China

Looking back at 2017, China seems to have gone through a watershed moment which will have significant long-term implications for both foreign business as well as the world economic system. While Xi Jinping talked of support for globalization in the face of new “America first” trade policies, under the surface, China seemed to be returning to deeper cultural norms of imperial rule and bureaucratic control, while beginning to aggressively expand abroad in new ways. While it is always difficult to analyze China’s opaque politics and interpret the rapid changes in the nation in light of deep cultural differences, I believe developments in 2017 were seminal in ways that many don’t yet grasp.

The Chinese saw both, their role in the world and their nation's politics, change radically over the past year. The government talks now of a grand narrative of "national rejuvenation", of a strong, prosperous China restored to national greatness. This represents a radical departure from Deng Xiaoping's earlier dictum of "hide your advantages, bide your time " on the international front. Domestically, it is the next step in the national narrative, central to the education system’s history curriculum, of a weakened China, taken advantage of by foreign powers in the 19th and 20th centuries and saved by the Communist Party. In addition to the talk of a return to Chinese greatness, there has also been a turn away from the rejection of the cult of leadership which occurred in the wake of Mao's disasters in the Cultural Revolution of the 1960's.

This was seen in October, at the 19th Party Congress which declared Xi Jinping the "core leader" and elevated the “Xi Jinping thought" to the Chinese Constitution, effectively establishing a leader with the most authority since Deng Xiaoping and possibly since Mao. In his speech, Xi looked towards a new era of "national rejuvenation", with China "closer to center stage" internationally, and held up the “China model” as a "new option for other countries". The Chinese, who were old enough to remember the cult of Mao in the 1960’s, were struck by the press releases extolling "Comrade Xi's” virtues in ways that had not been used since the end of the Cultural Revolution more than forty years ago. Younger generations, without that historical perspective, perhaps found it easier to applaud Xi's speech, done via a virtual applause app that garnered 1.5 billion virtual claps during the speech, according to the government.

Xi's unparalleled power comes after five years of both tightening state control over culture, dissent, the internet and slowing of the market liberalizations promised at the start of his tenure. For his next five-year term and, as many in China speculate, perhaps now a lifetime tenure, Xi has declared a "new era of socialism" with all-encompassing control by the Party and a range of policies put in place that attempt to rapidly enhance China's economic capabilities, expand prestige and power globally and exert political control by President Xi and the Communist Party at home.

On the economic front last year, China moved closer and remains on track to meet its very aggressive goal of doubling GDP between 2010 and 2020. The China Manufacturing 2025 plan has already mobilized billions of dollars in government support for moving China up the value chain to higher value-added manufacturing in a range of products. Strong state support of new technologies like AI and electric vehicles underpin aggressive targets like the goal of dominating the global electric vehicle market by 2030 or $150 billion to be spent on AI in the 2016 five-year plan to establish China's primacy. With this focus on technological preeminence, China clearly emerged as the second largest global spender in R and D, after the United States.

President Xi's consolidation of power has meant an ability to move China back to more state economic control, with a strengthening of state enterprises, which still underpin the Chinese economy. In addition, the Party extended its reach into private enterprises and organizations with new requirements for them to have a Party representative on boards or in management. 70% of all foreign-funded companies now have Party units and there are increasing reports that the government is pushing for greater in-company Party participation.

The “Great Firewall” continued to strengthen internet control by the government. Already cutting off locals’ access to major foreign web platforms, the firewall was significantly enhanced in 2017 to block virtual private network (VPN) access for both, individual foreigners and, significantly, international companies, who have begun to report access issues. The tightening is a significant step forward in the government’s desire to control all information flows into and out of the nation. In 2017, for the third year in a row, Freedom House ranked China last in the world for internet freedom.

In May, China held a summit to publicize the massive “Belt and Road Initiative”, an economic plan many times the size of the postwar Marshall Plan, designed to create a Eurasian economic and trade area dominated by China, rivaling the transatlantic US-dominated zone. With Chinese spending of $150 billion a year in the 68 countries involved, the scheme provides a way for China to export the nation’s huge overcapacity in steel, cement, and metals, develop a web of infrastructure under Chinese auspices, and quickly extend the country’s soft power. This “coming out” party for China’s economic ambitions, attended by the most foreign dignitaries in China since the Beijing Olympics, interestingly coincided with the huge summer success of the locally-produced movie, “Wolf Warrior 2”. A “Rambo”- like the tale of a Chinese soldier in Africa who saves locals and Chinese from American mercenaries, it emerged as the largest grossing film in Chinese movie history, with press reports of Chinese standing and applauding and singing the national anthem in theaters, reacting to China’s new role in the world.

In the 2017 AmCham China Business Climate Report, 80% of US companies surveyed said that foreign firms in China are now less welcome than in the past. The developments of the past year discussed above give a deeper context to that finding. Chinese accession to the WTO almost two decades ago was supposed to “open” China to Western influences and “integrate” China into a more open economic system. The results today seem quite different. Increasing control over foreign business in China, a “new era of socialism” in China, increasing control over information, strong policies designed to secure Chinese economic preeminence in manufacturing and advanced technologies, and rapid expansion of Chinese global economic power, coupled with a return to one man rule, seen over the past year all seem to indicate that millennia-old cultural models around imperial leadership, state control, and a China-centric world have prevailed.

R. Barry Spaulding is a Cross-Cultural Management consultant, coach, and trainer with more than 35 years of business experience with China including management of the first US bank representative office and head of Chase Manhattan Bank’s New York China Group.