Trump’s Taiwan Stance and Why It’s Time to Revisit Your Plans for China

 

It’s getting harder for Beijing to engineer 6.5% growth.

Every business leader needs a point of view on China, and that point of view may soon require a change. Trends and events in the news over the weekend add complexities to the conventional view of a country hell-bent on maintaining 6.5% growth while transitioning from an investment-based to a consumption-based economy. Specifically:

—That growth target may no longer be sacrosanct. Top leaders decided last month that hitting the target had become so difficult that efforts to do so—such as lending massive sums to struggling enterprises—were now threatening stability, reports Bloomberg. And in China or any one-party state, stability is more important than anything else. So maybe growing 6.5% or even just reporting 6.5%, since many analysts think China fudges its figures, may not happen for two or three years. Maybe the goal of doubling real per-capita GDP from 2010 to 2020 won’t be reached on time. If that’s the price of avoiding economic or social meltdown, the leaders decided, it’s a price worth paying.

Motivating them are increasing signs that…

—Popular discontent is building. Nationalism is growing, fueled by a sense that China is under threat. It isn’t just anti-Japan activists anymore. A larger group, reinforcing one another’s views online, sees evil intentions in Taiwan, the Muslim world, and especially the U.S. Separately, China’s poisonous air pollution is pushing millions of city dwellers past their breaking point. In response, Beijing’s mayor on Saturday announced a new environmental police force that will reportedly crack down on barbecues and garbage incineration, among other crimes. It’s hard to believe this will have much effect, but we can expect high-profile punishments.

The larger reality is that discontent is another threat to stability, and fighting that threat may become a higher priority for leaders.

—Tensions with the U.S. over Taiwan could flare, with unpredictable effects. Taiwanese President Tsai Ing-wen stopped in Houston on her way to Central America over the weekend and met with several Republican lawmakers, but Donald Trump did not join them. Nonetheless, her phone call with Trump in November rankles Chinese leaders more than most Americans realize, and an official Communist-party publication used her brief U.S. visit as the occasion for issuing a startlingly blunt threat: “If Trump reneges on the one-China policy after taking office, the Chinese people will demand the government to take revenge. There is no room for bargaining.” This is not the language of normal diplomacy. Trump’s unpredictability opens many potential scenarios.

So what is a wise leader’s point of view on China now? It’s noteworthy that also over the weekend Morgan Stanley and UBS decided to increase their stakes in their respective Chinese joint ventures to the maximum legal level of 49%. No ambitious business can be absent from China, but increasingly it looks like time to give every strategy a rethink.

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