Has China Inc. Been Overplaying Its Hand?

May has been another tough month for international negotiators doing business in China.

The indictment of 5 alleged cyber spies form the PLA threatened to bring US-China relations to a

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new low.  Meanwhile, territorial disputes escalated between China and the Philippines, Viet Nam and Japan threatened to spin out of control with disturbing regularity.  That’s why there was so much headline space (though not all of it on the front page) devoted to a high profile energy deal between China and “Reliable Friend’ Russia.  What does all of this mean for Western negotiators in China?

On the face of it, China joining forces with Russia could represent an ominous shift in global economic power.  Xi Jinping’s administration is staking out an intentionally ambiguous position — posing for photo ops with the Putin – but mostly allowing international pundits to draw their own conclusions.  So far no one seems to be taking the bait.  There many good reasons to conclude that it’s empty symbolism — and not the beginning of a serious trend.

Has China Overplayed its Hand?

Beijing’s propaganda machine may still running on high, but its wheels don’t have the traction they once did.  Not too long ago, a high-level conflict with the US and a major move with Russia in direct opposition to concerted Western efforts would have had the talking heads and pundits sputtering with dire warnings.  This time around China was edged off the front paged by a confusing Thai mini-coup and a handful of European elections for posts no one can name.  Markets didn’t even notice, and China’s retaliation against the likes of Microsoft and McKinsey didn’t exactly send chills down the Main street.  China’s main defensive tactic is usually to take umbrage early at inferred insults and then pout strategically until the guilty apologized and promised to improve.  Nothing like that seems to be happening this time around.

China lost its mojo as a playmaker and headliner.   What happened?

 1.  China has grown up — into a full-fledged downer.   No one who matters is still talking about a future where a wealthy, confident China embraces liberal values and global integration.   When China was just starting to do deals with the West, she was a mysterious beauty full of promise and opportunity just learning to engage with foreign partners.  Now however, she has emerged as an expensive, cantankerous, and unpleasant partner.  The first couple of times China threatened and blustered, everyone ran around trying to placate.   Constant complaints, however, have become part of the background noise of every China business story.  Her neighbors can’t have a civil conversation, Europe has taken to “handling” China with the condescending platitudes of an experienced nanny soothing a colicky baby, and the US seems to have lost interest.

 2.  China has just lost its only significant voice in Washington.  Since Deng Xiaoping’s first Sojourn to the South, China Inc. has had one and only one effective lobbyist in DC – and that was Am Cham and the Fortune 100 leaders who back it.  US corporates were China’s only allies — and whenever there was a controversial bill or talk of trade war, the likes of GE, General Motors and the Wall St. banks not only had to council Congress to see the big picture, but drown out the ham-fisted threats and bluster coming from Beijing.  Now those same corporates are finding themselves hacked in their own data-centers, dumped on in home markets and blocked from Chinese opportunities.  MNC strategists have stopped gusghing about China harmony and started complaining: “China harming me!”

 3.  New economic models are prompting a wait and see attitude.  A big part of China’s “soft power” campaigns of the past few decades was its ability to leverage its sense “next big thing”.  Well, now that day is here, but New China seems to be a tired rerun of military expansionism and old-school realpolitik.    The China Inc. story  would be getting a little played out even if Beijing weren’t so determined to make life miserable for international negotiators.  Costs are rising, the air is bad, and bureaucracy is a burden — even in those cases where it is evenly applied among locals and foreigners.  There seem to be cheaper models emerging for accessing Chinese markets that don’t require high profile exposure to Chinese bureaucrats.  With economies in the US and Europe showing signs of resurgence – and manufacturing centers closer to Western markets getting cheaper, China just doesn’t seem to be worth the effort it once commanded. Xi’s “China Dream” doesn’t resonate with overseas investors – or even with local Chinese managers, waiting for concrete plans to flesh out the lofty speeches.

The most exciting parts of the Chinese economy seem to be taking place in foreign markets and overseas exchanges…

Next:  Are Chinese private companies decoupling from SOEs?

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