Business in China: Method in madness

The month of November saw China come out with a new policy for business, which was supposed to promote private business there– as compared to the state-owned enterprises – and give lot of freedom to foreign companies to do business in the country, which often a good number of multinational companies wish to do. This was termed a fresh initiative by the new president – Xi Jinping – who has been in office for not more than one year and has been bold enough to take decisions which are path-breaking, rather than maintaining the status quo and keeping the seat warm.   

But whatever the policy says, and whatever liberal mindset is shown of the top political leaders in the country, one thing is certain. There’s a lot of thought that has gone into policy formulation and even if it appears to be open door policy for most of foreign companies, the country has been vigilant enough to keep the ultimate decision-making power with the political masters and that too in a rather discretionary manner.

Of late, it has been felt by a large number of foreign companies – Audi, Starbucks, JLR, Fuji, Qualcomm, Burberry, etc. – that the state-controlled Chinese media and the government are using several legal tools – which may be called extra-legal or illegal in a couple of other jurisdictions, either in letter or in spirit – to control them and deny them the possibility of having a level playing field in the country, which is emerging as a big challenge for them to do business in China. For a good number of foreign companies, China is a dream destination, which is often considered to be a far more lucrative market – both for production and consumption – as compared to highly populated countries like India, Brazil, Russia, etc. Such is the attraction for China, that despite increasing wages due to change in policy, which adds to the labour cost and makes it a bit costly to produce in China, and despite the uncertainty of policy – dependant on the whims and fancies of the political masters – foreign companies are not able to avoid the temptation of entering the Chinese market.

It is extremely interesting to note that all the companies which have been criticising the policy of the Chinese government and complaining that the business environment has become challenging and unattractive will continue to do business in China. A fitting example is that of Google, which some time back, decided to move from China, and never to come back, but it was only a short period of time after which the company decided to resume and expand its business in China.

The moral of the story is that it is up to any nation how it protects and exercises its sovereignty – the power to make decisions without being commanded by others. Foreign countries and businesses may have the persuasive power to influence the policies of the country. However, the ultimate power of decision-making remains with the sovereign and China has, not once but on several occasions, made it amply clear that it is going to play to its strength – the strength of having a huge population and thus a huge market, extremely low production costs entitling it to be called the factory of the world, the ability of the government to muffle voices of dissent — whether good or bad or desirable or undesirable is a different matter, political shrewdness to deal diplomatically and if needed militarily with foreign powers – Japan is an apt example, using all the tricks of the trade – again debatable as a good or bad practice is worth emulating or not – to manage its currency vis-à-vis all the major currencies of the world, and several other weapons in its armory.

India can learn a lot of lessons from the method in madness China exhibits in its policy formulation and execution, which at times may appear to be knee-jerk reactions. There is no need for us to follow the undesirable, unethical, and to a certain extent illegal practices – as compared with the practices followed in most of the evolved jurisdictions of the world – followed by China.

Despite being a democratic country and the compulsions of coalition politics, the political masters can show clarity of thought, belief and action in framing policies and execution. We can do much better with a little more method and lesser madness. Till that time, there is only madness, no method.