Chinese leader Xi Jinping and others in China’s communist regime frequently associate themselves with the reputation Chinese culture has for patience and taking the long view in human interaction. If that cultural reputation is justified, Beijing’s claims ring false. Little of what China’s leadership does—certainly in the realm of economics—exemplifies either patience or the long view.
On the contrary, they have exhibited an almost adolescent impatience to pull every lever of power as quickly as they can. And what is more, this rather un-Chinese behavior has begun to undermine the economic basis of their power.
Not all of China’s problems have to do with an impatience to exercise power. Some stem from the natural result of the economy’s development. When China began its stupendous economic rise in the late 1970s, its ability to offer Western and Japanese businesses a disciplined, reasonably well-educated, and inexpensive workforce was a major asset. Even as late as 2000, when China first joined the World Trade Organization (WTO), its average annual wage was barely over 3 percent of the American equivalent. That cheap labor brought in billions of Western and Japanese investments, bringing income and opportunities to China’s economy.
But as the Chinese economy developed, Chinese wages have risen a lot faster than those in the rest of the developed world so that by 2021, the last full year for complete data are available, the average Chinese wage amounted to almost one-third of the American equivalent—still a big gap but nowhere near what it was and not nearly as compelling either.
But on top of this unavoidable development are some ill-considered policies coming out of Beijing. During the COVID pandemic, for example, Beijing blocked vital exports to the rest of the world, such as surgical masks. All could understand Beijing’s desire to supply its own population, but the act nonetheless prompted Western and Japanese businesses to reassess the reliability of Chinese sourcing. Following that experience, the severe lockdowns and quarantines of Beijing’s Zero-COVID policies reinforced those questions about reliability.
With the loss of these two attractions—inexpensive labor and reliability—Western and Japanese businesses found reason to chafe more than previously at other unattractive features of doing business in China. Beijing, for example, insists that any firm doing business in China share its technology and trade secrets with a Chinese partner. If that were not enough, the regime has routinely stolen patented and copyrighted intellectual property from foreign-based firms.
While China was small and offered other compelling advantages, most foreign businesses and their governments could overlook such obnoxious behavior. But as China has grown and lost other attractions, overlooking such behavior has become more difficult, especially since Beijing, despite international complaints, shows no sign of changing such practices.
And then there is the bullying and vindictive practices to which Beijing has increasingly succumbed. It has maintained a naval presence in the South and East China seas despite legitimate claims by Japan and the Philippines. Beijing has ignored findings by international courts. It has regularly threatened military action against Taiwan. Chinese authorities used both formal and informal means to retaliate against South Korean business interests when their government installed the THAAD anti-missile system. These authorities cut off Australian wine sales to punish Canberra just for questioning the origin of COVID-19. Beijing has taken similar actions against Sweden’s Ericsson, South Korea’s Lotte supermarkets, and all Lithuanian manufacturing simply for trading with Taiwan.
And if such actions were not enough to make businesses think twice about Chinese exposure, the tendency of governments in the United States, Europe, and Japan to react to such bullying and other longer-standing irritants has led businesses to worry about getting caught in the middle of diplomatic disputes.
Recent surveys and Western business commentary testify to changing attitudes. A poll taken last June by the European Chamber of Commerce in China noted that one-quarter of its members currently operating in China were considering closing and moving their operations elsewhere. Half complained that doing business in China had become too politicized. These responses contrast markedly with earlier attitudes. As recently as 2019, a similar poll showed widespread enthusiasm about the prospects for business in China.
Also indicative of new thinking are remarks by Director General of the Confederation of British Industry Tony Danker. In a recent interview, he declared that every company with which he had spoken was considering a change in the China focus of its supply chains.
Bettina Schoen-Behanzin, vice president of the European Chamber, noted that “the only thing predictable about China was its unpredictability, and that is poisonous for the business environment.”
The Anglo-American insurer, Willis Towers Watson, reported that 95 percent of multinationals are concerned about the risk of doing business in China, up from 62 percent only two years ago.
A number of prominent firms have already begun to move or are seriously considering doing so. Apple has scheduled the production of its AirPod Pro 2 for Vietnam and not China. Samsung is making similar decisions regarding its China production. Volvo rejected China for a new factory and will build it in Slovakia. Adidas and other shoe and apparel makers have long since left China for Vietnam and other venues. Japanese firms have begun to bring some of their production home from China. And this list is far from complete.
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