The uncertainty principle: Current China-U.S. relations test business and government

02 April 2019

By James Chang, China Financial Services Consulting Leader, PwC China and Jim Woods, Global and China/Hong Kong Risk Assurance Leader, PwC China

Cyber threats and terrorism don’t worry business leaders as much as they used to, judging from the responses to PwC’s 2019 Global CEO survey. But that doesn’t mean that CEOs are breathing easy. The focus of their concerns has shifted from hackers and terrorists to political trends and government policy, with over-regulation, policy uncertainty, geopolitical uncertainty, protectionism, populism and trade conflicts cited among the top 10 threats.


Social media graphics for US-China blog v1.0 LinkedinThe most prominent trade conflict is that currently playing out between China and the U.S. As Eurasia Group states in its recent report, 2019 Top Risks, the Trump Administration, ‘determined to force U.S. companies to reduce their reliance on inputs from China and to limit the transfer of intellectual property’, is using ‘non-tariff barriers as a key tool in this push, including investment restrictions, export controls, financial sanctions, and criminal indictments’.

China is responding with non-tariff measures ranging from 'constraints on the transfer of digital information to anti-trust decisions.' Such tit-for-tat measures, the report says, ‘will disrupt firms and broader industries, increasing costs and decreasing collaboration’.[1]

That disruption is already playing out around the globe, as companies diversify their customer and supplier bases, accelerate procurement schedules, and turn inward in search of growth. Nowhere are these trends more apparent than in China, where, according to the CEO survey, local businesses are shifting their focus to the domestic market, where the middle class is burgeoning, and to markets in Africa, the Middle East and Southeast Asia. Accelerating this movement is the Chinese government’s Belt and Road initiative, which promises to commit multiple trillions of dollars to investment and infrastructure projects across Asia, Africa, and Eastern Europe.

Seeking alternative paths to growth

The ripple effects of the current China-U.S. trade relations are by no means confined to China. Respondents to the CEO survey who reported that they were ‘extremely concerned’ about trade conflicts say that they are adapting to their new environment by adjusting their supply chains and sourcing strategies, targeting growth in alternate territories, delaying capital expenditures, shifting production to alternate locations and delaying foreign direct investment. Strong majorities are also relying on capturing operational efficiencies, emphasising organic growth and launching new products or services to reach their growth targets.

Social media graphics for US-China blog v2.0 LinkedinAs companies continue their transformations into digital enterprises, they must also closely monitor changes to data governance laws and regulations enacted as part of the ongoing renegotiation of trade agreements and the rules of international trade. Data is the lifeblood of digital business, and around the world, the debate over data is being framed as a stark choice between data barriers and the free flow of information, and between data localisation and data globalisation. The outcome of that debate will have significant implications for everything from AI to the fast-growing ‘access economy’, which reserves its greatest rewards for digital platforms that arrange rental access to assets such as housing and cars. To prepare for what’s likely to be a patchwork of competing and often conflicting data governance regimes, many global businesses are considering decentralised IT operating models and tiered approaches to data governance that apply global, regional and local templates to country-specific regulations.

Businesses are also taking a new, more holistic approach to risk. Checklists, heat maps and annual risk reviews are no longer adequate to identify and mitigate emerging risks in a volatile marketplace. That’s why many businesses are pivoting to a more dynamic risk posture, aided by analytics that take into account large quantities of structured and unstructured data. Constantly monitoring everything from shipping data to social media chatter to shifting demand patterns, analytics can help business leaders make better-informed decisions and respond with agility and flexibility to rapidly changing trends and events.

A gap in governance

Actions by individual businesses alone, however, can’t defuse international tensions or construct workable, widely accepted dispute-resolution mechanisms. Those mechanisms are in need of a major overhaul, according to ‘[a] rising chorus [that] is calling out the dangers of an outdated world trade system and laying bare the deficiencies of the World Trade Organisation’, as PwC notes in its recent report Top Policy Trends 2019.[2]

Business can and should contribute to shaping new policies and governance structures to address the conflicts that will inevitably arise during the transition to a digital economy. Business has an opportunity in the current unsettled environment to ‘become the de facto harmonisers of how data is collected, protected and used, at least across philosophically-aligned nations’,[3] as the Top Policy Trends report says. To assume this role, companies will need to make significant investments in data governance, be transparent about the use and storage of data, and increase individuals’ control over their personal information. By disclosing how they collect, store and use data, businesses can position themselves to influence new legislation and standards. And by incorporating data privacy standards and including privacy and cybersecurity expertise in strategy formulation and product design they can establish the trust that earns them a place at the policymaking table.

We believe businesses can best serve themselves and society by actively engaging with policymakers, regulators and the public to balance the need for innovation and the demand for reasonable data safeguards, the desire for robust international commerce and the need for an orderly system of global trade. A new world is forming around us, and it’s in the interest of business to help decide its shape.

[1] All quotes in this paragraph are from ‘2019 Top Risks’, Eurasia Group, 2019

[2] https://www.pwc.com/us/en/library/risk-regulatory/strategic-policy/top-policy-trends-2019.html

[3] Ibid.

Comments

There is no doubt that business should help to control and control risks, especially new political decisions and government policies, especially protectionism, but what helps global business leaders rethink technology and important developments in the digital transformation that is now underway in the world both in structured data analysis Structured, artificial intelligence, and blockchain ... etc

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been posted. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment