The Challenges of China Abroad

Dr. Scott MacDonald's picture

Much has been made about the expansion of Chinese multinational companies globally. While commodity prices were up, times were good for both Chinese companies and their local counterparts in Africa, other parts of Asia, and Latin America. Now that the Chinese economy is in the midst of a major structural change, economic growth is cooling, and China’s once mighty demand for commodities has plummeted. According to the International Monetary Fund (October 2015), oil prices fell 7.5% in 2014 and are set to fall another 46.4% in 2015 and yet another 2.4% in 2016. Nonfuel commodity prices fell 4.0% in 2014, are set to fall a further bruising 16.9% this year and another 5.1% next year. Many Asian, African and Latin American economies are in a state of harsh adjustment, which is building up resentment against Chinese multinationals and their mega-projects, like Chinese plans to construct a major $10 billion twin-ocean railroad across Brazil and Peru. Indeed, one Brazilian scholar Jose Eustaquien Diniz Alves recently stated: “We're experiencing the downside of our overreliance on China now that the opaque Chinese economy is in flux. Imagine what will happen if this railway somehow advances, bringing with it environmental devastation and even more leverage for China in our affairs.” To be fair, Chinese companies have made positive contributions in upgrading infrastructure throughout Africa and the Caribbean. Even in Latin America, Chinese companies are upgrading a run-down cargo network in Argentina and financing $11 billion worth of infrastructure projects in Ecuador. The challenge for Chinese multinationals is that in a time of global economic adjustment, some of it directly linked China's cooling economy, the easy part of penetrating markets as a fresh face is over and the longer and more arduous process of sustaining market share, linked to national economic fortunes, is just starting.