Critics against believers in future firmly and safely expanding Chinese markets argue often that China\u2019s role in the future world will be much stronger and much more dominating than today – and therefore potentially more dangerous than the Russian risks were supposed to develop in a worst-case scenario in the beginning of the past decade.<\/p>\n
However, Europe (Germany) was not able to tackle its growing dependence on Russian oil and gas all the same – and relied wrongly on the benefits of pipeline Nord Stream 2 from Russia to Germany. Things went wrong though the forecast error of Russia\u2019s eventually unchanged politics had only one dimension – i.e. only linked to Putin and his foreign policy (with all serious consequences).<\/p>\n
On the other side, predictibility of China\u2019s developments and challenges in the next 15-30 years – an investor\u2019s perspective – must be regarded as extremely limited due to many different risk dimensions. Some of these unforeseeable factors are also about dangerous risks. These dangerous risks – if verified at some point – may even affect the whole world politically and economically because of China\u2019s still enlarging global superpower status (which Russia did not have twelve years ago). Altogether, the different China risks<\/strong> can be classified as follows (other risks may emerge or strengthen at a later stage):<\/p>\n \u00a4 Economic risks<\/strong>: One should try to find out, for example, more about China\u2019s potential GDP growth (on trend), productivity, labor markets, demography, distribution of income, marketization (particularly of financial markets and SOEs), bad loans by banks and non-banks, debt of provinces and municipalities. Many of these indicators must develop positively over time for motivating assumed good GDP growth and return on investments.<\/p>\n \u00a4 Political risks<\/strong>: A lot can – and will – happen in the forthcoming years and decades, within and outside China; inside China there may be links to the almighty position of president Xi Jinping, and outside China to uncertain results of Chinese \/Russian co-operation, trade restrictions (possible political reactions at some point from the West), the Taiwan issue with its inextricable outcome and consequences (hopefully without war).<\/p>\n \u00a4 Institutions<\/strong>: Here we have an area for major improvements aligned with politics – such as transparency, bureaucracy, laws and their application, corruption, education, health, financial markets and their control.<\/p>\n \u00a4 Technology: <\/strong>Nobody asks whether China will be able to meet all its technological ambitions as only recently declared at the National People\u2019s Congress (NPC) – or will China technologically even perform better than expected at home and abroad. Finally, the question may be motivated how will China handle and develop AI and digitalization in the future – in an acceptable way also in a Western view or context?<\/p>\n \u00a4 Environment: <\/strong>There is no doubt anywhere that China needs a better environment – and that it will be working on it. But how much and how fast?<\/p>\n Chinese politics will matter more than in the past<\/strong><\/p>\n The list above on different uncertainties and risks indicates clearly that Western corporate investment strategies for China obviously should contain more political analysis. Interdisciplinary analysis approach is badly needed, including politics, institutions, psychology, and social issues in various angles including the environment<\/p>\n Visible institutional improvements may be supportive to Western business with China. Social expectations and needs are also linked to political decisions (e.g. social insurance, pensions, civil rights for urban migrant workers in metropolitan areas, etc). Meeting (roughly) social expectations would certainly support China\u2019s development. Scenarios on Chinese politics and possible Western (American) reactions should also be an important parameter to Western investors in China.<\/p>\n In my view, the so far\u201ccomfortable\u201d strategy of separating commercial business strategies from simultaneous political considerations about China cannot – or should not – be applied anymore. Both approaches will become increasingly interlinked – if we like it or not!<\/em><\/p>\n The non-Chinese business sector should also learn how to understand and handle Chinese attempts to underline the importance of working for good commercial relations between China and the West, as China\u2019s new Prime Minister and political No 2 – Li Qiang – pronounced the other day at the China Development Forum.<\/p>\n A positive<\/em> explanation for this statement by the Prime Minister may be that China has recognized that world trade is not only made in China. Being the number one trading nation in the world (services excluded) urges for better recognition of China by the West – maybe the most positive scenario for China one can find these days. A more negative<\/em> interpretation could be that China\u2019s political leadership now is concluding that China\u2019s recovery after covid and medium-term outlook may be more reluctant than previously anticipated and that potential GDP growth may go down further. This could jeopardize many social, demographic, educational and environmental projects – projects that could mean a lot to China\u2019s future development.<\/p>\n Hubert Fromlet<\/em><\/strong> <\/p>\n<\/p>\n
\n<\/em>Affiliate Professor at the School of Business and Economics, Linnaeus University
\nEditorial board<\/a><\/p>\n