Expats behind China’s triple great wall
European negotiators at Chinese President Xi Jinping’s recent Belt-and-Road roadshow may wonder how Marco Polo must have felt when the iron-bolted gates of the Great Wall’s bastions banged shut behind him. Direct flights save today’s travellers months of Polo’s journey, and trains carry cargoes from Beijing to Brussels faster than ever before. But the split between enthusiasm by Italy and others, and a more reserved reception in France and its camp highlights an important issue: while China promotes the removal of barriers abroad, its own defences stay firmly in place. International access to one of the world’s largest market is fortified. Reliable data on its political and economic inner workings is scarce. That is a risk for global businesses. China will continue to surprise boardrooms in Houston, Hannover and even Hong Kong, and what the near future brings is a trillion-dollar question. But as the legendary 13th-century Venetian merchant owed his secret to his power of observation, today’s international businesses can manage risks and spot opportunities better if they understand the engineering behind China’s fortifications.
We set no value on foreign things
Emperor Qian Long’s famous words to the first British diplomatic mission in 1793 set the course of China’s international relations for two centuries. Under imperial rule, China had little foreign policy to speak of. The new Republic from 1911 turned outward but briefly, before a Socialist revolution closed the doors for another half-century. “Reform and opening” (gai ge, kai fang), modelled after its Soviet equivalent (perestroika and glasnost) propelled China’s latest development, but suspicion towards the outside world remains. Today, China has one of the proportionally tiniest foreign communities in major economies, hosting fewer non-citizens behind its borders than South Korea. Neither is the situation likely to change: recent visa regulations became more selective, including for well-settled foreign residents. International chambers of commerce have long lobbied for the reforms that the UK and French governments recently called for, but experienced China expats understand why dramatic changes are unlikely. Beijing has worked long and hard to design the present barriers that balance domestic control with the inflow of capital.
Consequently, foreign experts and businesses in China are a discriminated minority and a privileged elite at the same time. Foreign-Invested enterprises are excluded from a long 'negative list' of strategic industries including energy, telecommunications, internet and defence, but suffer less political interference than local firms. Expats are kept on short-term visas after decades of residence, but treated more leniently than locals on taxation, freedom of expression and mobility. That makes sense in the great scheme of things: international know-how and market access are indispensable for the country’s economic survival and success. China makes most of the world’s mobile phones, air-conditioners, pens and LED lights, but imports their precision parts. Foreign businesses participate in restricted industries where self-reliance is government policy. China produces most of its own rice and pork, but relies on import seedling, animal feed and advanced agricultural solutions to compensate for the escalating urbanisation of scarce arable land. Recent clashes highlighted the importance of global markets for firms like Huawei and ZTE.
Scaling the Great Firewall
Few things illustrate this double reality as eloquently as China’s restricted access to the Internet. New expats soon get used to addictively fast and ubiquitous network connectivity in Chinese cities where, however, more than ten thousand URLs are inaccessible according to Wikipedia, one of which is almost anything by Google. Restrictions are not a remnant of a darker political past: they slammed in place within the last ten years, and official data on which sources are restricted (and why) is absent. Multinational firms access a full network through pricy state-sanctioned circumvention solutions. Most exclude Chinese employees from full access to reduce political risk. Expat families at home attempt to do the same through VPN services currently tolerated, but habitually threatened with an eventual black-out. Is the emergence and global presence of Baidu and Alibaba cloud services light at the end of the tunnel? I would not bet on it. Selective connectivity in China is a feature rather than a bug.
The Great Firewall is likened to its ancient masonry namesake because it serves the same purpose: regulating the flow of goods, services, people and ideas so that China can engage the world at its own terms. Expat executives must acknowledge, like Google did after its recent Dragonfly browser experiment, that solutions requiring unhindered global access are simply not China-compatible. Analysts have recently pointed out how that may doom Apple’s encrypted data services in China. But in markets, barriers to equilibrium create opportunities. Foreign firms broker anything barred from the local public, from information on global education options to market data, academic resources, publications and services, films, TV shows, podcasts, books, insurance and investment services, real estate, gaming, gambling, presence at international social media and artwork auctions, and even technical solutions to connect to the world-wide web anyway. The ironic situation is that the world has access to both Chinese and global solutions. China’s shrewd and curious population is hungry for the missing half, and ready to accept a surcharge.
Foreign devils in the flowery kingdom
Defences in Marco Polo’s time were based on a triple system: a moat to create a first obstacle, a wall to shield against outside influences and a maze inside to disorient stubborn invaders. China’s last line of defence, a cautious distance to anything non-Chinese, presents expats with professional and social isolation. The legal and financial separation between Chinese and foreign-invested firms, so resented by the EU, has spawned expat-dominated chambers, events, schools, foreigner-only clubs, membership associations and churches. That few foreigners can navigate the minefield of interests, language, traditions and taboos in search of a strong local network (‘guanxi’ is the magic word) changed little since Carl Crow’s classic 1940 memoire Foreign Devils in the Flowery Kingdom. China’s growing confidence also curbs interest in global best practices, manifesting itself in concepts like the “Seven No-s”, a list of forbidden topics including liberal democracy and human rights.
China’s efforts to subsidise state-owned and hand-picked private firms to success at home and abroad contradict the outspoken principles of trade liberalisation, but also create inadvertent opportunities. When I arrived in Shanghai in 2002, Baidu, Alibaba and Tencent had less than five years of history and the country’s global presence was dominated by state dinosaurs like Bank of China and Xinhua. Since then, China’s outward direct investment grew from fifteen billion dollars to around 180 billion. With money went people and dreams. Millions of Chinese graduates from overseas universities have established professional networks in fields where their home country lags behind. First private, then state-owned firms opened branches and research centres worldwide. Many of the country’s best entrepreneurs, investors, managers, academics and creatives move to worldwide metropolises in search of freer pastures for their inspiration, creating forward business hubs. To do business with China today, you can come to China or wait until China comes to you.
The expats that do remain behind the triple great wall will play an essential bridging function between local business opportunities and the world. China’s expat community may become smaller, and familiarity with the local language and culture more essential. But that will only increase the relative importance of each foreigner there. Erecting impenetrable walls and then building passages across them may turn out to make sense on both sides.