April OODA Member Monthly Meeting Generates Unique Insights Into Issues Associated With The Rise of China
OODA Network members are invited to participate in a monthly video call to discuss items of common concern to our membership. These highly collaborative sessions are always a great way for our members to meet and interact with each other while talking about items of common interest. We also use these sessions to help better focus our research and reporting on member needs.
To encourage openness of discussion, these sessions take place with Chatham House rules, where participants are free to use the information in the meeting but are asked not to directly quote or identify other participants (we also keep privacy in mind when preparing summaries of these sessions, like the one that follows).
The April monthly meeting focused on issues around recent shifts in behaviors by leaders in China, including changes in behavior to businesses and governments.
The situation in China has changed over the last year (see: C-Suite Considerations Regarding Current Geopolitical Tensions). Changes in China’s behaviors include new approaches to diplomacy, new aggressive moves by the Chinese military, new compliance requirements for companies seeking to do business with China, and increased punishment of corporations that are seen to be behaving in ways not supportive of China’s strategic objectives. Cyber threats emanating from China have also continued to evolve, with criminal groups and national level intelligence agencies all leveraging increasing capabilities to gain unauthorized access to data meant to be protected. Meanwhile, many legal, but unfair trading practices are contributing to the rapid rise of China’s economic power and shifting global markets.
This changing situation is causing corporate boards to reevaluate strategies for doing business with and in China, as well as strategies for protecting corporate resources from unauthorized access. These many changes and the need for more insight by corporate leaders was our motivation behind using the April OODA Network monthly meeting to focus on what this all means for decision-makers today. This meeting included expert analysts, enterprise technologists, C-Suite leaders experienced in doing business with and in China, and cybersecurity experts, all with an interest in exchanging ideas to seek to create a more comprehensive understanding of the situation. For governments, this understanding can help shape policies. For companies this understanding can help drive needed change to adapt. And for analysts including the team at OODA this new understanding can help shape future assessments.
- The changes seen in the Chinese business environment are significant and introduce new risks to global businesses. The two greatest risks can be summarized as sub-optimal business decisions in this new environment and inadequate information security measures.
- For many businesses, mitigating the risk of sub-optimal decisions will require a new approach to gathering and analyzing information. This may include new models and perhaps new organizations for contextualizing insights for C-Suite use. Contextualizing information requires a strategic framework for understanding events and for making decisions that takes into account the long-term views of the Chinese culture and leadership. This is also critical prior to any conversations with Chinese business or political leaders. Therefore, global businesses should recognize the importance of having a strategic understanding of Chinese government and CCP objectives and perspectives and should avoid mirror-imaging when it comes to business with China.
- Reducing the potential damage of cyberattacks also requires leadership attention, since this is not solely a technology issue. Technology and its configuration is critical of course, but information security also involves business leadership and potentially even changes to operating models.
- Too frequently leaders in governments and businesses believe they can shape Chinese actions by responding to tactical issues, but Chinese goals, as stated in their writings and shown in their actions, show individual actions by lone corporations or even single nations have little effect on changing Chinese behaviors.
- Chinese business and government leaders are playing by very different rules, because they are coming from a completely different internal perspective on what it means to do business. There are other huge differences that shape judgement and behaviors including going through a record growth and now a huge cultural shift (perhaps similar to what the US went through in the 1960’s?), there are also huge demographic shifts underway right now, with some of the lowest birth rates in the world with a rapidly shrinking workforce.
- In industry after industry, China is playing a long game which involves studying hard engineering problems and building out solutions for infrastructure in that industry. Many of the business methods of China are unfair but not illegal. For example, consider this approach: China wants to enter and dominate an industry, so they buy a company in that industry and use that to compete, but also use that to learn everything about the model, then replicate that across other businesses, and subsidize those businesses with support (which could include 100% financing) that enables flooding of the market in ways that push out all other competitors. On a case-by-case basis, claims can be made to international regulatory bodies asserting unfair practices, but 99.99% of the time these practices are not being questioned because there are just so many of them.
