China is taking steps to exert more cultural influence on the international stage. How should this be interpreted by those doing business with the emerging superpower?
The press coverage of China’s first lady, Peng Liyuan, when she accompanied her husband, President Xi Jinping, on his first trip abroad as China’s leader in March, was almost universally fawning. In London, The Telegraph talked of “the ‘Kate Middleton effect’ of China’s new first lady;” Spain’s El País, in a nod to her good looks, dubbed her “La Mejor Modelo para China” (The Best Model for China); and Time magazine put her on its “100 Most Influential People in the World” list, in the “icons” category, along with Aung San Suu Kyi, Beyoncé, and Michelle Obama. In China, some of the panegyrics about her public appearances were off the charts.
Since the transfer from the fourth to fifth generation of communist leaders in November, much analysis has focused on the style, approach, and priorities of Xi.
Even before the emergence of the first lady there were signs that China was undergoing a significant change in the way it wanted to be perceived on the international stage. “The effort began in earnest in 2004 when Hanban, an organization that falls under the Ministry of Education, began establishing Confucius Institutes at universities around the world,” Dustin Roasa, a former US diplomat in Asia, wrote in Foreign Policy magazine last November. “There are now 353 of them in 104 countries, part of what [then President] Hu Jintao described in a 2007 speech as China’s effort to ‘enhance culture as part of the soft power of our country.’” Hanban, Roasa reported, plans to open 1,000 Confucius Institutes by 2020 to spread Chinese culture, much in the way that the British Council and Alliance Française have done for Britain and France over the years.
In another move on this front, China inaugurated its first China Public Diplomacy Association (CPDA) in January, “promoting China’s soft power by mobilizing and coordinating social resources and civilian efforts for Chinese public diplomacy,” Li Zhaoxing, chairman of the Foreign Affairs Committee of China’s National People’s Congress, and president of the association, said in a speech at the time.
These missions will also have a somewhat harder-edged diplomatic aim. China has favorable conditions for public diplomacy but also faces serious challenges, Ma Zhengang, Deputy President of the CPDA and former Chinese Ambassador to the UK, said at the inauguration. “A solid job of public diplomacy requires tangible effects and fruits, rather than insubstantial things. Public diplomacy should serve to guard China’s lawful rights and interests overseas and stabilize external circumstances,” Ma said, according to China Daily, an English language newspaper with the official stamp of approval.
What people, especially those doing business with China, want to know is what such subtle changes signify about the country’s evolving method of engagement with both external and domestic constituents.
China’s pace of change means that it is still often misunderstood. There are perhaps as many urban myths about China today as there are skyscrapers dotting its massive cityscapes. For example, just as in reality the Great Wall of China cannot be seen from space, the idea that doing business in the Chinese market revolves solely around guanxi (commonly translated as “relationships” or “connections”) is not true.
Certainly, Chinese officials want to ensure not just that more people learn to speak Chinese and appreciate Chinese culture, but that Chinese culture positively supports the country’s expanded global engagement. Yet, when it comes to doing business in China, many foreign investors wrongly believe that guanxi is the master key that opens all doors, secures long-term business access, and solves all problems. However, as China continues to develop, there is a growing maturity to how its government engages both with the outside world and its domestic constituents.
In today’s China, foreign companies must adopt a more sophisticated, substantive, and multifaceted approach to public affairs. That means building strong institutional relationships with those government stakeholders that matter to their business – presenting a persuasive, local value proposition is a cornerstone of this approach. This is not to suggest relationships are not important – they are. But they are simply important in the same way that relationships are important in Brussels or Washington.
Knowledge of how China’s recent developments have altered its priorities is also key to understanding shifts in the country’s external engagement. For the past two decades, China’s economic model has been overwhelmingly investment-led. Provinces and cities vied to attract foreign companies and a well-placed personal connection could indeed open many doors.
Today, the authorities in Beijing see it as a top priority to move China away from its investment-driven, export-focused model. Failure to do so, they feel, will undermine the country’s future growth and stability, and potentially undermine the Party’s credibility and authority to rule. The incentive for action is clear.
As a result, it is no longer the size of investment that is important but the quality. For investors, this marks a distinct change. It is critical, therefore, that companies clearly articulate how they can help China achieve its wider objectives – not just their own business objectives.
The emphasis on quality means that investment is no longer enough to maintain one’s license to operate. Government stakeholders demand that companies employ best practice in their businesses in China and are responsible corporate citizens. Those that fall short are now more at risk of being called out by the authorities – and the public.
Another important change is the professionalization of government itself.
