Doing business: Democracy vs authoritarian regimes

Chinese economy facing harsh challenges.

As recent geopolitical tensions between the free world and authoritarian regimes intensified, there is now more clarity that China and Russia intended and are more than willing to use economic coercion as a weapon against both democratic countries and foreign businesses to achieve their political aims.  The dictators Xi Jinping and Vladimir Putin are banding together to challenge the rules-based global order which has ensured peace, stability and prosperity for decades.  

Two major world events, China’s politically-driven and unscientific zero-Covid policy and Russia’s illegal and unprovoked invasion of Ukraine, have shown that having a close economic relationship with authoritarian regimes can create vulnerabilities.  Government leaders, CEOs and investors have recognized that Xi and Putin are not going to back down and that there are many serious risks these circumstances posed to their own interests.  

A wake-up call to global business community

Xi’s insistence on achieving zero-Covid through lockdown and mass testing resulted in extreme economic hardship and soaring unemployment within China and major supply chain disruption around the world.  Xi’s other draconian policy of a broad crackdown on the private sector in an effort to exert more control over the economy is also contributing to this bleak situation. 

The outlook of the Chinese economy is grim and there is a massive loss of business confidence.  Now, CEOs and investors understand that the price of access to China’s market is not worth sacrificing democratic values and that in the current politically-charged climate where Xi is taking the country back to the Mao era of class struggles against capitalism, they must pursue growth responsibly and access risk soberly.

Specifically, this dismal state of affairs is a blow to CEOs and investors with business interests in China, and will serve as a stark warning to others who still view communist China with rose-tinted glasses and are thinking of pouring more money into the Chinese economy.

Europe’s overreliance on Russian gas supply has provided Putin with a leverage to intimidate and use against democratic countries.  As it is, Putin has cut off gas and electricity supplies to Finland since it applied to join NATO, and to Poland and Bulgaria for refusing to pay in Russian rouble.  Additionally, the Russian navy has also blockaded maritime trade at Ukrainian ports, leading to a global food supply crisis. 

Given all these provocations, the free world has to make a stand and send a strong message that they are not going to sacrifice universal values and kowtow to the dictators.  This unambiguous message is important to serve as a deterrence so that the dictators do not miscalculate and assume that their challenge will go unanswered and that they have a free pass to engage in more aggression, like Xi mounting an invasion of Taiwan, which will potentially have a catastrophic impact on the global economy.

Therefore, there is an urgent need for the free world to stand up against authoritarian regimes and find alternative supply chains if they do not want to be held hostage.  World and business leaders should not trade freedom for short-term economic interests.  The widening schism between democracy and authoritarianism is going to be permanent and there is no going back to cozying up to China and Russia as the world is much more cognizant of the fact that Xi and Putin are a threat to global trade, international stability and prosperity.

Xi’s public support of Russia before and after its invasion of Ukraine, including by spreading disinformation and conspiracy theories that undermine the free world and not condemning and imposing sanctions on Russia, has made it untenable for the international community to engage with the Chinese Communist Party (CCP). 

The CCP’s actions have demonstrated its intent to reshape the international order with whatever means at its disposal, including economic and military powers.  Over the past decade under Xi’s reign, the CCP has exerted an even heavier hand over private enterprise, entrepreneurship and individual freedoms.  Under Xi, the CCP has become more repressive at home and more aggressive abroad.

Never bet against democracy

Unlike communist China, a democracy is where the free market truly creates wealth and prosperity, and encourages entrepreneurship and innovation.  Despite all its shortcomings, democracy is still the only political system able to unleash the full potential of the people and to inspire human progress and across the board economic development.  

A true strength of a country can be found in the people.  In a democracy, technology is used to lift people up, not suppress them.  In a democracy, trade and commerce are used to raise incomes, create opportunity, and support the general population, not just the elites and government officials.  In a democracy, people, ideas, goods, and capital can move freely without any fear or favor.  

History has shown repeatedly that the future belongs to those who believe in democratic values.  It will be foolish for government leaders and the business community to take the side of authoritarian regimes and bet against democracy.

Photo credit: iStock/ Robert Way.  Shanghai, China, Jan 202.  Officials in white hazmat suit on street.

Lee Kok Leong

Lee Kok Leong

Kok Leong, executive editor, has overall editorial responsibility for the direction and focus of Maritime Fairtrade. He has two decades of working experiences, including holding senior regional roles in business-to-business (B2B) print and online publications. He enjoys his work as a journalist, and regards it as a calling.

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