Sunday, 7 August 2016

Dr. R. Evan Ellis: China: Learning to do Business in Latin America

From July 16-31, 2016, I had the opportunity to travel to Beijing, China to teach a course on Latin America at the University of International Business and Economics.  While there, as usually occurs when I travel to China, I also had the opportunity to speak to colleagues there, including academics, businessmen, and in one case, Chinese managers and technical personnel being trained for assignments to Latin America and the Caribbean. 

I was impacted by the questions and perspectives that my Chinese colleagues offered me regarding the region, as well as their efforts to prepare themselves and their companies to be successful there.  Such Chinese perspectives regarding Latin America are not commonly heard in the West beyond Chinese media and journal articles, the content of which is generally self-censored or edited for political correctness.  Thus, I write this article to relay some of those Chinese perspectives, albeit through my own conservative Western eyes.

Among the conversations I had during my visit, I had the opportunity to interact with a number of mid-level Chinese personnel selected and preparing for possible foreign assignments to Latin America.  Their selection, from within a very large company, identified them as a special group, among the best and brightest leaders and technical personnel in their companies.  Their questions and comments were refreshingly deep and provocative, putting a uniquely Chinese spin on many of the profound questions that Latin Americans ask themselves in different forms.  They ranged from the profound: “Why have Latin American economies failed to develop when the US has become so successful?” to the humorous (yet tragic) “Why does Latin America continue to elect such crazy leaders?” 

I heard comments so insightful, or ironic, that I felt compelled to write them down, including “If a problem can be solved by money, it’s not the real problem.”
I was struck by the number of questions from my Chinese colleagues that concentrated on personal security in Latin America, reflecting their perception that the region is a terribly dangerous place, by contrast to China where street crime is almost non-existent.

I was also impacted by the number of Chinese students in my class on Latin America who spoke good Spanish, by contrast to the almost complete absence of Spanish and Portuguese speakers among the older Chinese businessmen and academics with whom I spoke there.  A new wave of Chinese managers and technical personnel is coming soon to Latin America, who will not be as limited as the current generation in the effectiveness of their business and interpersonal interactions in the region.
While I was impressed by the preparations of my students and colleagues to do business in Latin America, I also realized that Chinese companies, banks and other institutions have structural impediments that will continue to limit their ability to successfully analyse and adapt to the Latin American environment. 

In talking to colleagues at one of China’s banks, and in several Chinese think tanks, I became aware that political risk, as understood in the West, is seldom incorporated into Chinese analyses of whether to make a loan or investment.  In one major Chinese bank, for example, I was told that the project teams brought together to analyze loans to a country are generally comprised of specialists from the industries involved, and not by experts on the country in which the loan is to be made.  More broadly, my Chinese colleagues told me that few Chinese think tanks analyse whether to engage in a commercial relationship, but rather, how to implement it once the decision to engage is made at higher levels.

At the operational level, one obstacle to the success of Chinese companies in Latin America is the difficulty of Chinese managers and workers in interacting with the local population and participating in the country’s economy in a manner that would facilitate better relations with the local community and labor force, and help the Chinese to understand and manage emerging issues.  While a number of my Chinese colleagues acknowledged this phenomenon, they argued that the Chinese parent company generally prefers to send a manager to a company without their spouse or child, in order to keep expenses down.  Nor did many of the Chinese managers I spoke to wish to bring their families to the region, even if they could.  On one hand, they perceive Latin America as a dangerous place to bring a family.  On the other, they worry that keeping their child out of the country for a prolonged period of time could hurt their competitiveness in the all-important national examinations that determine the college they can go to.

All of these pressures to go to Latin America on an unaccompanied assignment, in turn, reinforce the incentive of the Chinese manager or specialist to concentrate on his work rather than being part of the community, both to save money, and because of the prospect of punishment from the parent company and shame from his colleagues if caught behaving badly.

At lower levels, the impediments to Chinese workers developing ties with the local community are even greater. According to my Chinese colleagues many Chinese managers worry that the incorporation of local labor will interfere with the achievement of the project on time and within budget.  In part, they worry that projects with mixed labor forces will take longer and have more problems because the Chinese workers have an established way of working together that is difficult for the local workers to learn and adapt to, compounded by difficulties in communication at the worker level.  In addition, some Chinese see local workers as a burden because they are reluctant to work the same long hours, under difficult conditions, as their Chinese counterparts.  Indeed, the country’s labor laws often restrict the flexibility of Chinese managers regarding how local workers can be used.

This preference to rely on Chinese workers, however logical from the perspective of the Chinese project manager, is often resented by the local labor force and community, which believes that the jobs created by infrastructure projects paid for by their government should go to them. 

Beyond the issue of hiring, local resentment over the preference of Chinese construction companies to use Chinese workers is further compounded because those workers have little contact with the local community, and seldom spend their money in it.  When I raised this problem with my Chinese colleagues, one argued that Chinese workers try to save as much money as possible during their time overseas, and thus, spending their salaries in the community would distract from that pursuit.  In addition, from the perspective of the Chinese manager, having workers that they are responsible for interact with locals creates many risks that the managers would prefer to avoid, such as the workers getting into trouble, or being victimised.

