What Foreign Investors Should Understand About China’s Political System… But Usually Don’t


There is a world of difference between claiming you understand a principle and actually internalizing the principle in question. The attitude of many foreign investors with respect to how things work in China politically speaking frequently represents an eloquent example to that effect. The difference between talking the talk and walking the walk, if you will.

In other words, if one were to engage in a conversation with the average Western investor related to his expectations surrounding the political dimension(s) of investing in China, of course it’s quite likely that the person in question will state that yes, he understands that things work differently in China. The main problem, however, is just what he actually associated with the term “differently” in his mind.

For example, the political landscape in the United States and let’s say Germany are different. But it’s a more nuanced “different” than what you’d use to compare the United States to China or Germany to China. This is because, as far as the liberal democracies of the West are concerned, there are indeed core differences but also a lot of common denominators. In the case of China, many of these common denominators disappear.

It bears repeating: China is not a liberal democracy, nor does it resemble anything close to a liberal democracy. Time and time again, foreign investors who initially claim they “understand” these subtleties actually don’t and end up being shocked when finding out how this or that works in China. This is because the number one, two, three and all the way up to ten mistakes foreigners make when analyzing China is trying to do so through a Western lens.

That tends to be a less than stellar idea… to put it mildly.

This is because in the West, people have come to accept certain things as quasi-axioms. For example, aspects related to human rights. China is a textbook example of a jurisdiction where many of the axioms people tend to take for granted in Europe or the United States are just not valid. While it is true that there has been tremendous progress in China across a WIDE range of dimensions, let’s just say the economic breakthroughs are far more obvious than the political ones.

How you adapt to this reality is entirely up to you.

It is worth noting that political systems are not static. There’s a significant difference between the European Union prior to the Great Recession having a dramatic effect on the PIIGS nations (Portugal, Italy, Ireland, Greece and Spain) and today’s European Union. The same way, few would have predicted the developments which have taken place in 2016 over in the United States and the list could go on and on.

China most definitely doesn’t represent an exception and its demographics speak for themselves. Going from a primarily subsistence-based agrarian existence to actually having a middle class that is becoming both more educated and more financially potent with each year that passes is not something that can happen with zero political implications. Perhaps changes will be slower than what many in the West are hoping for, maybe the pace will eventually accelerate but yes, it is worth noting that in the political world, the over-used cliche that the only constant is change makes perfect sense.

Still, no matter what you believe the future has in store for China politically, you have to live and make investment decisions in the present. And without a deep understanding of what makes China dramatically different from the West, you are bound to make one costly mistake after another. As an entity run by people who put a compelling combination between academic credentials and hands-on experience on the table (read the About Us section for more information), ChinaFund.com is here to help with just that.

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