Foreign firms will have to adapt to China’s ‘common prosperity’
- At a minimum, companies will need to comply with new policies and regulations. At the other end of the scale, even the fundamental nature of some businesses could be redefined
- Common prosperity will favour more collective interests, but that does not mean it will be done at the cost of legitimate individual interests
The major objective of common prosperity is to recast the socioeconomic pyramid into an oval-shaped structure, with the widest part representing the middle class. With this change, average income is expected to continue to increase.
As policies, technology and demands change, all companies need to adapt. The impact of common prosperity on foreign-owned multinational corporations will range from basic and universal to sophisticated and specific.
In a way, this is akin to what almost 200 American CEOs jointly proclaimed in 2019, stating their intent to serve the interests of all stakeholders, including customers, employees, suppliers and communities as well as shareholders. The difference is that the government is driving this change in China whereas it was socially conscious businesses in the United States.
Players in the semiconductor sector, for example, will need to reposition themselves because of the changing global industry structure shaped by geopolitics and policies. Foreign carmakers need to consider “one world, two systems”, one China-centric, the other US-centric, as Chinese cities are building comprehensive smart infrastructure that will directly affect design and business models.
Smart cities serving the public agenda and business models of a range of industries will need to integrate with public infrastructure. Private businesses in the affected sectors may no longer be able to define strategic and operational parameters by themselves. Close coordination with the public sector will become necessary.
Common prosperity is a huge social undertaking and will be a game-changer in many ways. Done right, it will set the foundation for more balanced and sustainable growth, and that could have a major impact on the rest of the world.
At a minimum, companies will need to comply with new policies and regulations. At the other end of the scale, even the fundamental nature of some businesses could be redefined. For many sectors and businesses, China’s importance will continue to increase, not only as a market and a major supply chain hub but also as an epicentre of innovation.
Along the way, China will continue to open up to foreign-owned multinationals. Vice-Premier Hu Chunhua has pledged support for those that operate in China, recognising their contributions and underscoring that China looks forward to more investment from them.
Foreign multinationals need to understand the implications of the new policy landscape for their businesses in China and, for that matter, the impact of China on the rest of the world.
Edward Tse is the founder and CEO of Gao Feng Advisory Company, a strategy and management consulting firm with roots in Greater China