China’s Flawed “Authoritarian Capitalism”

James McGregor, a businessman and former Wall Street Journal reporter who has spent more than 20 years in China, published a book last year about the dangers of China’s model of authoritarian capitalism. The domination of state-owned enterprises not only threatens the prospects for private enterprise and the Chinese economy in the long-run, he argues, but it also puts multinationals at a disadvantage. On Wednesday, he spoke with The New York Times’ David Barboza:

Q: If the Chinese government forces global companies into unfair joint ventures and even allows such vast intellectual-property theft, why do the multinationals put up with that?

A: Simple answer: growth. China has been the only significant global growth market since the global financial crisis. The country is spending trillions of dollars on infrastructure, including bullet trains, subway systems, nuclear power plants, airports, seaports, refineries, electric grid — the list goes on and on. If you are in the business of transportation, power generation, aviation, telecommunications, computing or logistics, among others, if you don’t make it in China you won’t make it anywhere.

Q: Westerners doing business in China are often advised not to engage in public fights with the Chinese authorities; that negotiating quietly, behind closed doors, is the better option. Is that still the case, or is your book suggesting that bolder, more confrontational tactics are necessary?

A: Companies that individually and publicly take on China face the wrath of China Inc. But those who band together behind trade associations and government forums stand a better chance. It is always better to try to work out things behind closed doors. But only if China is willing to listen. Today, that is often not the case. The global financial crisis caused a significant shift in thinking by many in the government. For many years, foreign companies that invested in China were looked at as friends who were helping China. There are many in China now who believe that the foreigners need China more than China needs the foreigners. So they often don’t feel a need to engage even behind closed doors.

See also “two obvious questions” asked about China’s unfriendly business environment by longtime China Hand and Forbes’ contributor Janet Carmosky, via CDT.


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