Engaging with China: global moves, market developments and leadership challenges

Engaging with China: global moves, market developments and leadership challenges

Virginia Bottomley, Chair of Odgers Berndtson’s Board & CEO Practice, reflects on her discussion with Dominic Barton, Canada’s Ambassador to China and former Global Managing Partner of McKinsey & Company.

It’s no surprise that the webinar I hosted with Ambassador Barton was well attended by senior executives. Understanding China better is a priority for business leaders as the country is already a dominant global player and is soon to be the world’s largest economy.

Ambassador Barton shared his insights from a long career advising companies and working in China in a commercial and subsequently a diplomatic capacity, on the evolving economic, political, and commercial forces shaping China’s business landscape.

Barton began by highlighting some key elements of China’s phenomenal rise.

By 2025, the country is projected to represent 20% of global GDP and the forces driving that growth remain robust.

China’s growing relationship and integration with ASEAN, its massive but still underdeveloped consumer market, and its robust domestic economy driven by urbanisation are all factors to watch.

The country is making impressive moves in terms of its global influence and environmental leadership and is attracting record levels of investment with its voracious middle class consumer market.

What should businesses understand about these political and market dynamics and what sort of leadership is needed to manage through any issues that may arise?

China’s diplomatic push and multilateral leadership

Barton noted that China is putting major resource into its multilateral and diplomatic relationships and investing heavily in regional trade relationships and partnerships including in ASEAN, South America and Africa. The Belt and Road Initiative is, in Barton’s opinion, working. And that logistical network will continue to grow and deepen.

In addition, China now has the largest diplomatic corps in the world. China’s military budget as a proportion of its GDP is larger than any other country and its military is modernising faster than any other. These diplomatic and military investments show no sign of slowing down.

At the UN, China now holds four of the top 15 positions. They want to grow their influence in the multilateral world order. To that end, they will continue to engage with established institutions like the UN Security Council as well as build new institutions like the Asian Infrastructure Investment Bank.

Focus on environment and sustainability

Another area of interest relates to China’s leadership on environment and sustainability initiatives.

President Xi is personally committed to meeting the ambitious climate goals his government has set for 2030 and 2060; China plans to invest US$2.5 trillion a year in its energy transition.

China is investing heavily in research and innovation related to environmental sustainability. By 2027, China will surpass the US in terms of investment in science and technology research. World-leading work is being undertaken in Chinese universities on topics from astrophysics to artificial intelligence. There is a huge desire to cooperate and lead on everything from carbon capture and hydrogen energy to electric vehicles.

At the same time, China is establishing new regulatory standards to guide emerging tech industries. This is a difficult balance to get right. The private sector needs the right conditions in order to continue to innovate and grow and conditions, by some measures, have become tougher.

China’s consumer market

There’s no denying that China’s consumer market presents an attractive opportunity. But in Barton’s view, the sophistication and scale of China’s middle-class consumer market continues to be underestimated by the west.

At 350 million people, there is much untapped potential there. But that doesn’t mean it’s risk-free.

The recent Anti-Foreign Sanctions Law is an example of China’s willingness to take defensive political measures that could have an impact on multinational companies doing business there.

In addition, ongoing human rights issues and changes to the way Hong Kong is being governed concern boards, investors and other stakeholders. Barton doesn’t think these questions will put an end to the west doing business with China, but they will continue to make it a challenging, and at times turbulent, business environment.

Nevertheless, it remains a highly dynamic and innovative market. In the last five months, more IPOs have come out of China than anywhere else and venture capital investment and new businesses are growing at an extraordinary rate.

Cultivating leadership that is up to the challenge

So what does all this mean for business leaders in the west?

When it comes to engaging with China, Barton advises corporate leaders to ‘have a microscope up to one eye and a telescope to the other’.

Going forward, boards will need to cultivate the capacity to manage all aspects of doing business with and in China. This includes the ESG challenges that may arise and achieving supply chain resilience. Increasingly, boards need to have ‘fixers’ who can quickly address any regulatory or reputational issues that may emerge.

To get the most out of a growing Chinese market, it’s imperative to go deep and low. Think beyond the three main metropolitan areas and aim for localisation in terms of both talent and supply chains. Odgers Berndtson’s experienced team in China can provide support in this regard.

There are significant changes taking place in the market for young talent in China. Multinationals are now competing with dynamic local companies offering competitive remuneration and career trajectories, so that’s something to contend with.

Given China’s size and economic power, it’s impossible to ignore. Because diplomatic relations can change overnight, cultivating deeper relationships at every level and through different institutions is critical. Barton’s insights are enlightening and highly relevant for anyone interested in gaining a deeper understanding of this fascinating market.