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Trade Tensions

3 Negotiating Takeaways from the NK Coal Boat Maneuver

Win-Win with Chinese Characteristics

The new US administration seemed to score a big coup in Asia last week, when China blocked a fleet of North Korean cargo ships carrying coal to Chinese markets. On the surface, it seemed a perfect win-win for both Washington and Beijing.

North Korea Coal BoatsIt turned out, however, that the Chinese policy had already been in place since mid February – in response to UN pressure after the earlier round of Pyongyang missile tests.  It’s still a powerful win-win deal, but now with Chinese characteristics: Beijing wins when they agree to the policy, and Beijing wins again when they implement.  

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Three Negotiating Issues to Watch at the Xi Trump Meeting

The upcoming Xi – Trump meeting is the first face-to-face sit down between the two leaders.  The US side has been clear about what it wants from China, but it’s not quite as clear what it plans on offering.  Don’t get distracted by the background noise like Tillerson’s visit  or uninformed “princeling” gossip.  This is all about the relationship between 2 leaders.

Every negotiation is a competition between two narratives

The Trump story is entitled “Make America Great Again” – but the plot is a muddle of victimhood (China is bullying America) and bravado (unilateral action on North Korea).  Xi Jinping’s narrative is “The Chinese Dream” which juxtaposes a need for global respect with insistence on non-confrontation – all wrapped around one of the largest projections of power since the early Ming (OBOR, 9 Dash Line).

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The Future of US-China Commercial Relations: Welcome to the Multiconomy

Takeaway – Established Western brands will continue to defend their global leadership positions for a while yet, but Chinese corporates are taking control of growing niches and new categories. Look for Chinese entities to disrupt industries through enforced localization and substitution – not head-to-head competition.

multiverse 2

Welcome to the Multiconomy

Phase 1: Frenemies on a Glass Bridge

The status quo of US – China commerce can best be described as frenemies who need each other more than they like each other.  Up until now, both Chinese and Western commercial systems have been multi-faceted and opportunistic. National policies have been one of many inputs in business decision-making.

US China Relations are like a glass bridgeThis situation can be characterized as brittle, but not necessarily fragile. Think of our existing system as a strong glass bridge. It’s very stable – right up until the moment it starts to crack. Then it can no longer support its own weight, but is very difficult to repair.

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Last Man Standing Part 3: POV Counts.

POV counts. Chinese have opinions too.

In US China negotiation, POV changes everything.
POV changes everything in negotiation

Some westerners are pushing back against the idea that we are facing the risk of rising trade barriers or a breakdown in orderly trade regimes. Their logic is that, “The US has a lot of levers, and we can assert our rights without necessarily sparking a trade war that the Trump Administration doesn’t want.” Not wrong, but it makes the dangerous assumption that trade relations are going to be something Washington stays in control of.

Trade frictions almost always take on a life of their own due to a single inconvenient point: Both sides in a dispute get an opinion. If you don’t know the other guy’s point of view (POV) then you have absolutely no control over the final result.

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Last Man Standing: China as Global Leader

Takeaway: As the US rapidly disqualifies itself from global leadership, China will find itself shoved into a role it doesn’t want it and isn’t ready for. We will almost certainly see a more China-centric world. Here’s what it may look like.  

What a difference a week makes. In my last article I spoke about 3 big issues China would face if it tried to step into the position of global leader.   In just a matter of days, however, the new US administration not only allowed it to happen, but seemed to be have been actively

Chuang Tzu and the Turtle
      Chuang Tzu tried to warn you

pushing the PRC into that role.

China went from the scrappy challenger who looked like a long-shot for the title to the last man standing in a remarkably short period of time. They’ve emerged as the odds on favorite by default.  The US has taken itself out of the global leadership game.  Europe looks fragmented and weak — and may very well end up following the US into isolationism. Russia is a military force. China is the last man standing and leads by default.

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Is China ready for the global BIG Time?

Before China can step up to global leadership it needs to address 3 BIG challenges:  Branding, Innovation, and Globalization.  It’s just not there yet.

