Fri, Aug 06, 2021 page8

• ‘Greater China’ is a harmful myth

  • By James Lee 李牮斯
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  We all had a similar experience when we were kids: “Broccoli or spinach?” mom asked.

  “Spinach,” I would respond, not knowing that any vegetables aside from the two presented greens were available. Mom’s trick influenced her kids to eat healthy.

  Choice of words can influence human thinking and actions, and even shape people’s perceptions of the world.

  Taiwanese understand that words matter. Over the past few weeks when “Taiwan” was spoken in place of the oppressive “Chinese Taipei” at the Tokyo Olympics, it symbolized a fundamental geopolitical shift that was heartwarming to freedom-loving people around the world.

  There is also a dark side to the art of language, which the Chinese Communist Party (CCP) has mastered from its long historical roots of “political struggle.”

  When a certain event “hurts the feelings of 1.3 billion Chinese people,” as we too often hear, it is just something not going the CCP’s way. The CCP uses rhetorical tricks to rubbish truth and confuse justice seekers in the international arena.

  The good news is that with greater awareness and the use of precise language, democratic governments and Western media have started to inoculate themselves from the CCP’s fog of words.

  However, while governments have a good grasp of the CCP’s playbook, the private sector lags behind, creating risks to corporations and their shareholders. Specifically, there is a “Greater China” problem in businesses. The BioNTech vaccine episode is a good example.

  There were many forces at play that handicapped Taiwan’s efforts to secure the BioNTech vaccine, but one cannot deny the possibility that a purchase agreement could have been inked months earlier, if not for the exclusive distribution rights given to Shanghai Fosun by BioNTech in “Greater China.”

  This translates to lost business opportunities and delayed profits for BioNTech, caused by the company’s unassuming subscription to “Greater China.” In reality, the phrase is outdated and creates future risks.

  Decades ago, there was justification for using the term “Greater China” in corporate playbooks when the CCP opened the country to global trade. International companies needed the language and market access know-how from neighboring Taiwan and Hong Kong to tackle the new market. It was efficient to wrap these markets into one verbal description, one idea, and ultimately one organizational structure.

  However, the low hanging fruit of revenue in China has been picked as the market matures. The defunct “Greater China” framework no longer provides competitive advantage to companies operating in Asia and could even become a liability right under the nose of corporate executives.

  The “Greater China” framework has failed to guide companies such as Kodak, the NBA and so on, in the increasingly nationalistic authoritarian China, which includes Hong Kong. These companies were caught wrong-footed, lost revenue and had to put away their moral compass to impose self-censorship. Other companies more in tune with global affairs got a head start by relocating staff and resources to Taiwan to mitigate risks.

  To excel in Asia, businesses need to avoid describing markets, formulating strategies, or worse — structuring businesses — around “Greater China” terms. If not for moral reasons, at least for the profit-seeking fiduciary duty to shareholders.

  After all, “Greater China” is an oxymoron that no longer serves sound business rationales. It is great for the CCP’s political agenda, but for shareholders of a company, it means mistakenly treating two markets that have fundamentally different ethical guidelines and rules of law as one and the same.

  Or should we say “the lack of rules of law” in the case of authoritarian China, which left Wall Street with a bitter taste in the past few weeks, as hundreds of billions of US dollars were wiped off listed Chinese stocks due to unpredictable CCP policies toward the tech sector.

  Not only is the term “Greater China” an impediment to companies’ shareholders, it is also an obstacle to Taiwan’s public health policies, and thus Taiwanese’s well-being. The BioNTech incident is not the lone example. Zai Lab was one of the most successful US-listed Chinese companies, which built its fortune by providing “Greater China” access to international drug companies. After securing exclusive rights in “Greater China,” Zai Lab launched cutting edge treatments in mainland China and Hong Kong, but put Taiwan in the back seat with minimal commercial progress.

  If pharmaceutical companies had not fallen for the “Greater China” trap, but instead tackled democratic Taiwan directly as a separate market from authoritarian China, additional profits could have been generated, and healthcare in Taiwan could have received a boost.

  There is much the Taiwanese government can do. More than 200 listed companies in the US alone have used the term “Greater China” in earnings calls this year. The list includes blue-chip names such as Microsoft and Nike that our government retirement funds likely have exposure to.

  Perhaps in the next earnings call, for national security reasons and as concerned shareholders looking after their investments, Taiwanese portfolio managers should suggest that these companies focus their strategies in “Asia ex-China” or “Indo-Pacific” markets.

  Give them a choice between the two, but do not mention “Greater China.” It is good for the health of these companies and for Taiwan.

  James Lee is a former hedge fund chief investment officer.
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