Chinese business risks may continue to rise after party congress, academic says

Foreign companies doing business with China are more at risk this year due to geopolitical tensions and the fallout from the Covid-19 pandemic, but they are unlikely, a prominent Chinese academic said after October’s Communist Party Congress Get a great rest. Interview today.

“We are in a more tense period,” said Bates Gill, a longtime China scholar who was recently named executive director of the Center for China Analysis at the Asia Society Policy Institute in New York.

His advice to international businesses and investors: “Be cautious as political and geostrategic risks are likely to increase rather than decrease.”

Gill, author or editor of nine books on China and Asia-related topics, including this year’s Dare to fight: China’s global ambitions under Xi Jinping, Chinese Communist Party General Secretary Xi Jinping is expected to continue what he sees as a risky, nationalist approach to the country’s foreign relations.

“Coming out of the party congress, it’s going to be more of the same, maybe even further doubling down on the way the leadership wants to deal with the outside world,” Gill said. “At least in the short term — three to five years, that means China has a lot to do with some of its main players. The likelihood of disputes and conflicts between neighboring countries, especially the United States, further increases.”

Gill was previously the Freeman Chair in China Studies at the Center for Strategic and International Studies and founding director of the Center for Northeast Asian Policy Studies at the Brookings Institution.

An edited excerpt follows.

Flannery: After Chinese Foreign Minister Wang Yi visited New York last week and held talks here, how is the US-China relationship?

Gill: The U.S.-China relationship is basically at the same level as it was a week ago, which means the two sides are still at odds and still in the early stages of the negotiating process.

The immediate event in the bilateral relationship before them is the November summit between Presidents Biden and Xi Jinping. They were in the initial stages of trying to figure out what exactly that meeting was going to accomplish. Given the huge intervening variables of the intervening twenty congresses, I suspect that China may not have as much bandwidth or flexibility to move forward with the negotiation process.

The biggest obstacle is obviously the domestic political situation in both countries, which I think makes it difficult for either side to accommodate the other and try to come up with a formula that might lay the groundwork for that relationship, or build a more moderate tone. But such wording will be difficult to come up with. They’re still in the very early stages of trying to really figure out what this might be.

Flannery: What are your expectations for the outcome of the party congress?

Gill: I think we’re going to see more of the same in terms of China’s foreign relations strategy. My guess is that this convention will be all about strengthening and celebrating Xi’s possible new mandate. His grip on the propaganda establishment will put him in a stronger, stronger, more confident position, at least from an extroverted perspective. It will be up to analysts and Beijing academics to try to find cracks in the surface and speculate on one or the other appointments that may indicate that Xi is not as powerful as the propaganda apparatus would have us believe.

Flannery: How do you think Xi Jinping’s leadership style and substance has changed over time, and what do we expect from him going forward? You are”Courage to fight. ”

Gill: If anything, what we’re seeing is a trajectory of increased confidence, increased risk taking, and increased nationalist stances. I think they stem from two things. One is an extroverted confidence in his position and the ostensible support he enjoys within the party, which gives him the power, authority and resources to take on more risky, assertive and nationalistic positions.

Second, it stems from calculations he and his supporters have reached. While it is understood that such more assertive, nationalistic, assertive stances are clearly risky and increasingly difficult, they are considered less risky than not taking this approach to international relations. Relations with the U.S. have not been smooth; almost all of China’s important relations internationally have not improved over the past 10 years – it has actually gotten worse, except perhaps with Russia, which has clearly deepened, But it also brings huge risks.

So, my conclusion is that we’ll see the results of the party congress more the same, maybe even further doubling down on the way this leadership wants to deal with the outside world. At least in the short term – three to five years, this means a further increase in the likelihood of disputes and conflicts between China and some of its key neighbors, especially the United States.

Flannery: What do you think are the takeaways from your book for foreign companies doing business with China?

Jill: Proceed with caution. I think there is a growing political risk within China regarding how foreign investors are treated, not only because of the macroeconomic indicators and potential economic challenges China faces. I also think there will be third party risk. As companies engaging with China and the overall strategic relationship with China continue to move in difficult directions, companies may (more easily) clash with political pressure to reduce or de-escalate engagement with China, or it may be within range conflict or existing economic penalties (from their own government).

I suspect that sanctions and other blacklist type activities will continue and may become more onerous. Exercise caution as political and geostrategic risks may increase rather than decrease. I think we’re in a more tense period.

Flannery: The United States and China are working for influence and friendship across the Pacific and Asia. What do you see from here?

Gill: We are entering a new era of great power competition in this part of the world, and for many countries in the region, especially the smaller Pacific island nations, that competition may not be particularly welcome. Only some people will be very good at trying to play the kind of diplomatic game where they can get the best out of both. Some will be effective at this; others may be less.

But (maneuvering) will definitely increase. Both the United States and China have shown in their own ways that the region will become increasingly important.

I do question the commitment that the US can mobilize — political, economic, influence and engagement with many countries in the region — and do so in a way that can keep up with the considerable amount of investment and efforts on the Chinese side.

We’ll just have to wait and see. ​It is critical that the United States and its partners demonstrate greater engagement, such as opening new embassies and introducing more in political leadership, summits, and economic investment.

But at the end of the day, China tends to have more tools than the US. Washington simply cannot make the same type of government-led economic investment. At the end of the day, this will be a decision (for the US) largely made by the private sector. The US government can come up with development aid and some infrastructure support, and the real money has to come from the private sector. And that’s even more difficult for the US. Compared with China, it is much more difficult for the U.S. government to direct private investment to these regions. ​In many ways, that means, at least in this region, our influence will come from other factors.

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