Economic analysis

Messy questions for Western companies in China

The Globe had a lengthy piece over the weekend that looked at Canadian companies operating in Libya. It showed once again the dangers for businesses that do deals in high-risk zones. One moment you’re a bold investor in a country reintegrating into the global economy, the next you’re complicit in a relapsed pariah state.

Having just wrapped up an in-depth story for our sister publication, Canadian Business, on the possibility of an economic collapse in China, a thought experiment is in order. What happens if, as Beijing officials fear, the unrest in North Africa and the Middle East does spread to the Middle Kingdom? And, to extend the hypothetical one step further, suppose authorities respond with another Tiananmen Square-style crackdown.

There’s been plenty of discussion about how unrest in China might cause the country to stumble in its annual dash for eye-popping GDP growth. A far more pertinent question for Western companies operating there is how they’d navigate the firestorm of criticism back home. By the very nature of business in China, most foreign companies have entered the market through joint-ventures with state-owned enterprises. What exactly does a Canadian CEO say when his business partner’s largest shareholder just ordered tanks and troops to crush protests?

At this stage there are far more questions than answers, but they’re questions that have been pushed further onto the back-burner with each passing year and each Chinese economic milestone. This year alone foreigners are expected to directly inject US$100 billion into China. That’s more money than Gaddafi could have ever dreamed of stealing from his people, and it gives you some perspective on how messy and disruptive it would be should the West have to recast its relations with China.

As Libya burns, and Chinese police crack down on foreign journalists, human rights defenders and lawyers, these are some of the questions executives and directors would be wise to ask themselves, if they’re not already.

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