The deadly coronavirus that brewed up in China late last year is understandably scaring the wits out of people worldwide. To contain it, Chinese authorities have “locked down” a good portion of the country. And other nations have either closed their borders or severely restricted entry by Chinese visitors.
But the coronavirus is also causing headaches of a different sort for foreign businessmen. Besides those who sell into the now “locked down” Chinese market, many Western companies depend on Chinese supply chains for vital parts and components or for finished products. Ironically, even US pharmaceutical companies heavily depend on Chinese drug makers to produce their medicines.
Making matters worse, supply chains are far more embedded in the People’s Republic of China – and far more vulnerable – than 17 years ago when the SARS epidemic emerged in China and spread throughout Asia causing widespread disruption, if not panic.
One understands Western executives’ concerns these days. But one doesn’t understand their bafflement.
Since the early 1990’s one watched in awe as America’s best and brightest business minds at companies large and small went all in on the PRC market: Boeing, General Motors, Dell, Microsoft, Walmart, Apple, to name a few.
Now they fret that their exposure to the PRC has put them over a barrel. They’re overexposed.
It’s not as if this hadn’t been foreseeable. The Chinese market had (and still has) risks aplenty – obvious risks. But China has always had a hypnotic effect on Westerners.
And the collective high-stakes risk-taking (“gambling”’ is a better word) by Western industry reflects this bedazzlement.
It’s the combination of the allure of cheap labor on the one hand and, on the other hand, the prospect of selling one of something to every person in China – all 1.4 billion-plus. Juicing that motivation is the excuse that “everybody else is in China – so we have to be, too.”
Maybe this mix of greed and group-think is just human nature.
Let’s Take An Exam:
But, half-tongue-in-cheek one imagines the final exams at top-tier American and European MBA programs include the following question:
True or False?
It is sound business practice to invest in and make your business dependent on a market in a country with:
1) no functioning legal system or property rights beyond what a party apparatchik says they are;
2) local authorities that shake you down;
3) a central government that intends to put you out of business and will only let you be as successful as long it feels like letting you be – that is, until its own companies can take over;
4) product boycotts, customs delays, rent-a-mobs – even hostage-taking — used at will against foreign companies, especially when the regime is angry with your country’s government over some political matter;
5) intellectual property theft and counterfeiting as not only government policy but a moral imperative;
6) due diligence not only impossible to conduct but outright illegal;
7) a society that has experienced, during the last couple of centuries, only 30-40 years of social stability (of a sort) and that can come unglued without much notice – and a regime that killed tens of millions of its own citizens within living memory;
8) sketchy public health services and abysmal industrial hygiene and safety practices;
9) restrictions on moving whatever money you make out of the country;
10) a regime that threatens your country with destruction and intends to drive your country and its military forces out of the hemisphere;
11) a regime that threatens your country’s friends;
12) a regime that is building up a military designed to defeat your country and its friends;
13) concentration camps and mental asylums for regime opponents, organ harvesting and a prime candidate for an apartheid-era South African style divestment campaign;
A peek at the answer sheet:
“TRUE” – if it’s the Chinese market.
“FALSE” for everywhere else.
Presumably, it makes sense to somebody. You’d think shareholders might ask for an explanation.
Grant Newsham is a retired US Marine Officer and a former US diplomat. He is a senior research fellow at the Japan Forum for Strategic Studies. An earlier version of this article appeared in And magazine.