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Published: February 24, 2009

 
 

3. China: Cautious Activists

For a long time, China’s leaders have studied the development patterns of more developed countries — recognizing that their situation is unique but looking for models all the same. The United States has served as a key model. But the financial tsunami, as it is called in China, has caused Beijing to reconsider following the American example.

Because of the economic slowdown of China’s major trading partners in North America and Europe, its exports have suffered. A large number of export-oriented busi­nesses (mostly small and midsized enterprises) have gone bankrupt or significantly reduced their operations. China is now highly integrated with the rest of the world; it can no longer “decouple” itself from the West and return to being an isolated economy.

But exports constitute only about one-third of China’s GDP. And China’s financial and banking systems remained relatively stable and well regulated through the first few months of the crisis. This gave China a sound foundation compared with the U.S. and western Europe. China also benefited from its wealthy government (which maintained a surplus) and from the high savings rate and frugal culture of its population.

The rest of the world has expressed both hope and expectations that the Chinese, with their cash reserves, will take on a more activist role: helping the global economy transition out of crisis, making acquisitions, and being more assertive. But Chinese leaders recognize that they still lack experience as world leaders; they see this as an important time to learn.

In a speech welcoming U.K. Prime Minister Gordon Brown to China on October 14, 2008, Chinese Premier Wen Jiabao said, “China will continue to play an active role with a responsible attitude. [But] for China, what counts the most now is to successfully address its domestic affairs. China will adopt flexible and cautious macro­economic policies to make the macro control more targeted and flexible. China will also maintain stability in its economy and capital market to promote steady, rapid economic growth. This will be our largest contribution to the world.” Other senior leaders such as President Hu Jintao and Vice President Xi Jinping have made similar public remarks. The Chinese government has made it clear that it will continue investing in building infrastructure, such as railroads, to aid further GDP growth.

The financial crisis represents an opportunity for Chinese businesses and the government to increase their soft power. Leading Chinese enterprises, such as China Mobile Ltd. and Industrial and Commercial Bank of China Ltd., are developing alliances, investments, and closer relationships with other parts of the world. Leaders of multinational companies should take note of this trend: The Chinese company they compete against today could be their ally in the future, or vice versa.

Author Profile:
Edward Tse is Booz & Company’s managing partner for Greater China, specializing in definition and implementation of business strategies, organizational effectiveness, and corporate transformation. He has assisted several hundred companies — headquartered both within and outside China — on all aspects of business related to China and its integration with the rest of the world.
 
 
 
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