The Trump inauguration and British exit from the EU may very well usher in a new era of isolationism. Every 10 years or so, pundits like to ask if it is China’s turn to step up to take center stage in global politics.   Even China’s foreign ministry has said it will reluctantly step up – if it was necessary. The truth, however is that whatever the external situation might be, China simply has a set of BIG problems that will contain China to a regional power for the time being.

China map - doing business in a regional power
Still Regional, after all of these years

 Branding

 Innovation

Globalization

Branding:

Still all Party. Chinese corporate branding tends to be very vague (at least by international standards) or very “talking head” (think Alibaba’s Jack Ma or Wanda’s Wang Lianjin). It’s very hard to separate the image of China brands from the CCP itself, and that’s a problem that isn’t going away. Global brands like Apple, Disney, Mercedes, and L’Oreal have their own identity – so they can manage their international image at will. You have your own view about Google or BMW. You can make it personal. China Inc. simply doesn’t work as a consumer brand, and even the few Chinese privates with global heft don’t have much identity apart from their owners or the Party.   (For a detailed examination of Chinese branding download BrandZ’s Chinese Global Brand Builders )

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Is It Still Worth it to do Business in China?  Conclusion

Is it worth the effort and investment for foreign firms to do business in China?   The answer depends on who you are and what you want from the market – and that’s a problem.

I spent a month in China trying to answer the question, “is it still worthwhile for Westerners to try doing business in China?”   The international business press has been focusing on Beijing’s prosecution of the infamous Anti-Monopoly Law  and use of national security claims   to restrict foreign firms’ access to China’s burgeoning middle-class markets.  Overseas readers of the WSJ and Forbes could easily get the impression that foreign brands are being chased out of China on a tide of xenophobic resentment and anti-foreign fervor – but it’s simply not the reality on the ground.

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Is it Still Worth it to do Business in China?   Part 4: Different Earnings Models, Different Bureaucratic Challenges

The Chinese bureaucracy is much more tolerant of overseas companies that spend than of overseas companies that earn in China.  That means integrated MNCs must adjust their business models – and their approach to regulators – when they are selling.

Western negotiators in China are finally coming to accept

10 China Negotiating Mistakes - Buy the eBook on Kindle
Learn from the expensive mistakes of expats who have come before you.

that no matter what the deal on the table may be, their most significant counterparty is the Chinese government bureaucracy.  The Chinese government has a much different attitude towards international businesses coming to China to buy or manufacture as opposed to those coming to China to sell and market.  International managers are still coming to grips with this dichotomy, and it is causing problems and costing money.

Ask not what China can do for you – ask what China wants from you.

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China and EU Resolve Wine Dumping Charges — Just as Xi Jinping Winds Up EuroTrip

China mixes trade and politics in Europe – and underscores the futility of building win-win relationships.

The SCMP (among others) ran the headline: China, Europe reach deal to end Beijing’s anti-dumping probe of European wine just as Xi Jingping is winding up his European tour. This was a Learn to negotiate in China with China Sooveslightly less dramatic headline than “China takes firm stand against Russian land grab” which we are unlikely to see, or “Chinese economy shows new signs of weakness” – which are seeing far too much of.

If you have trouble remembering just what the China -EU Wine Dumping case was all about, think back to May and June of 2013 when the EU threatened to discuss hitting China with trade sanctions about Chinese dumping of solar panels, and China retaliated by claiming the EU was using unfair trade tactics to sell wine to China. Here’s the piece ChinaSolved ran on the subject last year: Living to Fight Another Day? China vs. EU is Bruising Loss

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In China – The Media is the (Financial) Message

Bloomberg and NY Times have become the China Business Headline

We Westerners all love our freedom of speech and an independent, unfettered 4th estate — but Sign up for the ChinaSolved newsletterthe visa situation for western reporters from the New York Times and Bloomberg still waiting for residency visas to remain in China  has much deeper implications for international managers.  Beijing and the CCP view press freedom as a matter of privacy and sovereignty.  US Vice President Joe Biden  recently registered the Western view that a free press is vital to a healthy economy and society.  But this goes far beyond a clash of cultures.  This time, it’s commercial.

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