November 3, 2015
China’s influence on the global business environment, economy and markets has been thrown into stark relief by events during the past year. Now all eyes are on President Xi Jinping and China’s policy-makers.
While China’s recent stock market volatility was initially largely only felt internally, it eventually triggered a sell-off that erased more than US$5 trillion in value from stocks globally in the space of two weeks in August. President Jinping and China’s policy-makers are now being watched to see how they will address the current stock market events and, more importantly, how they will try to restore greater confidence in the Chinese economy that is decelerating before its rebalancing has properly begun.
A new FTI Consulting Strategic Communications research paper explores what the market volatility and government policy responses say about the state of China’s economy as well as the potential impact of the economic challenges on businesses both inside and outside of China. It examines why a stock market correction in China has precipitated a significant reaction in global capital markets and also discusses potential ramifications for China’s reform agenda. In addition, it addresses what companies that have business interests in China should be considering given recent events.
The researchers find that China’s growth will certainly slow, but it is not all doom and gloom.
The economy is still growing at a pace that others envy and there are still relatively untapped avenues of growth that offer potential. China will need to direct capital and resources to these more productive areas of the economy, such as private industry, the service sector and the new economy. If its leaders are able to do this, it may be possible for China to achieve sustainable and stable economic growth into the medium-term, albeit at lower levels than current GDP targets.
However, with that as a backdrop, what is certain is that all companies with exposure to China will have to reappraise their business strategies both inside and outside the country.
Companies — both Chinese and multinationals — will have to discern whether a Chinese slowdown will drag down their results and develop plans to deal with the situation. The eyes of the world are on China and all market participants are unsurprisingly jittery. To manage risk, companies will have to effectively communicate their corporate strategies relating to China to their primary stakeholders.
There are also commercial and regulatory risks. As China’s slowdown became apparent in 2013, a raft of investigations for corruption and antitrust violations were initiated against companies in China, with many commentators concluding that foreign companies were being disproportionately singled out. The harsh reality is that in economically challenging times, foreign companies make more attractive targets for increased scrutiny. This adds extra reputational risk for multinational companies. While no amount of planning can anticipate each and every risk a business faces, companies would be advised to both upgrade their crisis preparedness protocols and re-evaluate and tailor their China communications in line with the Chinese policy environment.
The situation will also offer opportunities. The Chinese economy has gone through more than three decades of almost unchecked growth. As a result, most Chinese domestic companies have only really experienced breakneck growth. International companies, on the other hand, are used to market cycles and have thus developed the tools, experience and strategies to secure competitive footholds in times of slowdown. This is valuable to Chinese companies looking for partners.
Click here to read the report in full: Are the Global Markets Right to be Concerned about China