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WHAT’SNEXT BUSINESS 3.

Four Futures for China Inc.


I NVESTING IN THE WORLD’S LARGEST EMERGING ECONOMY IS RISKY BUSINESS. SURE,
China’s GDP has more than doubled since 2000, and VCs report eye-popping ROI from Chi-
nese investments. But with the ever-present threats of corruption, environmental crisis, and
social turmoil, how long can that winning streak last?
resolve conflicts
diplomatically

high economic
low economic
We asked Global Business Network, a San Francisco consultancy whose clients range from

influence

influence
Coca-Cola to the U.S. government, to give us four scenarios for the future of China. In scenario plan-
ning—GBN’s specialty—you take two variables, intersect them, and treat each of the four result-
ing quadrants as a possible future (see diagram at right). So Beijing may continue to be a rising eco-
nomic power and resolve disputes peacefully (scenario 1), but it’s just as likely to grow slowly and resolve conflicts
stop playing by international rules (scenario 3). We’ve listed them in order from least disruptive militarily
to most disruptive, but your business needs to be equally prepared for all outcomes.

1 EMPEROR OF BUSINESS
China grows peacefully and plays by the rules.

In this dream scenario, China becomes global business’s best friend.


After a wave of political and economic reform, Beijing is willing to
play by Western trade rules and navigates through all internal woes,
economic and environmental. The nation provides a credible, consis-
tent infrastructure and cracks down on piracy. Beijing’s streets are
full of stores selling legitimate software and DVDs. As predicted by a
Goldman Sachs study in 2003, China’s GDP surpasses that of the
United States by 2041. More Europeans are learning Mandarin than
English as a second language. Chinese workers become so prosper-
ous that industry starts turning to Africa for cheap outsourced labor.
WHAT IT MEANS FOR YOUR BUSINESS: Investment in China is duly re-
warded. Though the United States’s relative cultural influence wanes, a
massively affluent Chinese middle class is spending more than ever.

2 EMPEROR’S NEW CLOTHES


China’s growth rate is short-lived; it becomes a bigger Brazil.

As the adage goes, “Brazil has a bright future, and always will.” In this
scenario, China heads in the same direction—driven by boundless poten-
tial but never quite achieving First World status. The country flounders in
the face of environmental crisis, political unrest, poverty, and government
corruption. (Indeed, businesses in China already perceive a steadily in-
creasing level of corruption, according to nonprofit group Transparency
International’s corruption index.) Growth first sputters, then grinds to a
halt. Some provinces demand autonomy, and Beijing’s tax collectors are
rebuked. Infrastructure crumbles.
WHAT IT MEANS FOR YOUR BUSINESS: As has happened with Brazil, China
could still pay off nicely for foreign investors, regardless of its internal
strife. But it will take a lot of local knowledge to get the payout. Long-term
investments may sour, especially if the Communist Party cedes economic
and political control.

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WHAT’SNEXT BUSINESS 3.0

3 EMPEROR
OF ASIA
China grows, but only as fast as its neighbors.

In this scenario, China enters an era of neo-


regionalism. Think pre-World War I Europe,
except in Asia. China grows at the same rate
as its neighbors and finds itself jockeying for
resources with India, Japan, and Russia. A
web of Asian economic interdependence
evolves. Japan, South Korea, and Taiwan sign
trade treaties and mutual defense pacts.
Nationalist protests among ordinary Chinese,
which have increased from 10,000 in 1990 to
74,000 in 2005, continue to grow—and even
start to target Western corporations. Beijing’s
streets are dominated by Chinese compa-
nies. Regional saber rattling puts a brake on
globalization. Service-sector outsourcing
leaves China and moves to Africa and South
America—now perceived as safer.
WHAT IT MEANS FOR YOUR BUSINESS:
You’ll need to hedge your bets on supply
chains and watch events closely, as one
Asian trade partner may not look kindly
upon another. U.S. companies will find them-
selves aligning more with Latin America
and Canada as the globe becomes ever more
factional and regionalized.

4 EMPEROR OF
THE WORLD
China’s speedy growth tips all the scales in its favor.

In this scenario, China acquires economic power so


quickly that it retains the ability to play by its own rules.
Through sheer scale, it forces trade partners to play by
those rules too. Beijing stops buying U.S. Treasury bills,
and the Fed is forced to hike interest rates. The yuan re-
places the dollar as the global currency standard. Piracy
is rampant, and intellectual property rules are all but
forgotten. China’s military spending continues to rise,
the nation fosters alliances with India and Russia, and
the United States loses leadership in world affairs.
WHAT IT MEANS FOR YOUR BUSINESS: Companies that
play by China’s rules may find themselves conflicted in
their interests globally. Growing hostility toward China
in the United States could have a deleterious effect on
investments. Large businesses may start moving their
headquarters to Beijing. ■

Scenarios by Doug Randall and Jesse Goldhammer, con-


sultants at Global Business Network, a Monitor Group com-
pany where Randall is a partner.

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