Understanding the Politicization of China’s Economy
Is the politicization of China’s economy a threat to SMEs?
In my opinion, the politicization of the economy, data protection laws, and so on, are being overhyped by the West. Yet these are all just instruments of the Chinese government. In other words, the economic policy, the legal system and all these issues, are tools that are all subordinated to the big goal. And the big goal is that China wants to get back to where it was for thousands of years – to the top of the world.
What do Chinese citizens think about the central government’s economic policy?
This is an important point: All Chinese want their country to become the world leader – and not just the communist party. That’s the largest communist party in the world, with a hundred million members. They celebrated their centennial in 2021. But the focus must be on the country. Xi Jinping’s great goals unite almost all Chinese. That is why an increasingly strong nationalism and chauvinism has spread.
What influence do Chinese companies have on the party’s policies?
The party and the citizens want to get back to where they were for millennia, to the top of the world. That shapes their entire way of thinking and acting. And since the commonwealth is much more important there than the individual and individual companies, they also proceed according to long-term plans. Tech companies like Alibaba have been whistled back and cut back. This is a trend that has been announced. The politicization of the economy will continue because politics is the primacy in China.
That means we must not make the mistake of glorifying these successful entrepreneurs in China and believing that they now have great power to bring about systemic change from within. For one thing, the companies don’t care. For another, they do not have this power, but are very tightly embedded in a tight corset of political commissars, of committees in their companies, and have little room for maneuver.
The West must not make the mistake of seeing it differently. Rather, we must understand that China has a very competent political collective leadership class.
What influence does China’s policy have on Chinese companies? And why is it important for our economy?
Especially when you are in the roof room in strategically important industries, you have to keep in mind that you are not actually dealing with the direct Chinese interlocutor on the company side. Rather, in case of doubt, an entire state department or an economic department in a ministry in Beijing is behind it. This applies to the central government, but also to the provincial governments.
As a rule, German-speaking companies always have to deal with three levels of power networks that may interfere. The central government in Beijing, for example, sets the very big guidelines. Key words are the five-year plan and the major projects such as Made in China 2025, where the country wants to be the world leader in the strategically important industries. Then there are the provincial governments. They can be five or four times the size of the Federal Republic of Germany. And finally, there is the regional municipal level.
At all three levels, there is a need for action and clarification, and processes must be optimized accordingly. When you are sitting across from a Chinese buyer, seller or joint venture partner, he is not sitting there alone. Rather, a number of people and departments are involved. This makes cooperation more difficult and entails risks for the companies. In addition, there are local bureaucratic processes for the medium-sized companies in the roof space, which do not make cooperation with Chinese companies any easier.
Of course, the German government is trying to set strategic priorities. But we are nowhere near as strategic as the Chinese. There are also cultural reasons for this, as I explain and derive in detail in my book “Praxiswissen China (Link Amazon)”. China has been characterized by consistent strategic thinking and leadership for 3,000 years. Today, this applies to negotiations with Chinese business partners as well as to the government and its economic policy strategies. Companies must take this into account in order to identify and avert risks to their own supply chains.
Here are more parts of the series “Understanding China’s Soul”
Part 1: Why medium-sized companies should not turn their backs on China and Asia altogether
Part 2: RCEP free trade agreement: great opportunities for SMEs
Part 3: China aims to be the world leader: What is their secret to success
About Prof. Dr. Karl Pilny
The international business lawyer Prof. Dr. Karl Pilny is considered one of the most profound experts on Asia in the German-speaking world. The Japanese-speaking investment expert has lived in Asia for many years and has accompanied numerous investments in and to Asia over the past thirty years. Prof. Dr. Pilny is managing director of the consulting company asia21 GmbH in Zurich, which specializes in market entries in Asia, and has also been active as an entrepreneur and business angel for many years. With Dealmaker.io GmbH and the Asia Strategy Institute at the BWA in Berlin, he helps European entrepreneurs to successfully enter Asian markets and accompanied Asian companies on their way to Europe.
In addition to a strong network in politics, business and science, Pilny is a sought-after keynote speaker and author of various books with a connection to Asia. His trilogy “The Asian Century” is particularly well known. This was published by Campusverlag and includes “The Asian Century” (East Asia), “Dance of the Giants” (South Asia) and “Tiger on the Leap” (Southeast Asia). Furthermore, his “Investment Guide Asia” was published in 2010 by Finanzbuchverlag Munich. “Asia 2030 – what’s in store for the global economy”, the continuation of the trilogy, was nominated for the getAbstract International Book Award in 2019.
Co-founder and managing director of Dealmaker.io GmbH
Prof. Pilny is co-founder and managing director of Dealmaker.io GmbH. This is of interest to readers when it comes to how to set up in Asia, how to find local partners on the ground, or how to react when Asian and Chinese companies restructure supply chains from their perspective, for example. As a digital transaction advisor, Dealmaker.io also helps with all questions relating to the sale of companies.
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