It’s all over except for the “shi” (Chinese for “yes”) votes but it’s clear that Chinese leader Xi Jinping will unanimously be voted in for an unprecedented – at least in recent times – third term sometime over the next few days.
And when that happens, American companies can plan on five more years – at least – of continuing policies that will make doing business with China even more difficult than it’s been the past few years as Xi doubles down on nationalistic policies. His pro-China/anti-anyone-who-isn’t stance will no doubt get more strident, meaning U.S. importers will need to step up efforts to adjust accordingly.
American companies should look for five key areas of conflict during Xi’s third term:
1. Continued Exodus from Chinese Manufacturing
It started even before the ill-fated and largely ineffective Trump tariffs but the shift by U.S. importers to source products from elsewhere in Asia and around the world will only accelerate with Xi’s more hard-nosed policies. The furniture industry has moved large portions of its sourcing to Vietnam and elsewhere, countries like Bangladesh have become apparel powerhouses and even Apple is moving some iPhone production to India. Look for this to only get more widespread.
2. Ongoing Covid Quarantine Shutdowns
Xi’s zero tolerance policy towards the virus has meant ongoing shutdowns of entire regions of the country, many of them major manufacturing and shipping centers for exports. American companies have been zigging and zagging to accommodate these closings but will get increasingly more complicated to manage. It’s another factor that may precipitate moving out of China.
3. Diminished Attention on Consumer Products
The massive Chinese manufacturing industry continues to shift to more sophisticated products, including commercial airliners, electric cars and industrial electronics. It is a classic maturation process for any country’s economy that starts with basic products like garments and toys that require lots of labor and not a lot of technology and gradually evolves. Consumer product companies that have depended on China for much of the past 35 years are already well into their migrations.
4. Hong Kong Loses as Asian HQ
For so many years American companies doing business with China and throughout Asia set up their offices in Hong Kong, both before and after its handover back to Beijing. No more. With Xi’s aggressive actions to integrate the territory back into China and the resulting curbs on speech and political discourse, more and more Western companies are relocating elsewhere, often Singapore. Xi’s plan to make Shanghai the undisputed capital of Chinese business is working but at the cost of a declining Hong Kong.
5. Sino-American Friction
The biggest intangible as Xi enters five more years in power is the ongoing political conflict between China and the United States. Communism versus capitalism. Totalitarianism versus Democracy. Ever since leaders of the two countries first met in 1972, they have learned to co-exist with each benefiting with the results have been astonishing for both countries. That era has ended and China now feels it is an equal rather than a junior partner in its relationship with America. The unknown dangers that may result have to weigh on any decisions businesses make when it comes to doing business with China.
On that day 50 years ago when Richard Nixon and Mao Zedong toasted each other it would have been virtually impossible to predict how the resulting five decades would play out. Even with these five probabilities listed above it will be equally as difficult to say what else will happen in the decades to come.
Even President Xi can’t say.
WarrensReport 