Business risks in China likely to continue to rise after party congress, academic says

Foreign companies doing business with China who have endured heightened risks this year due to geopolitical tensions and the fallout from the Covid-19 pandemic are unlikely to take much of a break after the long-awaited Communist Party Congress in October, said a prominent Chinese scholar in an interview. today.

We were in a period of heightened tension, said Bates Gill, a longtime China scholar who was recently appointed executive director of the Center for China Analysis at the New York-based Asia Society Policy Institute.

His advice to international companies and investors: Proceed with caution due to political and geostrategic risks that are likely to increase rather than decrease.

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

The exit from the party congress will be more or less the same, and perhaps even a further doubling in how this leadership wants to deal with the outside world, Gill said. At least in the short term, three to five years, this means a further increase in the likelihood of contestation and conflict between China and some of its major neighbors, notably the United States.

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Gill was previously the Freeman Professor of 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.

Edited excerpts follow.

Flannery: Where is the relationship between the United States and China after Chinese Foreign Minister Wang Yi’s visit to New York and his talks here last week?

Gill: US-China relations are pretty much where they were a week ago, which means the two sides are still at loggerheads and still at a very early stage in the negotiation process.

The immediate event ahead of them for the bilateral relationship is the planned summit between President Biden and Xi Jinping in November. They are in the early stages of trying to figure out exactly what this meeting is going to try to accomplish. And with the huge in-between variable of the 20th Party Congress, I suspect there may not be much bandwidth or flexibility on the Chinese side to move the negotiation process forward.

The big hurdles are obviously the domestic political situations of the two countries, which I think makes it difficult for either side to come to terms with and try to find a formula that perhaps could establish a floor in the relationship or establish a little more subdued tone for both parties. But this formulation is going to be difficult to find. They are still in the early days of trying to figure out what it might be.

Flannery: What are your own expectations of what will come out of the party convention?

Gill: I think we’re going to see the same thing in terms of China’s foreign relations strategy. The congress, I assume, will be to reinforce and celebrate the new term that Xi Jinping is likely to get. His control over the propaganda outlets will put him in an even stronger, more powerful and more confident position, at least from an outward-looking perspective. It will be up to analysts and Pekingologists to try to look for cracks in this facade and speculate on one nomination or another that perhaps indicates that Xi is not as powerful as the propaganda apparatus would have us believe. .

Flannery: How would you say Xi’s style and substance of leadership has changed over time, and what should we expect from him in the future? You explore some of it in “Dare to fight.”

Gill: Rather, what we see is a trajectory of growing confidence, growing risk-taking and increasingly nationalistic stances. I think they were born out of two things. One is an outward-looking confidence in his position and the apparent support he enjoys within the party, which then gives him the authority, mandate and resources to take on more risky, assertive and nationalists.

Second, it stems from a calculation that he and his supporters arrived at. Although it is understood that this more assertive, nationalistic and confident posture clearly carries risks and becomes more difficult, they are considered less risky than not adopting this approach in their international relations. The relationship with the United States did not go well; almost every major relationship that China has internationally has not improved over the past 10 years, it has in fact deteriorated, with the possible exception of the relationship with Russia, which has clearly deteriorated. thorough, but which also involves enormous risks.

I therefore conclude that what we will see coming out of the party congress will be more or less the same, and even perhaps an additional doubling in 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 contestation and conflict between China and some of its major neighbors, notably the United States.

Flannery: How about takeaways from your book for foreign companies doing business with China?

Gill: Proceed with great caution. I believe that not only because of the macroeconomic indicators and potential economic challenges facing China, there will be increasing political risk in China as to how foreign investors will be treated. I also think there will be third party risk. As companies that remain engaged with China and the overall strategic relationship with it continue to evolve in a troubled direction, companies may (more easily) come up against political pressure to decrease or moderate their engagement with China, or could possibly run counter to a range of economic punitive measures that exist (by their own governments).

I suspect that sanctions and other blacklist type activities will remain in place and could become even more onerous. Proceed with caution due to political and geo-strategic risks which will likely increase rather than decrease. I think we are in a period of heightened tension.

Flannery: The United States and China are maneuvering to gain influence and friendships across the Pacific and Asia. Where do you see it going from here?

Gill: We are entering a new era of great power competition in this part of the world, and probably competition that is not particularly welcome for many countries in the region, especially the small island nations of the Pacific. Only some are going to be quite adept at trying to play the kind of diplomatic game where they can get the maximum benefit from both. Some will be effective at this; others maybe less.

But (the maneuvers) will definitely increase. The United States and China have signaled in their own ways that this region is going to be increasingly important.

I question the commitment of the United States to mobilize political, economic influence and engagement with many countries in the region and to do so in a way that can keep up with what has been a fairly significant amount of investments and efforts on the part of China.

We’ll just have to wait and see. It is essential that the United States and its partners show much more commitment, opening new embassies, for example, and introducing more on the road to political leadership, summit meetings and economic investments.

But at the end of the day, China often has more tools than the United States. Washington simply cannot exercise the same type of government-led economic investment. Ultimately, this will be a decision (for the United States) primarily made by the private sector. The US government can offer development aid and some infrastructure support, with the real money to be generated by the private sector. And it’s just more difficult for the United States. The US government has much more difficulty than China in directing private investment to such regions. In many ways, this means that, in this region at least, our influence will come from other factors.

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