China & the West: Walking Warily Hand in Hand

I'll be blunt. Western nations do not wholly trust China and China does not completely trust the West. In fact, the business and political relationships are often uneasy and are currently based on rising dependency but stressed by mutual distrust and apprehension.

One party, China, is the world's most populous nation, with a fast rising economy, increasingly assertive military, and a bigger presence on the world's political stage, while the second, the West, is struggling with a slower-growing economy, deep unemployment, and rising uncertainty about the future.

Even after more than two decades of deepening business and economic interactions between the West and China, neither of the two geographical and political regions knows the other well enough to brush aside nagging concerns. The absence of trust is a structural problem for everyone — businesses, governments, and individuals alike. Companies operating internationally are hurting as a result. Chinese businesses operating in key areas of the global economy, especially in electronics, industrial, manufacturing, software, and security arenas, have had restrictions placed on their activities.

Oftentimes the restrictions on Chinese companies operating in the West have not been officially sanctioned by local governments or even based on regulatory objections. Politicians weigh in regularly on planned merger and acquisition activities and — through ominous hints of what might transpire if China's leading companies are allowed to expand unrestricted in the West — helped to derail some of these transactions. The latest Chinese company to cry foul over its frustrated M&A plan was networking communications equipment manufacturer {complink 2430|Huawei Technologies Co. Ltd.} (See: Huawei Challenges US Gov’t: ‘Investigate Us’.)

We can expect more such cases in the future. Until now the direction of investment has been West to East. That is fast changing. Flush with cash, China's biggest companies are venturing out of Asia for investment opportunities. China Investment Corp., a $300 billion investment fund owned by the country's government, for instance, opened its first foreign office last year and was reported to have been involved in about 11 foreign transactions. Five of these were valued at a total of about $1.58 billion.

Chinese companies have not been completely shut out of Western markets. They have successfully clinched many major deals in the past, including in the high-tech area, where {complink 9284|Lenovo Group Ltd.} in 2005 purchased the personal computer business of {complink 2470|IBM Corp.}. To smoothen the approval, however, IBM initially took a 15 percent stake in the Chinese company and only in January this year unloaded its remaining stake in Lenovo, according to a news report.

Other potential transactions have been derailed by stiff oppositions from Western governments amidst deep skepticism from politicians, business leaders, and even ordinary citizens. In 2005, for instance, China National Offshore Oil Company (CNOOC) was forced to withdraw its bid for Unocal Oil following a massive political objection. Unocal was eventually purchased by Chevron. The situation has improved somewhat in the oil exploration field. CNOOC has since been able to make acquisitions in North America, including its purchase in February of a 50 percent stake in the Cutbank Ridge shale gas field from Canada's Encana Corp. for $5.4 billion.

Other more sensitive areas are mired in even deeper controversy. Chinese companies aren't going to be so successful making acquisitions in the high-tech area, due to continuing concerns about national security from Western governments. The semiconductor field is almost out of reach, especially at the leading-edge level. This situation won't change in the nearest future although both economic regions are making strong efforts to improve their relationship. The nature of the China-US relationship is central to how the West treats China in the future, according to Liu Xiaoming, China's ambassador to the UK.

“Some in the West see China as a threat and call for the containment of China. But should we really fall back to 'Cold War' confrontation?” Xiaoming asked in a speech Jan. 29, at the University College London:

    Building strategic trust is equally important for China's relations with the West. We should increase mutual understanding and trust and reduce misgiving and suspicion through dialogue. We should respect each other's choice of social system and development path, and interests in sovereignty, security and development. In doing so, our relations will run smoothly on the basis of mutual respect, equality, mutual trust and mutual benefit.

That's the hope. The reality is quite different now and will be for some time in the future. China's relationship with the West will continue to be defined by mutual distrust despite the realities of deepening interdependence. The West cannot trust China completely for now, because the hybrid socialist/capitalist system the country has created remains deeply flawed in the eyes of many Western politicians, and its military muscle-flexing deepens that distrust.

China is showing it can play the distrust game, too. While researching this article, I came across the news that China will be establishing a ministerial-level panel to review takeovers of local companies by foreign investors because it wants to keep foreigners out of sensitive areas such as national defense, agriculture, energy, and natural resources. The message is clear: You are welcome in certain areas, but even then we'll keep a close eye on you.

5 comments on “China & the West: Walking Warily Hand in Hand

  1. Barbara Jorgensen
    March 3, 2011

    I also found Huawei's move interesting and surprising. To invite close examination by US entities is a bold move and signals Huawei believes it has nothing to hide. More power to them.

  2. William K.
    March 4, 2011

    I agree with the article, and there is something that we need to understand..

    The biggest and first thing that we run into is that China is different. This is not to say better or worse, right or wrong, just that China is different. This means that even after we would astablish communications, we still will have challenges on a wide realm of details: the work ethic is completely different, the distribution of respect is completely different, and, although it is sometimes not in the foreground, the government is very different.

    What this means to us in the USA is that we must not expect that every action will be aimed at maximizing the quarterly return for the investors. I know that is a heresy in some circles, but in China the primary goal is not to enrich American stockholders. IT may not even be to enrich their own business owners. It may also be that the government would not reveal what it's intentions are for the future.

    If the Cina government would decide that we should be left behind in some market, it is quite likely that it would happen, since there is an abundance of inexpensive and very dedicated labor available in China, and a whole rural segment of population that has not been tapped to any great extent yet.

    The challenge would be to convince them that we can procede as a team, and that we can both benefit at the same time. A competition would not benefit us at all, since China has not only the natural resources available, but is very rapidly gaining the technical resources that they would need. WE all need to understand that.

  3. Ms. Daisy
    March 5, 2011

    The China-West issue is both cultural and a relational issue. The Chinese cultural belief system is community centered and relational. The West is object  focused and so unable to understand the interpersonal expectations of the Chinese.  Yes China's relationship with the West will continue to be defined by mutual distrust because of the difference in cultural approaches that creates conflicts as well as the competition between China and the West for Super power. The interdependence of the West and China will only be that of convinience.  The West cannot trust China, neither will China trust the West , that is just the reality of the competion for supremacy.

    Reading that “China will be establishing a ministerial-level panel to review takeovers of local companies by foreign investors because it wants to keep foreigners out of sensitive areas” is surprising.  China's message is late but needed step. The US will not allow foreigners in national defense or in NASA.

  4. Anna Young
    March 6, 2011

    It is a well-known fact that the relationship between the west and China is that of a Marriage of convenience.

    As you have rightly outlined that the core of the conflicts between the west and China is that of social, economic and political related issues. It cannot be resolved based on economic relationships.

    Its a quest for supremacy, will there be an outright winner? That is down to individual opinion

    What is imperative is that both west and China must learn to accept and respect these differences and focus on the economic interdependency.


  5. bolaji ojo
    March 8, 2011

    William, The differences between the West and China could also be a source of strength rather than division. As you accurately noted, it's a different system, not necessarily worse or better, just different. I think that for now we continue to see areas where goals align between China and the West. I think the wariness and elements of the distrust arise from knowing that there are wide areas where the differences, objectives and plans are just so mismatched.

    The article was not to celebrate or highlight the differences but primarily meant to point them out so we can work towards finding meeting grounds. It's been done successfully for at least the last three decades. Let's hope we can continue to work thorugh the differences and advance shared economic, political and human goals.

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