‘Several things shocked me’: an ex insider on doing business in China

Desmond Shum was one of China’s most connected businessmen. He and his former wife, Duan Weihong, used their relationships with top government officials to build a multi-billion dollar real estate development company during a golden age for entrepreneurs starting in the mid-1990s.

Now tensions with the West dominate the discussion, with Treasury Secretary Janet Yellen sharply criticizing China’s treatment of US companies during a trip to Beijing this week.

Mr Shum left China in 2015 when Xi Jinping, the country’s leader, asserted greater state control over the country and its businesses. Duan, also known as Whitney, disappeared two years later. (It is believed that Communist Party officials held her after a high-ranking political ally was detained on suspicion of corruption.)

Mr Shum told the story of their rise and fall – and the dark realities of doing business in China – in his 2021 memoir. Many details cannot be independently verified, but his role at the intersection of business and politics is certain. He now lives in Britain with the couple’s son (neither has seen Duan since she disappeared) and says it is unsafe for him to travel to China.

mr. Shum will testify next week Congress on the challenges facing US companies operating in China. This conversation has been shortened and edited for clarity.

What has changed since you published your book?

First, the perception of China has become more negative. Covid has had a lot to do with it, mainly by changing the opinion of the general public. That has helped to accelerate the way policymakers deal with China – they now have a tide to ride.

Second, the outside world underestimates how much the Chinese economy is deteriorating. Several things have shocked me in conversations I’ve had with business people in China. A large dairy company produces more milk powder because people cut back on buying milk. Normally this is one of the last things you would leave out.

Many executives also say that staff have been blatantly robbing and stealing from companies since the pandemic. Why? They have lost hope because the economic outlook is so bad.

How does this affect governance and business?

It adds to the Chinese Communist Party’s growing insecurity, so the government is tightening controls with measures it introduced during the pandemic. That has implications for business: raids on due diligence firms with Western ties and access restrictions Winda Chinese data provider, are part of an effort to control foreigners.

How do international companies adapt?

Companies are overwhelmingly reducing their exposure. People talk about “de-globalization,” but the correct term is “re-globalization minus China.” You won’t have one country replacing China, but operations are expanding into Vietnam, Indonesia, Sri Lanka, India and elsewhere. Look how many Taiwanese manufacturers are entering Mexico in a big way. And then you have friendshoring and nearshoring in Europe.

Are the US coverage – tough talk while also saying they want to keep the dialogue – complicating matters?

After four years of Trump and three years of Biden, you see an overall consistency in China policy. A slight change or variation in tone does not affect China’s perception that the US view is set. They need some tension to revive business confidence and bring in more capital. If they can water down or delay US measures, they want to do so.