Four key China-specific risks that pose management challengesFour key China-specific risks that pose management challenges and demand pragmatic risk management approaches. These are:
1. Possibility of a hard landing—Despite the Chinese government's apparent success in avoiding an economic hard landing in the short term, businesses are still concerned that unstable elements may precipitate a hard-landing in the medium term. This situation would demand extraordinary skill from the government to continue the reform process while navigating between foreign interests, domestic social and political change and sweeping institutional reform.
2. Political risks—Tensions between Mainland China and Taiwan are identified as the key potential flashpoint by many businesses. CEO responses show that the nearer they are to China, the higher the level of risk they perceive. Concern over these geopolitical risks is magnified by uncertainty over the reaction of the international community, particularly the United States.
3. Management styles—There is a stark difference between Chinese and Western management styles. Foreign companies looking to operate in China struggle to find local managers with Western management skills. In China, companies traditionally have been owned by or linked to the government, meaning management decisions have been influenced by broader objectives than profit and value creation. Chinese managers with Western management training and experience are in high demand.
4. Economic and financial risks—Businesses have identified economic and financial risk areas in the Chinese business environment. The banking system needs serious reform and the opening of financial markets to foreign banks brings new risks. At the same time, legal institutions and often impoverished local government bodies lack the means to enforce the law or provide adequate protection and governance, resulting in problems in aas such as intellectual property rights.
These risks are compounded by the fact that China is actually a collection of regional markets with different economic, political, social and operating conditions. China's government is trying to even out the regional imbalances, but these restructuring and investment programs will take time. In the meantime, foreign countries must tread carefully in China—and take a painstaking and pragmatic approach to risk.