State-run algorithms are the new board members In China
State-run algorithms are the new board members In China
WRITTEN BY ABISHUR PRAKASH
16 December 2020
To operate in China, firms like IBM and Goldman Sachs will have to accept a new reality: algorithms are the new face of the Chinese government and they will decide if foreign companies succeed (or fail) in China.
How? China is taking its social credit system and applying it to economy. A new ‘corporate social credit system’ will put China at the centre of business operations. Algorithms will analyse the behaviour of foreign firms and give them scores. Based on the score, firms will be punished or rewarded. Controlling how foreign firms operate is not a new business reality in China.
Forced intellectual property (IP) transfer and confusing trade rules have long plagued foreign firms. But, for the past few years, China’s approach to foreign businesses has changed. It has gone from externally controlling firms, such as through public policy, to internally controlling them. For example, Honda has given the communist party a role in deciding how its factories are run in China. And, Cummins, a US-based engine maker, could not appoint a new person to run its Chinese operations without China’s consent.
Now, state-run algorithms are going to take this ‘control’ to new heights. And, few firms are prepared for this new geopolitical reality.
Foreign firms promoting Chinese values
When China’s internet regulator proposed that algorithms should promote Chinese values online, this was seen as a new take on an old model: China pushing select principles and beliefs to the population. Except, instead of humans, China was now using algorithms.
But with the corporate social credit system, China might start scoring firms based on how well they promote and/or push Chinese values.
A brand new business landscape is emerging in China, centred on geopolitical power through technology. This means that the strategies that multinationals have used in China are fast becoming irrelevant.
This would redesign the business culture and ideology of firms. A British drug company may be scored on how well they are promoting or integrating TCM (Traditional Chinese Medicine). Or, a Japanese education firm may be scored on how they are covering certain geographies (i.e. Taiwan, Tibet).
All of a sudden, profiting in China could require supporting China’s foreign policy in order to impress the state-run algorithms. Through algorithms, China may force foreign firms to adopt a certain geopolitical stance. This will force executives to scratch their heads as they seek greater access to a market with more than 1.4 billion consumers.
Nations clash with China’s algorithms
As state-run algorithms create new business challenges for companies, new geopolitical tensions could emerge between countries. Governments may get angry over China’s scoring system.
To succeed in China, dozens of US technology firms may start pushing Chinese beliefs on sensitive topics, like Uighur’s, going against US government stances. US may not be comfortable with its firms becoming more China-centric in order to profit. And, all because of algorithms.
To protect its culture, US may do tit-for-tat. US may target certain firms and force them to ‘export’ US values and beliefs. Now, US firms will have to decide: do they please Washington or Beijing? Or, US may ban the export of certain products, as it has done with AI. The logic may be: if firms can’t sell in China, they won't become China-centric. Another flashpoint may be around economy.
If China’s algorithms are impacting the revenue of foreign firms, then governments may speak up. Germany may feel that the performance of its automakers is being hindered by the corporate social credit system. Germany may view the Chinese algorithms as a trade barrier. Could Berlin take China to court? Will the next trade suits in World Trade Organisation (WTO) be over China’s algorithms? Of course, all of this assumes China will care. When China is the world’s largest economy, institutions like WTO may struggle to enforce their rules on Beijing.
Time for an update
A brand new business landscape is emerging in China, centred on geopolitical power through technology. This means that the strategies that multinationals have used in China are fast becoming irrelevant. And, at the same time, the frameworks that nations have used to trade with China need to be updated. Rapidly, AI is redesigning how China does business with the world. The path to succeed in China is both confusing and clear at the same time.
On one hand, succeeding in China means working with state-run algorithms, an unfamiliar business reality. But, on the other hand, to navigate this confusion, companies must build new strategy and develop new awareness. To succeed in China, companies must operate in a permanent state of confusion and clarity.
Above all else, companies and countries should not assume that what begins in China will remain in China. As China pioneers a new geo-economic model for itself, centred on AI, it may export this to other nations. Or, other nations may quietly adopt parts of it. And, this means, as companies and countries develop a new playbook to succeed in China, in a short period of time, it could become key to succeeding in markets around the world.
DISCLAIMER: All views expressed are those of the writer and do not necessarily represent that of the 9DASHLINE.com platform.
Author biography
Abishur Prakash is a geopolitical futurist at Center for Innovating the Future where he helps companies succeed in tech-driven geopolitics. He has authored four books including Next Geopolitics: Vol 1&2, Go A.I. and The Age of Killer Robots. Image credit: CC BY-NC 4.0/U.S. Secretary of Defence/Flickr.