Risks Persist in China as New Generation of Leaders Emerge


World Report supplied by Stirling Assynt.

Later this year China will experience the biggest and most significant leadership transition for decades. Both President Hu Jintao and Premier Wen Jiabao will be succeeded. Under current retirement rules, most of the senior Party leadership and about 70% of the members of the influential Central Military Commission will be replaced as well as the executive committee of the State Council (the Government).

There is clear evidence that those who are likely to make up the next leadership team will wish to push forward with reform to ensure social stability and continued growth in the economy. The question is how the new leadership will manage the transition at turbulent economic times, and what effect there might be on foreign business interests in China?

Although China continues to develop its tax system, enhance the powers of its regulatory institutions and  provide a framework for good governance, doing business or investing in China as a foreigner has always thrown up challenges and posed a number of risks. Concerns remain that dealing with the Chinese bureaucracy and local companies opens foreign companies up to fraud and corruption which, given the requirements of the US Foreign Corrupt Practices Act and the UK Bribery Act, can raise major concerns about the viability of conducting business there.

And foreign business people are often confused about the role played by the state in the business arena, especially when dealing with large Chinese state corporations. In addition, although the business culture in China is changing towards a more internationally recognisable methodology, it is advisable to understand the way things are done in China and what expectations Chinese business people will have of their foreign partners.

Despite some of these issues, there are huge numbers of large and small foreign companies operating successfully in China. Nonetheless, many do come to us for advice when they have come up against problems: some of the points they raise show that many foreign companies enter the China market without a basic understanding of the circumstances they are likely to face and without having prepared the way by doing even basic due diligence.

A great deal can be learned about the background and business ethics of local suppliers, agencies, partner companies etc, as well as about the integrity of the people who manage them. Advance knowledge of the issues and how to deal with them is the key to success.