Global Risk Themes 2020, #2: Strategically Assertive China

The range of uncertainty around China’s international behaviour heading into 2020 is lower than for the US. This is because it lacks the unpredictable variable of elections and is grounded in a clearer strategy.

Elements of this strategy are highly disruptive from a Western perspective, including the large-scale subsidisation of state-controlled companies and systematic acquisition (including theft) of data and technology. Overseas investments and the development of supporting political relationships through the Belt and Road initiative are also destabilising local power balances across Asia as well as in parts of Africa and Latin America.

Nonetheless, a push to develop global supply chains and export markets means that Beijing broadly desires stability in international affairs. China is also a net loser from the current trade conflict with the US, meaning that Beijing will be receptive to constructive overtures from Washington during 2020. However, its willingness to engage in substantive talks will diminish towards the US election in November and there have already been indicators in late 2019 of Beijing seeking to accelerate trade discussions with the EU, Japan and South Korea, partly as a hedge against the unpredictably of relations with the current US administration. 

Domestically and in its near abroad China will remain assertive. In addition to ongoing unrest in Hong Kong, China will be particularly sensitive to actions perceived as undermining its sovereignty over Taiwan given elections taking place there in January. It will meanwhile continue to push territorial claims in disputed areas of the South China Sea, including through the advancement of offshore resource exploration campaigns. These could lead to further localised flashpoints with maritime neighbours such as Vietnam. However, signs during 2019 that China’s militarisation of the region is peaking will reduce the risk of these escalating into wider confrontation.

Globally, businesses will be exposed to China’s strategic assertiveness in the cyber domain and through other channels of espionage such as supply chain and joint venture partnerships, insiders and relationships with technology research organisations. China’s covert acquisition of information will remain particularly heavily focused on appliances, data and devices, aerospace and defence, industrial machinery and robotics, advanced medical equipment, and new and renewable energy technologies.

Companies partnering with Chinese entities internationally, particularly in countries receiving substantial investment under the Belt and Road, face an indirect but rising threat of hostility by association, both among impacted communities and high-level political stakeholders. Meanwhile, companies with investments or physical footprints in China risk coming under reputational scrutiny and pressure to take public positions in the event of further unrest in Hong Kong, a potential renewal of anti-China sentiment in Taiwan and continued international attention on China’s treatment of its Muslim minority in Xinjiang.

Sibylline Annual Forecast 2020: Global Themes

This post is part of a series of eight global themes to watch in 2020. These form part of our annual forecast product, released to clients in December and including regional deep dives on the Americas, Europe, MENA, Africa, Eurasia and Asia Pacific in addition to an overview of key events and flashpoints in the year ahead. Please contact us if you are interested in receiving this product or finding out more about the World Risk Register.