Every business leader needs a point of view on China, and that point of view may soon require a change. Trends and events in the news over the weekend add complexities to the conventional view of a country hell-bent on maintaining 6.5% growth while transitioning from an investment-based to a consumption-based economy. Specifically:
-That growth target may no longer be sacrosanct. Top leaders decided last month that hitting the target had become so difficult that efforts to do so – such as lending massive sums to struggling enterprises – were now threatening stability, reports Bloomberg. And in China or any one-party state, stability is more important than anything else. So maybe growing 6.5% or even just reporting 6.5%, since many analysts think China fudges its figures, may not happen for two or three years. Maybe the goal of doubling real per-capita GDP from 2010 to 2020 won’t be reached on time. If that’s the price of avoiding economic or social meltdown, the leaders decided, it’s a price worth paying.
Motivating them are increasing signs that…
-Popular discontent is building. Nationalism is growing, fueled by a sense that China is under threat. It isn’t just anti-Japan activists anymore. A larger group, reinforcing one another’s views online, sees evil intentions in Taiwan, the Muslim world, and especially the U.S. Separately, China’s poisonous air pollution is pushing millions of city dwellers past their breaking point. In response, Beijing’s mayor on Saturday announced a new environmental police force that will reportedly crack down on barbecues and garbage incineration, among other crimes. It’s hard to believe this will have much effect, but we can expect high-profile punishments.
The larger reality is that discontent is another threat to stability, and fighting that threat may become a higher priority for leaders.
-Tensions with the U.S. over Taiwan could flare, with unpredictable effects. Taiwanese President Tsai Ing-wen stopped in Houston on her way to Central America over the weekend and met with several Republican lawmakers, but Donald Trump did not join them. Nonetheless, her phone call with Trump in November rankles Chinese leaders more than most Americans realize, and an official Communist-party publication used her brief U.S. visit as the occasion for issuing a startlingly blunt threat: “If Trump reneges on the one-China policy after taking office, the Chinese people will demand the government to take revenge. There is no room for bargaining.” This is not the language of normal diplomacy. Trump’s unpredictability opens many potential scenarios.
So what is a wise leader’s point of view on China now? It’s noteworthy that also over the weekend Morgan Stanley and UBS decided to increase their stakes in their respective Chinese joint ventures to the maximum legal level of 49%. No ambitious business can be absent from China, but increasingly it looks like time to give every strategy a rethink.
The new Fortune Unfiltered features NYSE Group president Tom Farley, sharing his experiences with leadership at an early age, lessons learned, playing baseball at Georgetown, and much else. It’s fascinating and instructive. Here’s the link: https://itunes.apple.com/us/podcast/fortune-unfiltered-aaron-task/id1135636641?mt=2/listen#/ps/I3c74wdipy2osrynfayuij5v7jm
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What We’re Reading Today
Senate GOP schedules confirmation hearings over Democrats’ objections
Hearings for nine of President-elect Trump‘s cabinet nominees are expected this week, starting tomorrow. Democrats object that some committees haven’t yet received financial and conflict-of-interest paperwork that nominees must file. Senate Majority Leader Mitch McConnell dismissed the complaint; the paperwork is required before a vote but not before hearings. Nominees with incomplete paperwork include proposed Education Secretary Betsy DeVos, Commerce nominee Wilbur Ross, HUD nominee Ben Carson, and Homeland Security Secretary nominee Gen. John Kelly. WSJ
McDonald’s sells China business
Citic Ltd. and the Carlyle Group will buy a majority stake in McDonald’s China business for $2.08 billion. Citic will control 52%, while Carlyle will own 28% and Steve Easterbrook‘s McDonald’s will continue to own 20% of the business. Fortune
FBI arrests Volkswagen executive
As head of VW’s U.S. regulatory compliance office in 2014 and 2015, Oliver Schmidt told regulators that excessive emissions resulted from technical problems rather than cheating, according to authorities. He’s the first executive to be arrested in the criminal investigation of the emissions scandal. NYT
British PM signals next Brexit move
Prime Minister Theresa May said the UK’s separation from the European Union would give the country control of its immigration policies. She said she wants UK companies to trade easily throughout the EU but suggested she would give up some trade freedom in order to secure sovereignty. Bloomberg
Building Better Leaders
The biggest economic risk in 2017…
…is uncertainty, Philadelphia Federal Reserve Bank president Patrick Harker says. CEOs need time to react to changes. Knowledge@Wharton
To ensure your resume stands out…
…include a section on your interests and get strangely specific. Enjoy cooking? Then mention the cooking competitions you host with friends. Fortune
Finally quit the job you hate?
Don’t burn bridges on your way out by bashing your former employer on social media. Also, create a transition plan to help your colleagues handle your departure. Washington Post
Fiat Chrysler to invest $1 billion in U.S. plants
Sergio Marchionne‘s company says the investment in the Midwest factories will create 2,000 jobs. The plants in Ohio and Michigan will be revamped to build Jeep SUVs. The company says the decision is unrelated to Donald Trump‘s recent remarks criticizing Ford, GM, and Toyota for building cars outside the U.S. CNBC
BMW reaffirms plans for Mexican plant
Despite Trump‘s threats that carmakers building vehicles in Mexico for sale in the U.S. will face steep border taxes, Harald Krueger‘s company will move forward on its $1-billion factory in the Mexican state of San Luis Potosi. The plant will build 3-series cars for North American distribution. Fortune
Waymo unveils its autonomous sensors
Alphabet’s autonomous driving company says it will begin testing sensors on Chrysler minivans this month. The completely autonomous vehicles use sensors designed and built by Waymo; CEO John Krafcik says making them in-house rather than buying them from a supplier cut the cost from $75,000 per vehicle to $7,500. Detroit News
Up or Out
Facebook has hired former CNN host Campbell Brown to head its news partnerships division. WSJ
Fortune Reads and Videos
The Limited will close all 250 stores
It will cut 4,000 jobs and continue to sell online, though it’s not clear for how long. Fortune
The Senate will take initial steps…
…to repeal Obamacare this week, says Majority Leader Mitch McConnell. He said a replacement would be enacted shortly after final repeal, but specifics remain thin. Fortune
Russia asked that LinkedIn’s mobile app be banned…
…because LinkedIn doesn’t store data on Russians in Russia. Apple and Google have complied, removing it from their app stores in Russia. Fortune
Prince had 67 gold bars…
…worth $840,000 at the time of his death. Fortune
Quote of the Day
“Now, everybody always says there’s no ‘I’ in team, but there is an ‘I’ in win, because the individuals make the team what it is, and how they think and what they do is important to the team. So when you act like the individual is not important, well, it is damn important who these people are and what they are.” — University of Alabama football coach Nick Saban. Fortune