Book Review: SELLING TO CHINA: Stories of Success, Failure, and Constant Change (Ker Gibbs, Ed.)

By: Peter Neumann, J.D, LL.M, FCIArb

? 2023 Peter A. Neumann, all rights reserved.

During my 24 years on the ground in the PRC, initially as a student in the early 1980s and subsequently as a practicing attorney, I observed first-hand some of the most dramatic social and economic changes in modern history. Often overlooked by the narratives, rhetoric, and propaganda surrounding the U.S. – China relationship are the companies and individuals who are its front-line protagonists and the complex and nuanced relationships among them.

Selling to China: Stories of Success, Failure, and Constant Change is a treasure trove of culturally-informed wisdom on doing business in China based on the direct experience of the individual chapter authors and commentators – each a seasoned “China hand” in their own right. Even allowing for the limited space of each chapter, the short half-life of any “definitive” statement about China, as well as each author’s individual circumstances and motivations, the book serves as an important counter-weight to prevailing reductionist China narratives.? It goes far to delineate the multi-faceted roles and relationships of government, enterprises, and individual stakeholders, and illuminates the unintended consequences of both U.S. and Chinese policies. It should be required reading for business and policy decision makers alike when China is concerned.

Selling to China went to press at a low point in China – U.S. relations, amid calls for decoupling and rising tensions across the Taiwan Straits. Following highly publicized raids on advisory firms serving foreign investors, the Economist queried: “Is doing business in China becoming impossible for foreigners? ?News reports in subsequent months portraying a once unstoppable economy in crisis continue to fuel general pessimism. It also remains to be seen whether the Chinese Communist Party (CCP) leadership will take meaningful steps to restore confidence of a foreign business community wary of a growing web of “national security” policies and laws. Admittedly a pro-engagement optimist, I would argue that an inflection point may be in sight with recent cabinet-level meetings seeking to re-establish a framework for China – U.S. economic dialog (see, ?Raimondo’s China Tour Offers Glimmer of Hope to Battered U.S. Businesses).

In the meantime, Selling to China reinforces the importance of China to the global economy. Its markets are too large for any company with global aspirations to ignore. U.S. policies targeting Chinese industries and firms also impact domestic U.S. stakeholders. Chinese lithium-ion batteries remain indispensable for the U.S. renewable energy transition, while sophisticated, efficient Chinese supply chains will remain crucial to fulfilling much U.S. consumer demand for many years to come. In the view of Treasury secretary Janet Yellen, decoupling from China would be? 'Disastrous". Continuing engagement is an inescapable reality.

Editor 季恺文 , a twenty-plus year China veteran with extensive experience as an investment banker, PE fund manager, and Board Director and President of the American Chamber of Commerce in Shanghai, has assembled an A-List of highly credible contributors with extensive in-country China operations and leadership experience. Even readers who know China well will find valuable insights and lessons among the seven topical chapters and other expert commentary. But Selling to China’s deeper value may lie in non-intuitive insights into China’s implications for U.S. and global business – including world-leading home-grown Chinese innovation.

As Bryce Whitwam observes in MARKETING AND SOCIAL MEDIA, “Being in China in the consumer marketing business in 2022 is like having a window into the future of how consumers will shop and interact with products. . . . mainly due to the digital transformation of the industry that is now considered further ahead than anywhere else and is expected to become a model for the rest of the world.”?

Bill Russo , a former Chrysler executive, explains how Chinese EV manufacturers have emerged “as leaders in automotive and mobility innovation” through connected technology – and how U.S. technology restrictions and tariffs have backfired. ?Resulting cost increases forced U.S. auto manufacturers and their suppliers to choose between competitive pricing and profit margins:? “If the trade war was a missile aimed at Beijing, the unintended consequence was that it landed squarely on Detroit.” ?Rather than re-shore American auto manufactures’ supply chains, these policies “accelerated [Chinese] investments into offshore locations from which Chinese suppliers could produce components for sale in the US, effectively accelerating the globalization of many Chinese companies.” U.S. inbound investment restrictions also deprive the automotive supply chain of an important source of capital to fund innovation.

As Daniel Krassenstein reminds us, U.S. infrastructure bottlenecks, not just draconian Chinese COVID measures, played a substantial role in the logistics logjams that traumatized U.S. importers and exacerbated inflation-fueling shortages.

Surprisingly, culture wars at home may pose a greater risk to U.S. brands than government-sanctioned retaliation in China. Mark Fischer , founding Managing Director of NBA China performs a definitive post-mortem on “the one tweet” by the Houston Rocket’s general manager in support of Hong Kong protesters that cost NBA China $200 million and the Rockets $20 million in lost China revenue. But this cautionary tale pales in comparison to Anheuser-Busch’s $4 billion-plus loss in share value following the backlash against one Bud Light ad celebrating the transgender experience. Who should corporate America fear more: the Chinese government and its loyal netizens or American beer drinkers?

Selling to China certainly achieves what it aims to accomplish, but in some places I expected more. To what extent do world-leading Chinese patent filing statistics represent tactical “utility model” patents rather than true innovation? How efficient are Chinese firms at utilizing capital to bring inventions profitably to market? If China’s bankruptcy law is any indication, the American corporate mantra “fail early and fail often” is not rewarded in China. American business leaders and their lawyers extol transparency, clarity, and legal predictability, but don’t always acknowledge the benefits of (historical, at least) flexibility in the implementation of vague or restrictive Chinese laws. For much of the inbound foreign investment boom, foreign law firms—despite clear prohibitions against advising on Chinese law—performed services that would indisputably constitute the unlicensed practice of law in most U.S. states. The chapter on Corporate Affairs, while insightful, does not adequately explore the eroding separation between government institutions and the CCP. It also side-steps the now pervasive role of the CCP in key decision making in the private sector (even foreign-invested enterprises). Ultimately, the CCP sits above the legislative process, and its inner workings remain opaque to the outside world. As the CCP reasserts itself as the arbiter of economic activity, war stories of past successes through superior knowledge of the Chinese market and politically-aligned investments, such as Tesla’s, are of limited current relevance to companies in strategically mundane industries. To be fair, the Party can play a decisive role in the rapid implementation of reforms. My recent research on international commercial arbitration, for example, reveals that Party policies and their implementation through party cells were crucial to overcoming local protectionism in Chinese courts and ensuring consistent standards of judicial review in international arbitration matters. ?

Perhaps the most important lesson of Selling to China is that business, while undoubtedly impacted by geopolitical and national security considerations, is ultimately a function of interests and relationships.? Enterprises pursue profits by means of finding common ground amid an infinitely complex web of stakeholder and interpersonal relationships that cross borders and span fundamentally different systems and cultures. It is a well-established principle of social psychology that interpersonal interaction is vital to combatting prejudice, and by extension the social and economic devastation that it flows from it. The greatest tragedy of indiscriminate decoupling and disengagement is to sacrifice the relationships and resulting mutual understanding essential to productive U.S. – China relations, and in turn, global prosperity.

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(September 2023)

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