Labour Unrest Increases
Recent reports out of China are dismaying. Its economy, long driven by the world’s largest manufacturing and industrial sector, is shifting gears to improve its internal consumer-based sectors to satisfy the demands of its rapidly growing middle-class. Those same middle-class consumers, however, are also sometimes disgruntled workers, and they are no longer content to work long hours for low pay or in dangerous conditions. Instead, some are taking up the decidedly Western practice of protesting their employment situation, and those protests may interfere with international contracts and supply chains. In 2011, the China Labor Bulletin (CLB) reported around 185 labour strikes across the country. By 2015, the CLB reported over 2900. While improved reporting might account for some of that increased number, there is also no doubt that the actual number of protests has also risen significantly.
Foreign Investment Opportunities Also Increase
At the same time, opportunities for foreign investment and business development in China are growing all the time. President Xi Jinping is on a determined mission to connect his country to the 21st century via a series of multinational agreements, diplomatic tours, and enhanced political partnerships:
- In January of this year, Xi traveled to Iran, Egypt and Saudi Arabia, China’s chief oil suppliers, to renew those ancient friendships. The three nations have exchanged commercial and cultural ventures for centuries, along the route of the Silk Road, which once connected eastern Asia to western Europe. These days, China is looking for markets for its internally produced goods and services, as well as stronger energy and economic ties generally. Xi’s “One Belt, One Road” program seeks to recreate the land corridor along which many of the world’s ancient cultures developed, and which may hold the promise of equally significant evolutions in the future.
- The ChAFTA, which entered into force in December 2015, opens doors for Australian industries to move into China and provide it with the domestic goods and services for which its population is currently clamoring. During its 35-year-long, staggeringly large industrial growth cycle, China has lagged behind in the development of its internal consumer supports in exchange for a larger, more dominant industrial economy. The ChAFTA seeks to remedy the lapses caused by that situation by inviting Australian investment into those consumer-driven industries in China that are not able to supply the huge volume of goods and services that Chinese workers now demand. China hopes to significantly increase foreign investments in these internal markets and has dropped tariffs and restrictions to attract those producers.
- In October 2015, at the Communist Party’s Fifth Plenum conference, Xi proposed changes in its approach to foreign investors. His proposed strategy includes a “negative list approach” to foreign investment with increased transparency of rules that govern those transactions. The “negative list approach” means that China will declare in a list those industries where foreign investments are prohibited; industries not mentioned on the list will be open to international businesses. “Market players may engage in anything that is not prohibited by law,” said Premier Li Keqiang.
The disparity between the growing unrest and the equally growing economic opportunity presents a challenge to international producers who want to access the greater promises of the latter prospect (increase their investments) while minimizing losses caused by the former (avoid disrupting labour strikes).
The answer to the challenge? Enhanced and strategic risk management within the Chinese market sector, using internal sources to ensure due diligence and appropriate care are taken to choose high-quality, politically- and socially-stable manufacturers and suppliers for the production of internationally sourced goods.
China’s current social and political evolutions underscore the importance of an enterprise-wide strategy to manage risk factors all along the supply chain, from the top office to the last delivery. In my book, Red Flag, I share my insights and expertise of previous and existing supply chain challenges that I have gathered over my 15+ years as a China Industry Resourcing agent. I would be happy to discuss how today’s Chinese politics might affect your existing manufacturing contracts, and how you can access the newly emerging Chinese markets that have so recently been revealed.