If anyone hoped for a quick thaw in China relations under President Joe Biden, they’ve already been disappointed.
The early rhetoric on China coming from the White House has remained tough. The Biden administration is in no hurry to ease the Trump tariffs and investment restrictions that ramped up trade and political tensions between the world’s two biggest economies.
In his first call with President Xi Jinping, Biden stressed his concerns about China’s “coercive and unfair economic practices” and told him to expect “extreme competition” from the United States.
So, is there any cause for U.S. executives to be optimistic about re-engaging with China? Yes — even though national relations with China are likely to remain tense and highly competitive.
Despite the tough rhetoric, the new administration is committed to steering a fundamentally different approach to China, one anchored on a rules-based order and which avoids the confrontation and zero-sum mentality of the past four years.
We’re likely to see more of a focus on gaining access to Chinese markets than on further tariffs. In many ways, tariffs backfired. Tariff hikes cost the average U.S. household an estimated $1,277 last year while wiping out an estimated 245,000 U.S. jobs.
Meanwhile, the U.S. trade deficit jumped to a 14-year high in November 2020 as importers merely shifted from China to places like Mexico and Vietnam.
Against this policy backdrop, C-suite executives in the United States and particularly CFOs should be moving now to reinvigorate their business’s China strategy and relationships. That will ensure the strongest possible head-start when the pandemic restrictions ease.
A lot of U.S. businesses have had their heads down in survival mode over the past year. It’s now time to explore their global expansion opportunities and assess China’s place in that strategy.
China, and Asia more broadly, deserve attention and engagement from U.S. companies. China’s economy is emerging strongly from the pandemic, bouncing back 6.5% in the last quarter. That made it the only major economy to avoid a contraction in 2020. Despite the U.S. tariffs and restrictions, it has expanded its markets and grown its domestic economy impressively.
Big decisions don’t happen in China’s corporate boardrooms; they get made during the dinners and drinks afterward.
China is also a big market for innovative technology to the extent that it is often underestimated in the United States. A big part of Biden’s green-focused infrastructure plan is going to involve retrofitting America’s old roads, pipes, and fossil-fuel-heavy systems.
In contrast, China and much of Asia are starting anew, with much less resistance to green technology like electric cars and solar panels. The region is well-positioned to leapfrog the U.S. in these growth markets in the same way it did in other technology markets.
To capitalize on the above-mentioned opportunities, CFOs should develop strategies to re-engage with China on two fronts — with suppliers and customers and the organization’s team members on the ground.
We’re coming out of a period in which Chinese business relationships have been starved of the face-to-face meetings and social events that are their lifeblood. Big decisions don’t happen in China’s corporate boardrooms; they get made during the dinners and drinks afterward.
On top of that, the recent spate of headlines about anti-Asian hate crimes in the U.S. risk widening a trust gap in China over American intentions — something that China’s state-controlled media won’t hesitate to exploit.
Even if physical international travel isn’t possible yet, C-suite executives should have a strategy for reactivating social interactions with their Chinese suppliers and customers. They should be working with their teams to create social calendars with approved meeting objectives.
Those meetings shouldn’t be about selling the next widget; they should focus on re-engagement, sharing stories about the difficult pandemic period, and discussing how to go forward with the partnership. If the organization doesn’t have boots on the ground, investments need to be made in creative ways to engage virtually with Chinese partners.
Planning for the next physical trip to China should be underway, and it’s essential that senior C-suite members, not just the sales team, are on the plane.
It’s no less important to engage the local team. High-level executives should be demonstrating their commitment to local employees by holding regular meetings and emphasizing those employees’ critical importance to the business.
The hard fact is that if U.S. C-suites executives aren’t investing serious time and resources in China business relationships, they will lose out to businesses from Europe and elsewhere that have a more global mindset.
Lou Longo is partner and international consulting practice leader at Plante Moran.