China: the Marriage with Foreign Multinationals is in Crisis

Like all marriages of interest, the union between China and multinational corporations couldn’t last forever.  Reciprocal conveniences persist, but the equilibrium has moved.  The scale is no longer balanced.  On one hand, China offered low-cost production factors, stability, infrastructure, and the promise of a limitless market.  On the other, multinationals compensated with the injection of technology, capital and human resources.  The complementary advantages were excellent and profitable.  Now, contradictions between the two powers emerge in episodes that cannot be the fruit of coincidence.  In a dispatch from Beijing, The Financial Times recounts facts that are polluting the entire business climate in China.  Many MNCs in strategic sectors, such as informatics, automotive, foodstuffs, and pharmaceuticals have landed in the crosshairs of Chinese authorities with administrative procedures, bans, press campaigns, and consumer protests.  BMW was not authorized to build a new plant and 140,000 of its vehicles were recalled for mechanical defects; the same fate was reserved for 380,000 Volkswagens last March.  Apple was subjected to media pillory for exercising high prices and offering mediocre products to Chinese clients.  GlaxoSmithKline was reported for corrupting doctors and public officials.  A New Zealand company, Fonterra, was forced to recall various products suspected of causing botulism.  Analogous action was taken against Dannon.  The list could go on, but the big names involved already signal that a deliberate offensive is in place.  The attacks are systematic, on the government press, the Internet, and in courtrooms.  There is no evidence that the design takes form from an executive order or even a conspiracy, but the activities underway seem to capture typical Chinese peculiarities, which emerge in coincidence with political convenience.  It seems like everything converges more or less involuntarily on the party line that accentuates the “China dream,” a useful instrument for unloading the contradictions industrialization created on external forces.  Beyond unilateral interpretations, at least three motives can be exhibited to explain the Chinese attitude.  The first is the tradition of controlling relationships with force.  Multinationals are useful in order to industrialize a country.  In that circumstance, the government is willing to turn a blind eye to legal, labor, environmental and fiscal violations.  When their goal has been accomplished or their technology cannot be assimilated, or their sophistication poses a threat to local industries, then defensive mechanisms are triggered.  Currently, China feels strong enough to raise the stakes.  It no longer wants to be the “factory of the world,” a paradise for multinationals; it wants to use the multinationals to build a global hub of excellence in the creation of value.  For this reason foreign companies are still useful, but they must lose their technological and financial superiority.  The ideological background of decision-making is always Chinese nationalism.  Chinese foreign policy has always been directed toward Chinese interests.  The ambition is to redeem the country from underdevelopment caused by external factors.  All of the multinationals have accepted the Chinese decisions, taking action, promising respect, begging forgiveness from the country and its citizens.  This would lead one to believe in Beijing’s winning strategy even if—and this is the third explanation—the decisions hide a fundamental weakness.  China has not yet won the battle over quality.  It wants to excel in areas other than numbers, but it has been incapable of creating prestige.  It years to create national champions, but—save a few exceptions like Huawei, Haier and Lenovo—it struggles to win over western consumers.  Above all, Chinese citizens recognize foreign superiority, an unacknowledged phenomenon.  Condensed milk is imported, children attend foreign schools, throngs of people travel abroad for shopping, foreign cars are used as status symbols, and those that are able purchase furniture in New York or the French Riviera.  Nationalism, at least in the realm of luxury and quality, is losing its campaign on Chinese society.  This is probably the true danger averted by the government in the larger frame of a model that fails to progress and demand international admiration.