By Anjan Roy
India has been seeking to attract foreign investment, particularly in the manufacturing industries. As such, India is growing robustly and this in itself is attracting the attention of major multinational corporations. But then, the actions of the Chinese authorities could be a pusher of investments into India by default.
China appears to have put national security over economic development and growth. Under Xi Jinping, China is now bent upon ensuring that the Chinese Communist Party —the ubiquitous CCP— is supreme authority in every sphere and its writ must run large everywhere including in the business organisations. They must bow down to the priorities set by the Chinese Communist. .
The Chinese authorities are weighing in heavily in the functioning of their economic entities, including foreign companies operating in China. These heavy-handed interventions are becoming so unpredictable and unnerving that investors are getting nervous.
And here comes the China sweetener. In its obsessive concern over security, China is virtually throttling its entrepreneurship within the country. It imposed strict surveillance over its home-grown technology companies, and more conspicuously, on the technology billionaires. Remember Jack Ma of China’s technology economy.
His company, Ant, was forbidden from making an initial public offering (IPO) to raise fresh capital and enable the company to expand. More worrisome, the premier, Jack Ma, was told to shut following some mild criticism of the Chinese authorities. Thereafter, Ma disappeared for a long while, before surfacing much later outside the country. He is now reportedly doing what he had begun with, teaching children.
Several other industry tycoons and technology company promoters have been leashed in from the fear that they were becoming too big in their boots. One of the major bankers was similarly reined in. The Communist Party had instituted party cells in companies to ensure that guidelines were strictly followed and party lines are upheld.
In the latest run of events, China is trying to show the foreign companies who is the boss. For a long time, they have been indirectly telling them to follow and implement party lines. Now the control mania over foreign capital has taken a more direct and open political overtone.
In the latest bid, China has instituted investigations into the affairs of Foxconn in China. There are two aspects of the Foxconn affair in China. One is a purely business related and that can be disastrous for China. The company in question is one of the largest supplier of Apple products and disruptions in its functioning would have worldwide ripple effect. Apple’s famous iPhones are for the most part assembled and produced in China by Foxconn.
Seeing the rising threat from state interventions, Apple has instituted alternative locations for production of iPhones, India being the primary such location. Apple’s factory near Chennai is already producing the leading edge latest Apple iPhone models. This would to an extent insulate the company from severe upsets in products because of the Foxconn problem in China.
Additionally, Foxconn, as one of the largest manufacturers of a series of high tech products, has a large investor base throughout the world. The official investigations into Foxconn’s operations in China could bring down the market valuation and investor fortunes across the world. Already, the Chinese crackdown on Foxconn had hurt investor sentiments.
Now, there is a purely political aspect to the Foxconn affair. Foxconn promoter and largest shareholder is Taiwanese citizen, Terry Gou, who has only recently announced his decision to fight for the Taiwanese presidential elections set to be held later this year.
China is intimidating the owner to fall in line with China for the forthcoming election. Terry Gou was recently confronted by journalists with the question of China threats to his business empire in the context of his presidential bid. Terry Gou replied: “If China confiscates Foxconn’s plants and assets in the country, let it do it. This will have worldwide repercussions. Will anybody come to invest in China thereafter”.
And there lies the rub. China is trying to threaten Terry Gou rather crudely and this can backfire on the presence of foreign investors in China and future flows of investment. Already, the series of actions against foreign investors in China have unnerved global investors and companies. Further provocations like a move against Foxconn could become the last straw on the camel’s back.
Last week itself, concerned global companies witnessed the arrest of a senior executive of a well-known consultancy firm, Capvision. The firm is an adviser to foreign companies in China trying to navigate the inscrutably complicated and cloudy systems in the country. The company has been now intimidated with the arrest of its senior analyst for doing some consultancy reports for clients.
Week before, the Chinese authorities arrested another senior executive of the Chinese arm of global advertising giant, WPP, GroupM in Shanghai. Once again, the person has been accused of taking sensitive information from Chinese sources and injuring China’s security. How can an advertising firm become a threat to a country’s inner security is difficult to comprehend.
Bain and Company, a highly respected American consultancy firm, witnessed an attack a week back. A senior partner of the company has similarly been arrested and little is known about his future. Bain is in a jiffy what to do next to seek release of its employee from the Chinese jail when court procedures are so complicated and knotty.
The Japanese are sitting ducks for the Chinese authorities. From the visits of Japanese prime ministers to some temples in their country to release of waters from the Fukushima nuclear power plant, everything irritates China to no end. Whenever a Japanese prime minister visits the Yakusuni Temple in their country, the Chinese go up in arms against Japan. That temple is said to be the symbol of Japanese aggression during Second War. And Japanese in China fall victim to public ire, including the expat managers of Japanese companies.
Last week, the Japanese authorities revealed that the Chinese police has formally arrested a Japanese national who worked with a drug firm in China on charges of espionage and violation of criminal laws.
As such, China’s economy is slowing down and its financial sector is under severe stress loaded with bad loans. Its real estate giants are defaulting. Country Garden, one of the largest such real estate firms, has official defaulted in its repayment of dollar debts. The country is on apparently contradictory paths. It is cracking down on firms, while at the same time leaders are talking of inviting foreign investment.
Maybe, some deep Chinese thought is underlying such moves, unknown to foreigners. (IPA Service)