- Recent internal Chinese press has repeated national claims that China is now totally self-sufficient in 666 major industries, and the model just described is a big reason why. Yes there is also the theft of intellectual property, and we have heard this described as the biggest transfer of wealth in history. This will continue as long as China needs it to and has fueled their ability to create and compete also, but even without this the unfair but legal practices are of huge, and in many people’s opinions, bigger concern.
- Tensions in Hong Kong and with other nations including activity in South China Sea and East China Sea and around Taiwan and along the border with India are coincident with a new style of aggressive diplomacy called “Wolf Warrior” diplomacy (named after a popular Rambo-style movie in China). These tensions and new styles of diplomacy are not just a matter for governments. Businesses need to track these as well and understand the impact on strategy.
- Despite international condemnation of China for its treatment of Uyghurs, China has been pushing back and doubling down on extreme surveillance and suppression in the region (what some have called genocide). And firms that voice any support for freedom of the Uyghurs are being economically punished by the PRC, including by riling up PRC citizens through social media.
- There are many technological dimensions of the rise of China that also need to be tracked. They include advances in Space Technology, Quantum Computing, Artificial Intelligence, Crypto Currencies and advanced communications systems. Many of these can be thought of as additional domains of competition and conflict.
- Both state and non-state actors in China have demonstrated an intent to continue to gain unauthorized access to the computers and networks of global corporations to steal intellectual property and gain business advantage.
- Full assessments of the situation in China need to take into account the many major weaknesses being demonstrated in their system, since these must be on the mind of Chinese leaders. To summarize some of note:
- The PRC faces a coming demographic crisis, a time bomb where too few young people and declining workforces are required to support an aging population. Potentially crippling demands on healthcare and social support are projected.
- Despite raising over a billion people out of poverty in the last 30 years, treatment of workers in China is leaving many unsatisfied, something that set off initial communist revolutions in the last century and must be a concern for the CCP.
- The famous Belt and Road Initiative is increasingly showing signs of a failed infrastructure program not delivering on potential and resulting in significant debt.
- Initial victories against the Pandemic were notable successes, but indications are that approaches to vaccination have failed.
- Aggressive diplomatic and military moves are causing many nations to question the intent of China regarding fair trade and peaceful resolution of differences. This could result in new coalitions designed to counter Chinese moves.
- Lack of clean water and relative lack of farmable land has led to a growing need for external sources of food.
Assessment On What This Means
- There has been a recent shift in PRC diplomatic and business attitudes. The change happened so quickly many may have missed it: For years, it seemed like China would operate with care regarding international opinion. Now any model that implies influence by nations or companies or international legal bodies should be called into question. Influencing the PRC will likely take strong coordinated action by coalitions of nations operating under the rule of law. If that does not exist, it is hard to see how China will be deterred from their current courses of action.
- CEOs of global companies who have done business with and in China can provide unique perspectives on what the business environment looks like now. Global business leaders seeking to grow business in China should seek to learn from those that have been doing business there already and leverage their insights to mitigate risks.
- Too often when corporate leaders see an event or read a report we just get the who, what and when of an event. Not much about the how and the why. And when it comes to events in the domain of China today, the strategic understanding of why an event is happening is very important. There is a growing need in the corporate world for a big picture understanding of the Chinese grand strategy. This can help to contextualize the more tactical events and allows for understanding of the implication of events. Events should be treated as part of a continuum of Chinese efforts. Companies who do this can improve decision-making and no longer be kept in the position of just tactically responding every time something unanticipated happens.
- One way of thinking about Chinese industrial espionage targeting in the future is to think about what industries are currently missing from the 666 industries where China currently has coverage. This also indicates that industries of high innovation or emerging technologies will be heavily targeted as they will want to accumulate additional coverage as new industries evolve.
What Should The C-Suite Do?
