MNCs GOVERNMENT ENGAGEMENT IN CHINA

Across the board all MNCs need to build/re-think their strategy around Government Engagement in China. There are three fundamental themes that have changed in China and are leading companies to revisit their GA (government affairs) strategies.

1. Increasingly decentralized landscape invites new challenges: Local governments in China are rapidly becoming more important and have greater roles in economic development and commercial investment issues; the governments are becoming economically liberalized and politically centralized. The rise of second-tier cities are encouraging the development of government relationship strategies from the national level to local levels. For example, MOFCOM delegated its approval authority for the establishment of FIEs (foreign-invested entities) within “encouraged” industries to its provincial counterparts. However, this is not to say that MNCs can shift focus from the national level to the local level. Because the central government still plays a decisive role in important policymaking, MNCs have to engage multiple sets of government authorities.
2. Guanxi” (relationships) is still necessary but no longer sufficient: In the past, engagement with government officials depended heavily on guanxi. Companies used passive approaches, primarily engaging with officials to address company specific problems. Now central government officials, who are increasing knowledgeable professionals appreciate industry context offered by multinational corporations to reduce policy controversies. Creating and maintaining positive relationships with the Chinese government is more about developing a deep understanding of policies and building a reliable public image than purely relationship building with government officials.
3. MNCs that use their knowledge to engage with the governments are more likely to succeed in China

The Government Affairs function is prone to expectation conflicts and functional disconnection and increasingly a lot of MNCs merge their Government Affairs and Public Affairs teams in China. This is due to two issues:

1. Expectation Conflicts: Misaligned expectations complicate the balancing of business units’ short term commercial needs with headquarters’ long term policy studies as well as the application of global government affairs standards to the unique China context.
2. Functional Disconnection: The Chinese media is censored by the government. Separate government affairs and external communication functions may cause the misalignment of key messages and delay prompt and proactive reactions from government affairs.

Through industry associations and local relationships with NGOs, MNCs can play a very active role in ensuring that central policies are interpreted appropriately by the local government. Having the right advocacy through independent research, NGOs, will work in a company’s favor. Many MNCs report that local governments are taking much longer to make decisions, because the central government’s view on their long-term role isn’t clear.   

MNCs are leveraging on their distributors’ connections with local officials to build their own relationships with lower level governments. The conversations may be tough, but the outcomes are often profitable, because having a local face is a big part of building an effective strategy.