Fri, May 30, 2008 page8

• Is Tibet bad business for China?

  • By Adam Strangfeld
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  When a Chinese security official recently accused followers of the Dalai Lama of organizing suicide attacks — merely the most extreme of a barrage of allegations against the “Dalai clique” — it was as though the Cultural Revolution were still raging. Indeed, particularly where Tibet is concerned, the increasingly sophisticated and pragmatic Chinese leadership seems more like a throwback to the Mao era, with its haranguing propaganda and coercive policies.

  Do foreign investors have reason to be worried by all this?

  While there is arguably a genuine possibility that the recent protests in Tibet will prompt the authorities to change course, early signs are not promising. So far, the regime has merely applied the same blunt measures that fueled Tibetans’ grievances in the first place. International pressure alone will not change this. Domestic pressure could, but any such opportunity has perished on the battlefield of a public-relations war.

  On one hand, some international media painted a black-and-white (and not always entirely objective) portrait of the March violence as a brutal Chinese crackdown on peaceful Tibetan monks. On the other hand, official Chinese media have stoked domestic anger at perceived Western anti-Chinese bias. With nationalist sentiment aroused, few Chinese are asking why the violence occurred.

  Of course, the Tibet issue has been around for decades, generally without posing serious problems for foreign investors. But the combination of the first serious unrest in Tibet in almost 20 years and the wider groundswell of criticism being directed at China ahead of the Beijing Olympics has sent businesses and investors scrambling to assess what it means for them, particularly in terms of reputational and ethical concerns.

  The Tibet-related protests at several Chinese embassies around the world and during the Olympic torch relay merely provide a glimpse of what is likely to follow. Investors in China must consider their vulnerability to negative publicity and be confident that they can explain their position. Some have already been forced to do so, and many could conceivably be targeted in connection with ongoing campaigns to draw international attention to various human-rights issues ahead of the Olympics.

  The most vulnerable firms are generally those with the highest public profile, those making the largest or most visible investments, those that are major sponsors of the Games and those with some specific connection to Chinese government policies in Tibet. The latter group includes extractive and construction-related companies operating in partnership with the government of the Tibet Autonomous Region (TAR) itself. They face the greatest difficulties, both in terms of distancing themselves from government policies and in countering negative investor perceptions about the viability of operations there in the current climate.

  Of course, foreign investment in the TAR is a drop in the ocean relative to that in China as a whole. Activists cannot possibly take aim at all foreign businesses in China, so most firms are unlikely to be specifically targeted or suffer reputational damage. It seems highly doubtful that the tide of international opinion will turn against China to the extent that investors in general are seriously expected to shun the market.

  Nonetheless, where firms or industries are particularly vulnerable to reputational issues, image and ethics could be a significant factor in more marginal business decisions (particularly with rising costs and tougher labor regulations already causing some firms to look elsewhere).

  Meanwhile, the most recent twist in the Tibet fallout serves as a striking reminder of how China’s newfound assertiveness and clout on the international scene is creating an increasingly complex challenge for foreign companies.

  While Western firms investing in China must face the prospect of protest and criticism back home from pro-Tibet campaigners, some companies are coming under pressure in China itself. The big French retailer Carrefour has seen protests at its stores all over China by nationalist activists incensed by the protests that took place in Paris when the Olympic torch passed through the city.

  In the current climate, many businesses will find it difficult to avoid becoming stuck between a rock and a hard place.

  Adam Strangfeld is research director at Control Risks, an international business risk consultancy.

  Copyright: Project Syndicate
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