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WHATSNEXT BUSINESS 3.0

In this dream scenario, China becomes global businesss best friend.

After a wave of political and economic reform, Beijing is willing to

play by Western trade rules and navigates through all internal woes,

economic and environmental. The nation provides a credible, consis-

tent infrastructure and cracks down on piracy. Beijings streets are

full of stores selling legitimate software and DVDs. As predicted by a

Goldman Sachs study in 2003, Chinas GDP surpasses that of the

United States by 2041. More Europeans are learning Mandarin than

English as a second language. Chinese workers become so prosper-

ous that industry starts turning to Africa for cheap outsourced labor.

WHAT IT MEANS FOR YOUR BUSINESS: Investment in China is duly re-

warded. Though the United Statess relative cultural influence wanes, a

massively affluent Chinese middle class is spending more than ever.

As the adage goes, Brazil has a bright future, and always will. In this

scenario, China heads in the same directiondriven by boundless poten-

tial but never quite achieving First World status. The country flounders in

the face of environmental crisis, political unrest, poverty, and governmentcorruption. (Indeed, businesses in China already perceive a steadily in-

creasing level of corruption, according to nonprofit group Transparency

Internationals corruption index.) Growth first sputters, then grinds to a

halt. Some provinces demand autonomy, and Beijings tax collectors are

rebuked. Infrastructure crumbles.

WHAT IT MEANS FOR YOUR BUSINESS: As has happened with Brazil, China

could still pay off nicely for foreign investors, regardless of its internal

strife. But it will take a lot of local knowledge to get the payout. Long-term

investments may sour, especially if the Communist Party cedes economic

and political control.

EMPEROR OF BUSINESSChina grows peacefully and plays by the rules.1

EMPERORS NEWCLOTHESChinas growth rate is short-lived; it becomes a bigger Brazil.2

INVESTING IN THE WORLDS LARGEST EMERGING ECONOMY IS RISKY BUSINESS. SURE,

Chinas GDP has more than doubled since 2000, and VCs report eye-popping ROI from Chi-

nese investments. But with the ever-present threats of corruption, environmental crisis, and

social turmoil, how long can that winning streak last?

We asked Global Business Network, a San Francisco consultancy whose clients range from

Coca-Cola to the U.S. government, to give us four scenarios for the future of China. In scenario plan-

ningGBNs specialtyyou take two variables, intersect them, and treat each of the four result-

ing quadrants as a possible future (see diagram at right). So Beijing may continue to be a rising eco-

nomic power and resolve disputes peacefully (scenario 1), but its just as likely to grow slowly and

stop playing by international rules (scenario 3). Weve listed them in order from least disruptive

to most disruptive, but your business needs to be equally prepared for all outcomes.

Four Futures for China Inc.resolve conflictsdiplomatically

higheconomic

influence

resolve conflictsmilitarily

low

economic

influence

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WHATSNEXT BUSINESS 3.0

China grows, but only as fast as its neighbors.

In this scenario, China enters an era of neo-regionalism. Think pre-World War I Europe,

except in Asia. China grows at the same rate

as its neighbors and finds itself jockeying for

resources with India, Japan, and Russia. A

web of Asian economic interdependence

evolves. Japan, South Korea, and Taiwan sign

trade treaties and mutual defense pacts.

Nationalist protests among ordinary Chinese,

which have increased from 10,000 in 1990 to

74,000 in 2005, continue to growand even

start to target Western corporations. Beijings

streets are dominated by Chinese compa-

nies. Regional saber rattling puts a brake on

globalization. Service-sector outsourcingleaves China and moves to Africa and South

Americanow perceived as safer.

WHAT IT MEANS FOR YOUR BUSINESS:

Youll need to hedge your bets on supply

chains and watch events closely, as one

Asian trade partner may not look kindly

upon another. U.S. companies will find them-

selves aligning more with Latin America

and Canada as the globe becomes ever more

factional and regionalized.

EMPEROROF ASIA3

Chinas speedy growth tips all the scales in its favor.

In this scenario, China acquires economic power so

quickly that it retains the ability to play by its own rules.

Through sheer scale, it forces trade partners to play by

those rules too. Beijing stops buying U.S. Treasury bills,

and the Fed is forced to hike interest rates. The yuan re-

places the dollar as the global currency standard. Piracy

is rampant, and intellectual property rules are all but

forgotten. Chinas military spending continues to rise,

the nation fosters alliances with India and Russia, and

the United States loses leadership in world affairs.

WHAT IT MEANS FOR YOUR BUSINESS: Companies that

play by Chinas rules may find themselves conflicted in

their interests globally. Growing hostility toward China

in the United States could have a deleterious effect on

investments. Large businesses may start moving their

headquarters to Beijing.

Scenarios by Doug Randall and Jesse Goldhammer, con-

sultants at Global Business Network, a Monitor Group com-

pany where Randall is a partner.

EMPEROR OFTHE WORLD4