By Milton Ezrati Senio Contributor
I write on finance and economics.
April 3, 2023
The Great Wall of China. (Photo by: HUM Images/Universal Images Group via Getty Images)
HUM IMAGES/UNIVERSAL IMAGES GROUP VIA GETTY IMAGES
President Xi Jinping and others in China’s leadership frequently brag that they, because of their roots in Chinese culture, have greater patience than others and take the long view in human interactions. If that cultural reputation is justified for china generally, Beijing’s claims ring false. Little of what China’s leadership does comes close to what others would call patience. On the contrary, Beijing’s leadership has exhibited an almost adolescent impatience to pull every lever of power as quickly as they can. And what is more, this rather un-Chinese behavior has begun to undermine the economic base supporting the Chinese Communist Party (CCP).
To be sure, not all of China’s problems have to do with the CCP’s impatience. Some stem from the natural result of the economy’s development. When China began its stupendous economic rise in the late 1970s, a major asset was the country’s ability to offer western and Japanese businesses a disciplined, reasonably well educated, and inexpensive workforce. Even as late as 2000 when China first joined the World Trade Organization (WTO), its average annual wage was barely over 3 percent of the American equivalent. That cheap labor brought in billions in western and Japanese investment, carrying with it income and opportunities for China’s economy. But as that economy has developed, Chinese wages have risen and a lot faster than those in the rest of the developed world so that by 2021, the last full year for complete data are available, the average Chinese wage amounted to almost one third of the American equivalent, still a big gap but nowhere near what it was and not nearly as compelling either.
At the same time, Beijing’s policies have detracted still more from the attractions of its economy. During the Covid pandemic, for instance, Beijing blocked vital exports to the rest of the world, surgical masks for instance. All could understand Beijing’s desire to supply its own population, but the act nonetheless prompted western and Japanese business to reassess the reliability of Chinese sourcing. Following that experience, the severe lockdowns and quarantines of Beijing’s zero-Covid policies reinforced those questions about reliability.
With the loss of these two attractions – inexpensive labor and reliability – western and Japanese business found reason to chafe more than in the past at other aspects of Beijing’s policies, for one, its insistence that any firm doing business in China share its technology and trade secrets with a Chinese partner or for another the outright theft of patented and copyrighted intellectual property. While China was small and offered other compelling advantages, most foreign businesses and their governments could overlook such obnoxious behavior, but as China has grown and lost other attractions, it has become more difficult to turn a blind eye to such practices, especially since Beijing, despite international complaints, shows no sign of changing them.
If this were not enough, Beijing has increasingly resorted to other bullying and vindictive practices. It has maintained a naval presence in the South and East China seas despite legitimate claims by Japan and the Philippines. Beijing has ignored findings by international courts. It has regularly threatened military action against Taiwan. Chinese authorities used both formal and informal means to retaliate against South Korean business interests because their government installed the THAAD anti-missile system. These same Chinese authorities cut off Australian wine sales to punish Canberra for questioning the origins of the Covid pandemic. They have taken similar actions against Sweden’s Ericsson, South Korea’s Lotte supermarkets, and all Lithuanian manufacturing simply for trading with Taiwan.
And if such actions were not enough to make businesses think twice about Chinese exposure, now that governments in the United States, Europe, and Japan have begun to react to such bullying and other longer-standing irritants, business has a further worry about getting caught in the middle of diplomatic disputes.
Recent surveys and western business commentary testify to changing attitudes. A poll taken last June by the European Chamber of Commerce in China noted that one-quarter of its members currently operating in China were considering closing and moving their operations elsewhere. Half complained that doing business in China had become too politicized. This contrasts radically with a similar 2019 poll that showed widespread enthusiasm about the prospects for business in China.
Also indicative of new thinking are remarks by Director General of the Confederation of British Industry Tony Danker. In a recent interview he declared that every company with which he had spoken was considering a change in the China focus of its supply chains. Bettina Schoen-Behanzin, vice president of the European Chamber, noted that “[t]he only thing predictable about China was its unpredictability, and that is poisonous for the business environment.” The Anglo-American insurer, Willis Towers Watson reported that fully 95 percent of multinationals are concerned about the risk of doing business in China, up from 62 percent only two years ago.
A long list of prominent firms have already begun to move or are seriously considering doing so. Apple has scheduled the production of its AirPod Pro 2 for Vietnam and not China. Samsung is making similar decisions on its China production. Volvo rejected China for a new factory and will build it in Slovakia, while Adidas and other shoe and apparel makers have long since left China for Vietnam and other venues. Japanese firms have begun to bring some of their production home from China. And this list is far from complete.
For all the movement, China’s economy will remain dominant. It is simply too large and too important. But the de-coupling of which Washington never tires of speaking these days has clearly begun and notably for mostly market reasons and not compulsions imposed by the U.S. or any other western government.