While, in the short term, my Chinese colleagues thus argued that it was very difficult for Chinese companies to engage with the communities in which they operate, most did acknowledge that, for Chinese companies to succeed in the Latin American context in the long term, they would have to integrate themselves better as stakeholders in those communities, interacting with local actors at a personal and a business level, hiring more staff from the area, and empowering the local employees that they did hire, to best leverage their creativity and energy.

With respect to discussions of issues impacting Latin America, my Chinese colleagues were clearly concerned about the situations in Venezuela and Brazil, where the PRC has a significant number of outstanding loans and investment, although Peru, Cuba, and Argentina also regularly came up in conversations, and to a lesser extent, Ecuador and Mexico.

Most of my Chinese colleagues were very concerned about the situation in Venezuela, with some even wondering if they might have to evacuate personnel if public order collapsed, as they had to do in Libya in 2011.  Yet others, reflecting the positions of the Venezuelan government and media sympathetic to it, expressed surprisingly optimistic positions.  One argued with much conviction that things were not that bad in the country, and that many of the negative stories had been made up by people seeing to overthrow its president Nicholas Maduro.  The same person insisted that the long lines in front of Venezuelan stores, as seen on television, were only there because people did not want to pay higher prices demanded by speculators.  He further argued that most of the more than 100,000 Venezuelans who crossed the border into Colombia in mid-July to buy food voluntarily returned to the country, thus showing that conditions there were really that bad.  I mentioned to him that many Venezuelans were staying in Colombia as well, yet I sensed it was a moot point.

Despite such sentiments, perhaps the more mainstream view among my Chinese colleagues was that that China “regrets” having loaned so much money to the country.  One person I spoke with squarely blamed the current Venezuelan government for its economic problems, arguing that it didn’t “learn from Chinese wisdom” such as the importance of taking care of its industry and respecting the market.
With respect to Brazil, I found that some of my Chinese colleagues believe in former president Dilma Rousseff’s allegations that the impeachment proceedings are a sham to remove her from power, and that if she is not exonerated of charges and return to power in late August, then her party, possibly led by her protégée Luiz Ignacio Lula da Silva, will surely win the presidency in 2018.

I recognized that much of China’s information about the region comes from the leftist regimes with which they have close ties.  As often happens with US officials talking to their counterparts in the region, Chinese corporate and government officials may get privileged information from their government partners, yet that perspective will often be biased by what those partners want China to believe.

Despite occasional misperceptions, I found my Chinese colleagues remarkably realistic about the strengths and weaknesses of their position in the region.  One noted that, by contrast to the US, China’s relationship with the region is unsustainable; whereas many people in Latin America follow a US-inspired model of free markets and democracy out of conviction, much of the region’s interest in working with the PRC is based on the material benefits they expect, making China vulnerable to a sudden negative shift in opinion when its gifts run out.

A frequent topic of discussion with my Chinese colleagues, of course, was the U.S. Presidential election.  I found Chinese opinion notably divided.  Many were concerned about the unpredictability that Donald Trump could bring to US-China relations, including that he might bring the vengeful behavior displayed during the campaign into his dealings with the PRC.  I was surprised that more than one of my Chinese colleagues were well aware of the abnormally large number of lawsuits he involved himself in as a businessman.  Some hoped Trump’s pragmatism as a dealmaker would help US-China relations.  One, in a refreshing display of honesty, told me that America’s withdraw from world affairs that would likely occur under Trump would likely benefit China’s position globally. 

With respect to Hillary Clinton, I was surprised that almost all of my Chinese colleagues expressed dislike for her because of her perceived long record of anti-China positions while Secretary of State.  Such disdain notwithstanding, one hoped that a Hillary Clinton administration might also include a role for her husband, who had relatively good relations with the PRC during his presidency.

From the perspective of the US and Latin American businessmen, it is clear that Chinese companies will continue to expand their presence in the region during the coming years.  Despite structural obstacles, through creativity and learning, their local corporate operations will increasingly become more competitive, as well as their products and services.

Many in the US have legitimate concerns about the effect of expanding Chinese commercial activities on the US strategic position in the region, as well as on its efforts to advance a policy agenda of good governance, free markets, and democracy.  Yet attempting to block China’s commercial expansion would likely be both ineffective and counterproductive with respect to US relations in the region. 

What the US can do, is to work with partners in the region to support and strengthen their government institutions, so that the nations of Latin America and the Caribbean can reap the greatest possible benefits of expanding trade with, and investment from, the PRC, in a form that is transparent, fair to other competitors, and consistent with the rule of law.

As difficult experiences of Chinese companies in Venezuela, Guyana and elsewhere have shown, such practices are also arguably good for China, and help to create the framework in which both Chinese and non-Chinese companies in the region can succeed, the US and others do not feel threatened, and Latin America can advance further toward development and prosperity for all.