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China: It's all in the numbers | Analyst Picks | RiskMap 2020

China

China risk forcast

It's all in the numbers

The uncertainty and disruption the US-China trade war posed to businesses made it RiskMap’s number-one global risk a year ago, and it will loom again over 2020. By the time we launch this year’s RiskMap a “phase one” trade deal may have been signed or broken down. That will impact the scope and intensity of the trade war going into 2020 but certainly won’t end it. Any truce will be partial and fragile; breakdown would trigger swift escalation.

In the past year, we have seen companies asking existential questions that once seemed like distant or outlier scenarios: How far will economic decoupling really go? Will companies in strategic sectors be forced to choose between markets? Will some be squeezed out of China by Beijing’s drive for more industrial self-reliance? But, the majority of clients are still committed to the China market, and it remains a big part of their growth plans.

Risk perceptions are relative to opportunities and to alternatives. China still looks pretty good on both fronts. It has the most compelling consumption growth story in the world, and some firms hope to benefit from Beijing’s efforts to show that foreign investment is still welcome. Many companies compare China to countries where they face risks such as actively hostile policies or predatory senior officials, major physical security threats, or governments and infrastructure that don’t function. Overall, China remains far from a high-risk market, as reflected in our RiskMap ratings.

The questions for most companies in 2020 are not about whether to exit China, but how to adapt to the new environment and better manage risk. Some challenges are linked to the trade war, notably the difficulty balancing conflicting political, regulatory and reputational pressures from China versus other jurisdictions. And, if or when geopolitical tensions escalate, China still has many more retaliatory tools that could target foreign companies, such as its planned Unreliable Entities List.

Domestic trends such as intensified regulatory enforcement will be just as important. Enforcement has been rising for years across antitrust and competition, cyber security and data regulation, environmental protection, and food and drug safety. This will be even more challenging in the context of a more nationalist mood, and increased consumer and media criticism of large foreign companies.
 

 

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RiskMap 2020

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