Kiwi corporate leaders warned of 'sonic boom' risks as China-US relationship falters

New Zealand business leaders were told that under Xi Jinping, policy settings in China had shifted dramatically. Graphic / Rod Emmerson

Businesses operating in China are facing an increasingly unstable environment, an expert in US-China relations says.

Andrew Browne, a partner at advisory firm Brunswick Group, addressed a group of business leaders visiting New York in a delegation led by deputy PM Grant Robertson.

Browne, who previously sat on the NZTE Beachheads board in China, said every company operating in China now was looking at different scenarios.

"They are looking at a country they are not familiar with any more, that they don't really recognise."

He told the New Zealand business leaders policy settings had shifted dramatically under Xi Jinping.

"Whereas once China was optimised for growth, it is now optimised for security. They are looking at a regulatory process that used to be pragmatic, that used to be predictable and has now become peremptory.

"Foreign businesses are now starting to experience regulation in China as these sonic booms that cascade, reverberate through the economy and then Beijing looks at the wreckage and tries to put out fires. It is a very unfamiliar regulatory environment."

He said the most threatening aspect was China's plan to take over Taiwan.

"Regardless of how you handicap the chances of a Chinese invasion of Taiwan, the fact is it is already starting to impact business decisions.

"When you have Jane Fraser who runs Citibank, Brian Moynihan who runs Bank of America, Jamie Diamond, JP Morgan's CEO, being grilled by US politicians on the Hill about what they would do if China invaded Taiwan...they say we would all do what they're told to, they would salute the flag.

"And then someone said to Fraser: If you weren't told what to do what would you do?" he added.

"And she said: Well, we would probably have to withdraw from China."

Browne said he had also talked to companies questioning whether they should invest in projects in China because of a potential backlash from shareholders.

"Why are you pouring more money into a country which could end up like Russia in the aftermath of the Ukraine invasion with sanctions, or that war across the Taiwan Strait is going to blow up your supply chain?"

Taiwan makes about 92 per cent of high-end chips that go into everything from cars, to phones and more. The threat had already caused the US to pass a law investing US$52 billion in its supply chains.

"It is getting the supply chains out of Taiwan where they are concentrated."

Browne said there was a time where China was seen as being unambiguously an opportunity.

"If you weren't in China as a CEO you weren't doing your job, and your message to shareholders was: We have the biggest most ambitious programme of investment and expansion in China. If you didn't have that you weren't doing your job. Now the focus is much more on risk - what are you doing? What is your plan B, C, D?"

He said right now a lot of companies had put their investments on hold because of the country's zero-Covid policy.

"They are all taking a wait-and-see attitude. They are desperately hoping China returns to that pragmatic predictable path of economic management that they had."

But the signs are pointing to that being unlikely.

Browne pointed to a timeframe of 2027 for when China wants to bring Taiwan under its control.

That doesn't leave much time for corporates to pivot away from China.

And Browne said ultimately, companies couldn't exit what was the world's second largest economy.

"If you are not in China, you are just not a global player. And if you are not there you don't know where your next competition is going to come from. Look at TikTok - Facebook never saw it coming because Facebook wasn't in China.

"And it turns out TikTok came out of the most restrictive media environment in the world but ended up with a deeper cultural understanding of young Americans than Facebook. And as a result - in just two or three years - Facebook has had to change its whole business model to meet the challenge."

He said China was also one of the world's largest talent pools and would soon be producing more PhD students in science and technology than the US.

"Even as recently as 2010, 2011, 2012, serious scholars, journalists were asking if China could innovate. And yeah they can. In fact they innovated so well the US has had to pivot its entire industrial strategy."

-Tamsyn Parker flew to New York courtesy of Air NZ