Understanding New China

China Is Undergoing the Most Disruptive Changes It Has Experienced in 30 Years, Says David Wolf

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BEIJING (AdAgeChina.com) -- Lately it seems that whenever you pick up a newspaper and read about China, somehow the country always seems to be saying "no." No devaluation of the RMB; no climate deal at Copenhagen; no arms for Taiwan; no spanking of North Korea; no criticism of our record on intellectual property; and no buying our local companies.

David Wolf
David Wolf
In fact, "no" has become such a regular rejoinder from Beijing that it is beginning to provoke outrage, anger, and a little fear in parts of the world that used to be indifferent to China's rise.

Even some longtime pro-China optimists (I dare not say "panda-huggers") like the American Chamber of Commerce in China have started to express concern about the chill descending over the country. The Chinese government seems willfully oblivious to the ill-will they are sowing abroad, even as they talk about building global "soft power."

China is more complex
But lost among all of the noise around China's failure to behave the way we want it to is this unreported truth: China is undergoing the most disruptive changes it has experienced since it began reforming and opening to the outside world thirty-two years ago.

In that time, China has become a more complex place to run. While the nation's leaders like to foster the perception of a single unified state glued together by its one-party system, in reality China's government from the State Council down to local bureaus is riven with factions vying for influence and power over every issue. Key government decisions and policies must be made by a painful policy of consensus building at each step of the process, a challenge made more complex by not only the pace of change in China, but the scope.

China's economy is at a crossroads. The global financial crisis has revealed the fundamental weakness of the nation's export-driven economy: even in a healthy financial environment, the world cannot buy all of the goods China needs to sell to sustain 8-10% growth indefinitely. With no social safety net, Chinese consumers are focused on saving, and industrial productivity is so embarrassingly bad that nobody even talks about it.

Income inequality is a major concern
Political stability in China is built on an unspoken social contract: the government delivers constant improvements in opportunities and lifestyle, and the people accept single-party rule, warts and all. Delivering on that promise is getting harder as China's export engine sputters, as inflation grows, and may become impossible if the stock-market and real estate bubbles burst and the middle class demands that the government cover personal losses.

Even more worrisome are profound social stresses. Income inequality has moved so far into the "danger zone" that even state-owned media is acknowledging it is a problem.

China's massive urbanization is causing not only dislocation for migrating peasants, but also massive changes in cities and urban lifestyles.

And as China's "young emperors" start entering the workforce en masse, they bring a deeply ingrained sense of entitlement into a world where their prospects fall far short of their expectations.

Against these challenges, the government is focused on maintaining stability, and this has translated into a series of campaigns against salacious and seditious online content.

At the same time, seemingly perversely, the government is allowing a growing and remarkably open online dialogue among citizens, provided that dialogue does not cross some unspoken boundaries.

National pride replaced a prickly inferiority complex
It turns out that the Chinese government understands that such dialogue is both necessary and healthy. Apart from serving as a social safety valve, providing a place where people can blow off steam, China's internet has become a powerful means for the government to understand the more vocal end of China's zeitgeist, and -- here is the kicker -- to actually respond quickly to changes or crises in the national mood.

That mood has shifted in the past decade. A growing national pride has begun to replace the prickly inferiority complex that has plagued China for over a century. There is growing pride in being Chinese, growing confidence in China's accomplishments, and an emerging belief that China is now ready to take charge of its own destiny.

That is a good thing, but it also means people here started to expect the Chinese government to take a new, more assertive tack in China's relationship with the rest of the world based on the the country's growing influence in the world. It also meant pressure to resist the encroachment of foreign enterprises into the economy. New laws came onto the books, new policies were quietly put into place.

And then the financial crisis happened. And for foreign companies operating in China, it couldn't have occurred at a worse time.

Chinese policies no longer favor foreign companies
Suddenly, just as people in China were starting to wonder if they still needed foreign capital and know-how, we went and proved to the Chinese that we were greedy, dumb, and actually needed China's help to pull us out of our own mess. Just as the government was questioning whether it was necessary to sustain the spirit of Deng Xiaoping's "open door," we demonstrated that our ideas, our enterprises, and our institutions were not as trustworthy as we had said they were.

Not only did that that gave the government the opportunity to put an end to policies that favored foreign companies in China, it was also a signal to the Chinese people that they could no longer take for granted that foreign brands were better than their local counterparts. Maybe they were just overpriced.

China, in other words, is starting to say "no" to our employers and our clients, and the above trends suggests that this is likely to get worse. Smart Chinese competitors are figuring out that they have an opportunity to take back some of their home turf, and they are refocusing their efforts on domestic operations.

This is where we come in. The task facing global companies is to sustain and build relevance in China in the face of a growing preference for home-made brands that themselves are growing stronger. That's a marketing challenge. The only question is whether we are ready to take it on.

David Wolf manages Wolf Group Asia, a Beijing-based strategic corporate communications advisory firm that specializes in technology, media, telecommunications and entertainment.

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