What will it be like to negotiate with a slowing China Inc.? Will a post-boom China be a more rational, relaxed bargainer that realizes it can’t have it all, all the time? Or is a slowing China going to hit the patriotic panic button and struggle to hold on to past glories? As the dials ease out of “overdrive” and China’s growth numbers cool, will tempers flare?
The Chinese Communist Party won’t end when the economic party does.
In other countries the debate about the future direction of economic macro-policy is nuanced and uncertain, but in China we have a shortcut. All we have to do is look to the CCP. If the Party feels threatened by a decelerating GDP, then China will lash out and thrash about. If the Party can spin a slow-down to its advantage, then there may be a long, harmonious coexistence between the Middle Kingdom and the barbarian horde after all.
There will be three stages to China’s economic slowdown. The tricky bit is that we don’t know what the final phase will be.
Phase 1: Everything looks fine to me.
“We always knew that the economy would slow. If anything, it used to be too fast – so now things are actually improving by slowing down to a sustainable level. Part of the plan. Mao predicted this. You Western nations can learn from our example. It’s what we’ve been trying to do all along.”
If we are not already in Phase 1, then the Xinhua people are at least starting to float trial balloons. As we hear more talk of “soft landing,” “sustainable economic growth” and, “the West can learn from our example,” you’ll know that Phase 1 is becoming mainstream.
Negotiating in Phase 1 is a little tricky – but when is Chinese negotiation ever straightforward? If you are winding up a deal or maintaining an existing partnership, there shouldn’t be any big change. Throw in a few “good friends and good partners no matter what the economy may bring” to your repertoire of banquet toasts, but aside from that – no big concern.
If you are just getting started on a China deal, you may want to slow things down. Beware of Chinese counter-parties who try rushing you – they may know bad news you have yet to figure out.
Phase 2: Early-stage recrimination. “Obama did it.”
When growth is uneven it’s called an “investment opportunity.” When falls are uneven, it’s someone’s fault. This time it will be Obama’s fault. Not to worry though – the policy people are just keeping their options open. The Chinese may love pain, but it will take a little while to convert this generation of flabby, complacent, middle-classers to “jiayou!, get ’er done” tough guys. As long as the rhetoric is big-picture and unattributed to specific top leaders, it’s nothing to worry about. Look for specific jabs after big-headline bad economic news – and then read the 50 cent chat-room posters to see where the winds may be blowing.
Negotiating in Phase 2 is not for the faint of heart. If you already have a pile of chips on the table and were wondering if you should cash out, then this is probably your moment. But if you like playing the long-shot or have been dealt losing hands a few times already, then this may be your moment to even the odds. China may look monolithic and “all for one, one for all” from the outside, but the reality is that most mainland deal-makers are in it for themselves – and in no hurry to take one for the team. If the locals are breaking ranks, this may spell opportunity.
Phase 3A: Soft landing – We wanted to do this.
If the Chinese, through luck, brains or some combination, can end up with a soft landing – probably something on the order of 4-6% GDP growth with moderate (sub-3%) inflation – then it will be congratulations and salutations all around. Official China Inc. will keep up the self-assured rhetoric on the outside, but locals will be shaken by the sudden realization that gravity exists.
Negotiating in Phase 3A – the soft landing – will be easier than it is today, but not by much. Both official and entrepreneurial counter-parties will jealously guard the domestic Chinese market, so accessing that elusive middle-class consumer will be tougher than ever. Officials will look favorably on anything that boosts jobs. The entrepreneurs, however, will step up their search for western markets, capital – and residences.
Phase 3B: Crash landing – Running-dog investment-bankers have attacked the Motherland.
If the Chinese economy crashes hard, then expect things to get ugly for Western business interests fast. Do not underestimate the power of the Party propaganda machine – and don’t overestimate the sense of the Chinese people. If half of America can take Sarah “Momma Grizzly” Palin seriously, then how much of a stretch is it for Renren Chen to believe that Goldman Sachs and the rest of Wall Street have deliberately set out to ruin his life?
Negotiating in Phase 3B – the hard landing – will not be for the faint-of-heart. You will need a very, very good reason to try to initiate new business in a Chinese post-crash environment – and attractive sticker-prices are not nearly enough. In the immediate post-crash environment you will be facing counter-parties who might be cash-rich but thirsty for vengeance. That’s a bad combination. Better to wait until their spleens are vented and their stomachs are a little emptier.
Andrew Hupert is an adjunct professor at New York University in Shanghai and publisher of ChinaSolved and ChineseNegotiation.com.
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