10-minute conversation with Xi on the topic of Liu Xiaobo, the Nobel Prize-winning Chinese dissident who died of liver cancer in July. But McCallum added that Canada could do more business with China despite disagreements over human rights and freedom of the press.

“Canadian leaders do speak regularly to Chinese counterparts on these matters,” he said. “But we also think we can raise these difficult issues with the Chinese [while] working together with them to advance things that are for the good of both nations.… Right now, history and geopolitics offer Canada a rare opportunity to move forward with China as never before. Our challenge is to turn [the current level of] goodwill into trade, investment and jobs.”

Yves Tiberghien, director of UBC’s Institute of Asian Research, said that despite the concerns coming out of Xi’s consolidation of power in Beijing, Canadian businesses should not take their eyes off a more immediate threat – the uncertainty facing the North American Free Trade Agreement as the Trump administration becomes increasingly protectionist.

“Meanwhile, China is growing and – by and large – stable in its governance,” Tiberghien said. “If anything, it shows that maybe Canada should go a little faster [in engaging China]. Yes, do your homework, but in this situation, there’s a strong case for engagement.”

Tiberghien also noted that Xi has a reputation as a pragmatist politician, and his speech at the recent congress included portions calling for more openness to foreign investors.

Tiberghien noted that the speeches delivered by Chinese leaders often have to balance the views of various factions within government, and the real impact on foreign businesses remains to be seen.

“The details will be how the coalitions and various factions face off against one another, and where Xi tilts at key moments,” he said. “Right now, it’s too early to tell. The Chinese reform process is always a zigzag process; at some point, reformers win a battle. But then there are compromises, and the opposition wins a battle, in turn. So the outcome is always mixed. But as a whole, I took the openness message as stronger.”

Schotter, meanwhile, said that it remains in a B.C. business’ best interest to stay alert in China, given the populist, nationalist mood and the competitive nature of the Chinese market.

He also cautioned against looking at the Chinese market without proper sophistication and readiness, noting that Canadian businesses need to improve in the area of hiring Chinese-Canadians with cultural/linguistic familiarity with China and leverage that talent for entering the China market.

“If I was managing a business in China right now like I was before, I wouldn’t say I’d be worried, but my peripheral vision would be more alert,” he said. “On one side, I need to have a long-term perspective. But I need, at the same time, a ‘heads-down’ approach along with that long-term, ‘heads-up’ perspective. Yes, I have a goal I need to reach, but are the deals on the table right now good for me? I need to see I’m making money right now on a deal. You cannot just go to China and hope to make money in five years’ time.”