‘Normalising’ the ‘New Normal’ in China

Mark_MichelsonAs US business attempts to make sense of the “new normal”, Mark Michelson highlights how effective public affairs strategies can help navigate a more active and assertive China

Doing business in China is rapidly becoming even more difficult for many US and other international organisations, and public affairs firms should be able to help – please!

US companies, other organisations, academics and political leaders are attempting, with mixed success, to define what is almost routinely called China’s “new normal” (for now) on op-ed pages, assess its current and potential impact and determine strategies for dealing with its implications.

This description [1] usually refers to a China that has become more active and assertive, both domestically and internationally, under President Xi Jinping’s leadership – even as topline economic growth slows. After all, China remains the world’s strongest growth engine, its largest creditor and its biggest trade partner. This means China assuming greater global responsibilities – as symbolised by its recent announcement of a new Asia Infrastructure Investment Bank (AIIB) and economic expansion in Africa, the Middle East and Latin America.

The AIIB, for example, attracted around 60 “founding” members, including key US allies like the UK, South Korea, Saudi Arabia, Israel and Taiwan. At the same time, China will continue to develop and implement its ambitious reform programs designed to rebalance the economy while raising per capita income, which still ranks under 80th in the world.

Potentially, this reform program could lead to substantial opportunities for US companies and others which can help the Chinese government achieve its objectives by providing their Chinese counterparts with what they seek, such as technology, energy and resource efficiency, healthcare or management skills. China’s 13th Five-Year Plan, due to be finalised in time to take effect in 2016 should help provide a road map.

However, in practice, many US companies operating in China are facing tougher regulations and enforcement, compliance pressures and slower economic expansion. For example, increased China regulation and its unpredictability and hostility toward “foreigners” is now one of the most common concerns expressed by US and other companies operating in China.  The Xi regime’s campaigns against corruption and monopolies have resulted in detention of government officials and business executives who have worked with their foreign counterparts, with new leaders likely to emerge, which may mean readjustments in relationships and strategies in China for US executives and officials.

But domestic challenges exist too….

There also are US-domestically generated challenges – especially with a new US Congress, unhappy labour unions and the 2016 political campaign already begun, with few friends of China — and corporates and other organisations too often still not placing a high enough priority on public affairs.  A report published in late 2014 by the Economic Policy Institute (EPI), a US think tank focused on middle and low income workers with close ties to unions, found that trade with China displaced 3.2 million jobs between 2001, when China joined the WTO, and 2013, with over 75% in manufacturing.[2]

Many of these jobs were in “more advanced elements” of the computer and electronic parts industry, as well as biotechnology, life sciences, aerospace and nuclear technology. According to the report, the top ten states affected lost between 2.4% and 3.7% of total state employment – which included California, Texas, Massachusetts, Minnesota, North Carolina and New Hampshire – all of which are near the top of the political chain in the US, especially in presidential campaigns. While there may be other sources that disagree, similar issues are likely to increasingly threaten US-China relations at government levels and on the ground on the mainland.

Republican leaders long active in finance and trade like Sen. Charles Grassley of Iowa have already weighed in, such as by reviving attacks on China’s “unfair manipulation of its currency.” He and others have criticised the Obama administration’s overall trade policy and recent relative lack of engagement with the Chinese on areas of dispute as their attention has been focused on the Middle East and Europe, while trying to hold Democrats in line.

Prospects of concluding a Trans-Pacific Partnership (TPP), which does not involve China and could substantially reduce remaining impediments to trade and investment among the signatories looks highly remote – with few active Democratic proponents in Congress of TPP or of the required Trade Promotion Authority and with a Republican majority opposing almost everything suggested by Obama.Washington’s mishandling of the AIIB invitation also didn’t help, and we haven’t even heard about China from the likely presidential candidates yet.

Can US organisations cope successfully with what may be a more hostile environment in China while recognising and taking advantage of opportunities that may arise? It would appear that intelligent public affairs strategies effectively, if carefully, implemented will become even more important going forward. The top “tips” suggested by Public Affairs Asia in March – particularly “Map and Align,” to build and expand in relation to China’s economic, social, political and environmental policies – would be a good place to start or to apply even more robustly and extensively.

Dr. Mark Michelson is Chairman of IMA CEO Asia Forum and Senior Counsellor for APCO.

[1] Often associated with ex-PIMCO CEO Mohamed el-Arian assessment of the global economy in a 2010 article

[2]“China Trade, Outsourcing and Jobs,” Economic Policy Institute. December 11, 2014 PAA_GAF_AMCHAM_BANNER