China digging for business in troubled sands

Source:Global Times Published: 2011-3-2 8:31:00

Yin Gang

Editor's Note:

The turmoil in Libya has caused a total loss of 1.5 billion yuan ($228 million) for Chinese enterprises there, and prompted China's biggest civilian evacuation operation ever. What kind of measures should be taken to help better avoid potential political risks for overseas Chinese enterprises in unstable regions? How much does a stable relationship between China and Middle Eastern countries help reduce potential risks for Chinese businesses? Global Times (GT) reporter Chen Chenchen talked to Handel Jones (Jones), CEO of US-based International Business Strategies Inc, and author of Chinamerica: The Uneasy Partnership that Will Change the World (2010), Gao Zugui (Gao), director of the Institute of World Politics at the China Institutes of Contemporary International Relations, and Yin Gang (Yin), a researcher with the Institute of West Asian and African Studies at the Chinese Academy of Social Sciences, on these issues.

GT: China's Ministry of Commerce revealed February 24 that the 75 Chinese enterprises in Libya had suffered a total loss of 1.5 billion yuan ($228 million) due to the local uprising. This means each Chinese enterprise there lost $3 million. Are these big losses?

Jones: Not really. They could be significantly bigger. It is a risk of international business. It is also the risk of becoming a global power, when there is the need to get resources from places that are politically unstable, like oil from the Middle East. Sometimes the risks are high, but one has to accept that there's always potential for loss.

Yin: Chinese investment in Libya is not as colossal as in other areas of the world. Many evacuees are low-tech laborers, like construction workers. The Japanese, South Koreans and Italians own most of the advanced facilities there. If the turmoil goes on sweeping other areas, the losses of Chinese enterprises will be even bigger.

GT: In a long term, what should be done to minimize the damage to overseas Chinese business in such unstable regions?

Yin: Chinese companies have to learn from US and European enterprises, and employ professionals with expertise in risk evaluation and precaution, since overseas business circumstances are very complicated.

For instance, Libya has a territory of more than 1.7 million square kilometers and a mere 6 million citizens. The nation has accepted a large number of refugees from other African countries like Sudan and Chad, which complicates the local situation. If Chinese workers there are attacked, it'll be extremely hard to claim compensation.


Handel Jones

Jones: We've actually worked with some Western companies on risk assessment. It's quite complicated. We've never been invited by any Chinese companies to do that kind of analysis. It's possible that they turn to other people.

But in terms of what's we see in China, the management of the business inside the country is very well done. They are very familiar with the Five-Year Plans, industrial dynamics and so on. The same kind of management expertise, the same kind of due diligence in managing risk assessment opportunities outside China is not very well done yet.

US, European and Japanese companies are lot more diligent and thorough in doing risk analysis. They then take insurance for protection. The level of sophistication and experience for the Western companies is much greater.

GT: What are the major political risks facing Chinese enterprises in the Middle East? How much does a stable diplomatic network between China and Middle Eastern region help reduce those risks facing Chinese enterprises?

Jones: In the Middle East, you have two or three big issues. One of them is the fact that the distribution of wealth is badly skewed. Some people in power are very wealthy, while some at the bottom of the scale are very poor.

The education systems have not been very well developed. So mobility through education is quite difficult. If you don't have family ties or relationships, it will be difficult to get ahead.

The third factor is the very strong religious component. There are religious factions, which create lots of conflicts. This is an environment with lots of potential instability.

In terms of many global situations, China has taken a low profile, and China is viewed as being neutral. The US has taken a much higher profile, and is seen in many cases as being the enemy. From a political balancing point of view, China is being very astute.

There might be violence against some individuals.

But the view of China is generally very positive, while the view of the US can be very negative. China is in a strong position, when the situation stabilizes, to actually have good relationships with whatever regimes emerge.


Gao Zugui

Gao: Good diplomatic relationships that you foster in normal times surely serve your interests when you need them. In the era of globalization, interactions between countries at various levels, political, economic or diplomatic, are all interdependent.

China is largely seen as a bystander in the ongoing Middle East revolutions. As China's growing economy includes substantial interests in foreign countries, it needs to do more to help shape the Middle East pattern.

During the turmoils in the Middle East, we can see that China's understanding of the region falls way behind its actual needs.

When studying world affairs, we still tend to focus more on the US than on any other region. Such a stereotype hasn't changed yet.

Yin: China's role in the Middle East is a bit embarrassing. It wants to join the four-way summit on Middle East issues, but has been refused. Western nations want to join hands with China to check Iran, but barely succeed.

China should do what it can. Its action to fight piracy in Somalia will surely be welcomed by the international community.

China has to find more and more fields to tie up its own interests with other countries in this area.

GT: The mounting violence in Libya prompted China's biggest civilian evacuation operation. How do you see China's emergency mechanism of protecting overseas nationals?

Gao: The number of Chinese citizens in Libya is overwhelming compared to other countries. For instance, Russia only needed to evacuate more than 1,000 nationals from Libya in all. China set up a general organization office to command the evacuation.

The complexity of this ongoing evacuation poses a series of challenges to China. Before this mission, China's biggest civilian evacuation operation was the one during the Gulf War in 1991, when some 1,800 Chinese were brought back from Kuwait and Iraq.

Yin: Whether a government is able to take care of its people and companies going global is a substantial manifestation of the nation's influence and image.

The mass evacuation reveals that when similar emergencies take place, China is capable of mobilizing various resources to protect its nationals abroad.

The mass evacuation also reflects the rising pressure on the Chinese government to protect the increasing number of Chinese overseas population, especially in the regions with rich natural resources and raw materials as well as risks of social unrest.

Posted in: Viewpoint

blog comments powered by Disqus