Every company is different, of course, so it is you who must determine the appropriate action to take. But we will offer some food for thought that may help accelerate your planning. Key considerations include:
- Since we are in a period of fast action and dynamically shifting situations, look at ways to optimize your own decision-making, with an eye towards speeding up your processes (think of your own OODA process, consider how your organization will Observe- Orient- Decide- Act). Larger companies should consider establishing an internal capability to contextualize geopolitical events like the rise of China (this may require an internal analytical cell). This is also a good time to review corporate approaches to training staff and executives on critical thinking, training on how to counter misinformation and disinformation.
- The need to understand adversary actions and create informed decisions based on adversary actions also leads to the need for more and better intelligence support. This includes support from external data sources but also improves ways for companies to make sense of information in ways that contextualizes for the business.
- Ensure your entire leadership team is staying aware of global threats. C-Suite leaders have their own unique needs for awareness of the geopolitical environment. A tailored daily report focused on business needs can help provide that context.
- Strategically assess your markets to know which markets can be influenced by China and determine how important these markets are to your organization.
- Strategically assess your entire supply chain. In today’s interconnected world this can be easier said than done, but it is important to know not only where your facilities are, but, depending on your industry, where your supplier facilities are, where manufacturing is done, and where raw materials are sourced from. After an initial mapping of your supply chain assess critical paths and critical components, and use scenario-based planning to and determine if alternate supply sources need to be established.
- Understand that no IT system can be totally secured, but all IT can be hardened. Take steps to move your organization to a more resilient architecture that can make it harder on nation states to gain unauthorized access to your systems and detect them if they do (our favored approach, a Zero-Trust Architecture).
- Know your communications dependencies, including long haul communications and also space based communications. Understand your backup plans should the need arise.
- Also on the subject of communications, ensure your entire C-Suite has an out of band, secure way to coordinate together (we use Wickr and it has our strongest recommendation for this purpose).
- Corporations should take action to reduce the risk of unauthorized access to computers and networks by establishing information security improvement programs that leverage best practices in areas like zero trust networking. With smart design, corporations can support business needs while dramatically reducing risks. In general this requires leadership attention, as well as an understanding of how technology supports business operations (and where critical data is).
Global Risk and Geopolitical Sensemaking: This page serves as a dynamic resource for OODA Network members looking for insights into the geopolitical dynamics driving global risks. This collection of resources includes content produced exclusively for OODA members as well as a continually updated list of insights from our daily pulse report.
OODA on Corporate Intelligence in the New Age: We strongly encourage every company, large or small, to set aside dedicated time to focus on ways to improve your ability to understand the nature of the significantly changed risk environment we are all operating in today, and then assess how your organizational thinking should change. As an aid to assessing your corporate sensemaking abilities, this post summarizes OODA’s research and analysis into optimizing corporate intelligence for the modern age.
C-Suite Considerations Regarding Current Geopolitical Tensions: Something is different in the geopolitical situation today. The reasons are probably a combination of factors that include the pandemic, the rise of the global grid of cyberspace, plus the payoff of years of planning and strategic moves by our adversaries. But whatever the reasons, the world today is more complicated and more dangerous than the world of just a year ago, and in many cases the risks being faced by open societies have never been seen before. The changes are so significant, OODA recommends all business leaders take stock of the geopolitical situation and assess how the nature of these changes should impact your business strategy.
The Intelligent Enterprise Series: Special reports from OODA focused on corporate intelligence
Useful Standards For Corporate Intelligence: Based on lessons learned from the US intelligence community and corporate America
Optimizing Corporate Intelligence: Tips and best practices and actionable recommendations to make intelligence programs better.
A Practitioner’s View of Corporate Intelligence: insights aimed at corporate strategists seeking competitive advantage through better and more accurate decision-making.
An Executive’s Guide To Cognitive Bias in Decision Making: Cognitive Bias and the errors in judgement they produce are seen in every aspect of human decision-making, including in the business world. Companies that have a better understanding of these cognitive biases can optimize decision making at all levels of the organization, leading to better performance in the market.