During the recent National People’s Congress (NPC) in March, this was illustrated by a number of key appointments. The finance portfolio is a case in point, where Zhou Xiaochuan was retained as the head of the People’s Bank of China; Lou Jiwei, former head of China Investment Corporation – China’s powerful sovereign wealth fund – was appointed Minister of Finance; and Gao Hucheng, in charge of China’s global trade negotiations since 2010, was elevated to lead the Ministry of Commerce. These appointments of proven technocrats underlined the growing diversification of China’s top leadership, moving away from a purely political to a more managerial mindset.
It is widely accepted now that the challenges China faces can no longer be addressed with blunt instruments, such as sheer scale of investment. If China is to overcome its increasingly nuanced and complicated challenges, it needs a new kind of senior official in the top roles – one who brings experience, knowledge, and expertise. These new Party leaders – from more diverse educational backgrounds, often with international experience – are better equipped to judge the real value of what foreign investors offer, which is good news for companies looking to win business on merit.
Also good news for international companies is the continuing streamlining of the bureaucracy. A new round of administrative restructurings were confirmed at March’s NPC, further reducing the number of ministry-level organizations, which have already been cut through three decades of reform from 48 to 25.
Nonetheless, there is still a fairly labyrinthine bureaucracy in place with fewer ministers, meaning that government officials who are already stretched for resources in many departments will be increasingly required to do more with less. In future, officials will have even less time to engage with companies on matters not directly relevant to their priorities. Companies that can offer practical help to address the issues that keep officials awake at night – improving environmental protection, attracting value-added manufacturing, managing the urbanization process, and so on – will win advocates.
As part of the reform process, an important internal trend is the changing power relationship between central government and the provinces, with more authority being devolved locally. Of China’s 33 provincial level regions, 24 are currently led by officials who simultaneously hold powerful local and federal political positions. This is in order to ensure that national policies are carried out at the local level.
All too often, foreign companies prioritize Beijing at the expense of local government. But companies now need an engagement program that reaches both central and local levels. These efforts are likely to be rewarded as approvals targeted directly at local needs are granted more quickly.
Indeed, the recognition at all levels that companies have a central role to play in China’s “new economy” is positive for foreign businesses. China’s private sector currently contributes around 60 percent of China’s GDP and 40 percent of its jobs. But the policies of the past two decades have favoured state-owned enterprises. With the investment-led model being diversified, the government’s task now is to open more sections of the economy to competition, creating a more level playing field for companies that didn’t start out in the state sector.
A renewed fight against corruption has accompanied recent government reforms. China’s senior leadership has been increasingly outspoken about the threat corruption poses to the Party’s hold on power, with trust in the Party and the government severely undermined in recent years.
In his first months in office, Xi began a new crackdown that included restrictions on use of public money for banqueting and the purchase of luxury goods. This was in order to assuage growing public disapproval of cadres flaunting luxury possessions they could not possibly afford on their official salaries. Also, for the first time, the workings of the Party’s discipline watchdog have been made public.
The end result is that banqueting and gift-giving (which used to go hand-in-glove with the development of guanxi) has become an embarrassing topic. While the campaign may fade over time, it is helping change the nature of guanxi.
The role of media in China has long been a thorny issue. At the March NPC, a major industry reform merged broadcast and print watchdogs into one “super content authority” with a remit spanning print, radio, and visual media, as well as oversight of copyright issues. While the restructuring follows the general trend of reform and streamlining, it is not a signal of liberalization. On the contrary, the government is likely to tighten control over content to inhibit interference or distraction as it seeks to orchestrate the realization of its policy goals.
The rise of social media and the government’s growing sensitivity to online backlashes creates a complex dynamic. In many recent situations, online reaction has hampered the policy options on diverse issues, from building a new chemical factory to changes in traffic rules. Foreign companies must also consider the influence that different stakeholder groups can have through digital media. The pressure can be both direct on the company and indirect through its effect on government policy.
China’s cultural outreach should not be seen simply as a “soft” effort for international exchange but part of a sophisticated, interlinked strategy to exert its growing power.
The effort extends across the globe, with new Confucius Institutes opened this year in Professor Shambaugh’s George Washington University, the University of Namibia, and many more.
St. John Moore is a Partner in Brunswick’s Beijing office. He provides counsel to Chinese and foreign companies on cross-border M&A, public affairs engagement, crisis management and corporate reputation. Ilse Schache is an Associate Partner in Brunswick’s Shanghai office. She specializes in financial and public affairs communications to support cross-border investment and M&A.