Saturday, 3 March 2012

No barriers

This op-ed was the lead in the South China Morning Post's Insight section on February 18, 2012:

Ken Davies says Chinese investment needs to be welcomed,
not feared, by the US and other sputtering economies. 
For their part, Chinese companies must operate more transparently to gain international trust

I squirmed as I listened to US President Barack Obama’s recent state-of-the union address. China got pride of place as a cause of America’s economic woes. He mentioned it four times.

I should have expected that. It’s a presidential election year. Bashing China is now as popular as bashing Japan in days gone by.

Here in New York, people complain about “all the jobs going to China” and Chinese products being rubbish. So blaming China just might help Obama stay in the White House. But does it make economic sense? Not at all. I’ve got news for America and the other countries that see China only as a dangerous competitor, sucking out jobs from their economies and flooding their markets with cheap rubbish.

China is now one of the biggest investors in the world. Its companies are opening factories and buying oil wells. And it’s not all in Africa. More and more is in America. In companies that invent things and create jobs.

Chinese multinationals have the cash stashed. Ten years ago, many were up to their
ears in debt. They have since turned profitable, and they are making money overseas. A third of
their overseas investment is paid for by “reinvested earnings”, profits made abroad. They
have the government yelling at them to “go out”. It’s in the latest five-year plan. They want
as much investment money going out as coming in. And with 8.3 per cent unemployment in
the US, America could do with that cash.

The trouble is that lots of people around the world don’t trust Chinese companies. From the
Chinese viewpoint, this looks like everyone is against them. This isn’t entirely paranoia. There
have been cases where a government has said “yes, it’s OK” to a plan, and the public and
legislature have said “no”.

There are reasons for this distrust. Factories have closed in America and opened in China,
leaving thousands of US workers without jobs.There are the poisoned products. There are the
images of Beijing shrouded in smog. There are the stories about how bad it is to work in some
Chinese factories.

So, if Chinese multinationals are to help other nations’ economies back on their feet,
two things need to happen.

First, countries that can benefit from Chinese investment need to stay open for
business. Putting up fences to stop foreign investment hurts the economy. As Hong Kong
has shown, letting capital flow freely keeps the  economy growing. There is no need to treat foreign investment any differently from domestic investment. If the business environment is predictable and market prospects are good, investors will open factories and buy ailing companies. It doesn’t matter if they are locals or foreigners. So, please, everyone, keep your markets open to foreign investment, including from China.

Secondly, Chinese companies need to clean up their act. They need to learn how to operate
transparently. If they have nothing to hide, why hide it? Let everyone know what a good job you
are doing. If you are doing good things, you want people to know about it. But, please, no
greenwash. You will be found out.

Chinese companies need to make good products. Safe products and quality control will bring customers. If Chinese enterprises can do this for international brands – and the proof of that is in shops around the world – they can do it  when making their own designs.

Chinese companies can do clean production. I’ve seen a power plant in a Guangdong
factory using the latest fluidised-bed coal combustion and chimney scrubbers to remove
pollutants, with the waste heat and steam used for production. The same clothing plant cleans
its waste water from black to clear before putting it back in the Pearl River.

People outside China know about suicides among factory workers. But there are factories
in China where the workers are empowered to look after concerns like health and safety. Chinese companies can benefit from treating their workers fairly.

What does this add up to? Simply that if Chinese companies address legitimate concerns of people in other countries (and at home), they can change perceptions. They need to do this if they want a good reputation.

Chinese investments are no longer small and short term. They are often huge and, almost always, the companies are in it for the long term, not just to turn a quick profit and head for the exit. This means they are vulnerable to scandals. It only takes one or two of these to torpedo a reputation that a company has spent billions building up. Look at BP.

So Chinese companies need to make big changes. They can’t just hire a public relations firm to write a glossy “annual corporate social responsibility report”. They need to change their behaviour. And, for that, they need to readjust their management structure.

Fortunately, there are lots of guidelines out there that they can use. Chinese multinationals should already know about these because China is committed to many of them, as are the countries where they want to operate. But they take time and effort to learn and use.

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