Understanding China News to Understand the China Business Environment

Home | China Law Blog | Understanding China News to Understand the China Business Environment Table of Contents Toggle The news coming out of China lately has not been positive for many months, but this does not preclude smart entrepreneurs and businesses from succeeding. I have always told my clients, friends, and audiences that success with China looks different for each company. This post discusses some general guidelines from which to interpret the China business environment. These should help businesses understand and plan their future in and with China, especially regarding negotiating with their China counterparts. Foundational Issues in Understanding China News When parsing news coming out of China, it is important to keep some things in mind. These are, in no particular order: Most of the official data has been modified and is semi-reliable at best. As Nikkei reported recently, even regular China analysts struggle to reconcile official data with other available data, including proxy data. This is no surprise given that China is a top-down planned economy where the government sets the target growth rate each year. Some of the data cannot be manipulated. As much as the Chinese government has been seeking to reassure investors, the market data shows that investors are increasingly wary of China. There are at least two schools of thought here. One says that the economic slide will continue, and any recovery will be temporary. Public market sentiment seems to reflect this (see here). The other says that China is still fertile ground that investors cannot stay away from (see here). Middle East investors have been entering some of the investment vacuum left by US investment groups this past year. Both situations could provide opportunities for foreign businesses. There is still another school of thought that says that regardless of the state of the Chinese economy, capital will be deployed in China because capital must be deployed all over the world in 2024, including in China. The CCP is at the center of China. It is commonly said in Party circles that the CCP reigns supreme: “the Party, government, military, civilian, and academic; east, west, south, north, and center: the Party leads everything” (党政军民学、东西南北中，党是领导一切的). Thanks to Bill Bishop at Sinocism for reminding me of this recently in his newsletter. When we read “civilian,” that includes the entire business environment. Civilians can be and are coopted or coerced into being the eyes and ears of the Party. The Party will always do what is expedient for the Party. Because the CCP is in and through all things in China, it must preserve its dominant position. Anything that threatens the Party will be equated with a threat to China’s sovereignty and its national security. And anything that threatens China’s sovereignty or national security is interpreted as an attack on the CCP. Preserving economic stability is crucial, and anything that might undermine China’s upward growth trajectory cannot be tolerated. We wrote previously about the significant difficulties faced by companies trying to conduct due diligence in China. Even Party members are not safe from arbitrary punishments. The (somewhat) silver lining in China surrounds the often arbitrary enforcement of its laws and regulations. This occurs within the Party, with Chinese nationals and enterprises, and foreign nationals and enterprises. Bureaucrats selectively enforce Chinese laws and regulations based on their self-interest and the interest of those to whom they answer. There is no guarantee of safety, but there is also no guarantee of enforcement, especially when the economy is flagging, and consumer confidence is low. Understanding Your Market Position in China through Understanding China News The CCP has resisted calls for any type of large-scale stimulus to boost China’s GDP or domestic consumption. Instead, we mainly see bureaucrats rolling out their best platitudes. Companies looking to take advantage of today’s China should note two additional trends we have been seeing among our clients: Relying on consumer market growth. Although the CCP is not providing any stimulus funds to Chinese consumers, the CCP is increasing pressure on the people to consume. This means increasing domestic demand/consumption will probably occur in 2024, even if Chinese state-owned enterprises lead the way initially. Brands and companies that can continue to capture Chinese market share will need to do so through their unique offering that speaks to the increasingly fractured Chinese consumer market. Relying on export market growth. With domestic consumption flagging, China has been pushing its companies to export more goods to foreign markets. This is bad for companies seeking to compete with Chinese companies in non-China markets. But this overcapacity and push toward increasing exports is good for bulk purchasers and everyday consumers. Many of our clients have been able to negotiate lower prices from their Chinese suppliers. Conclusion Careful China watchers constantly consume news about China's business environment. They know what data to focus on and what to ignore. They see through the bureaucratic doublespeak and look for undercurrents. But most of all, they understand that, like the Dao/Tao (道), China is fluid, like water, and businesses that want to thrive there and in their relationships with Chinese partners also need to be fluid like water. Chinese New Year starts this weekend and it will provide some significant data points from which to forecast China's 2024. We will be watching the data roll in, particularly around domestic consumer spending. For more on China, please join me and two of my colleagues, Dan Harris and Fred Rocafort, for a free online event on February 14, at which we will mostly be discussing what we have seen of and from China recently, and how we see all of that impacting doing business with China -- and do not expect us to always agree either. Register Here Check Out Our China Law Services Share Twitter Facebook LinkedIn E-mail Comment China Law Blog The China Law Blog focuses on the practical aspects of Chinese law and how it impacts foreign companies that do business in or with China. The goal is to help readers understand what works and what does not work and what businesspeople can do to use the law to their advantage. China Law Blog's aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy. 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