How Beijing can build trust in Chinese companies

If ever there was a stark reminder of the lack of trust in Chinese companies in the west, it is surely the Committee on Foreign Investment in the US’ (CFIUS) recent investigation into pork as a national security threat as part of Shuanghui International’s acquisition of US meat producer Smithfield Foods. Finally approved by shareholders on September 24, the deal is the largest takeover of a US company by a Chinese firm to date.

Given images of dead pigs floating in droves down the Yangtze River and the generally parlous state of food in China, food safety is a legitimate concern for US regulators. Yet the availability and safety of pork can hardly be said to be critical to the health and welfare of the average American citizen.

The real issue? That Shuanghui is Chinese and the deal is viewed in Washington as another instance of the long arm of the Chinese government willfully and steadily eroding US dominance in one industry after another.

For many in the west, Chinese companies continue to be seen as purveyors of poor quality goods produced at low cost with little concern for employee well-being or safety. Traditionally focused on increasing local sales, building market share and closely managing their relationships with key customers, investors and the mainland government, Chinese firms have had little reason to tackle the preconceptions – merited or otherwise – of foreign policy-makers and opinion-formers.

As they expand into western markets, China’s companies find themselves having to win support in Washington and Brussels. To gain the confidence of policy-makers and regulators, they must demonstrate strong governance and a substantive commitment to the local communities in which they hope to operate by hiring and empowering local people and developing strong local partnerships. Honest and open communication, something that does not come naturally to Chinese corporate leaders, is also vital.

More challenging are allegations of covert support from the Chinese government and close connections with the military, as Huawei has discovered. While difficult for third parties to prove, these claims are also tricky for Chinese companies of all types to deny plausibly, especially at a time when China is aggressively creating a roster of national and global champions.

With these concerns increasingly raised in western capitals, Beijing could help the cause of Chinese companies by clarifying how state aid is allocated and to which entities, further strengthening corporate governance standards and insisting on more detailed reporting. Better still, it should free up competition in the many sectors still dominated by China’s state-owned enterprises.

In light of the increasingly political nature of decisions regarding foreign investment in the west, Beijing should also pay attention to how China itself is viewed amongst opinion-forming elites and the general public. Research shows that while people across the world believe that the global balance of power is shifting in China’s favour, the country’s image remains poor in the west and has gotten worse in recent years due to perceptions of widespread corruption, growing military power and its increasingly vocal claims in the South China Sea. China’s growing commercial clout and the way it does business are also frequently cited as concerns.

Conscious of its image, Beijing has been attempting to improve China’s standing through a wide range of ‘soft power’ initiatives, including a huge investment in the expansion of CCTV and part-funding the roll out of Chinese language and culture Confucius Institutes across the world. In the US alone there are now over 70 Confucius Institutes.

Nevertheless, as Harvard political scientist Joseph Nye has pointed out, true soft power is rarely achieved employing top-down measures; rather it is only accumulated when businesses, artists, academics and others are allowed to flourish freely and independently and concoct ideas and products with real global appeal.

To win hearts and minds, China could usefully learn from its South Korean neighbour and specifically from PSY and Samsung, both of which have transformed perceptions of their home country more effectively than decades of institutional effort by the government in Seoul.

To turn heads in the west and open up new markets to Chinese products, Beijing has much work to do improving its own business backyard before its companies are trusted.

Its strongest long-term card may lie in creating a level and fertile playing ground on which individual voices and entrepreneurs can flourish.

Disclosure: Huawei is a former client.