Corporates,academic partnerships weigh growing cross-strait risk

Nan Nielsen October 04, 2022 09:25

Companies as well as academic institutions are operating amid growing geopolitical tensions in the South China Sea heightened by US House Speaker Nancy Pelosi’s visit to Taiwan last month. Calling the move a ‘major political provocation’, Beijing has reacted by launching a series of military drills around Taiwan, banning imports from hundreds of Taiwanese food producers and placing two Taiwanese charities and several companies on a ‘secessionists’ blacklist.

Tony Danker, the Director-General of the Confederation of British Industry (CBI) indicated recently that thousands of British companies were switching business links from China to other countries in anticipation of a further deterioration in relations between China and the West.

In the financial sector, China’s largest insurer, Ping An Group, is doubling down on its call to break up HSBC, where Ping An is the largest shareholder. Ping An claims that a spin-off of HSBC’s Asia business would create significant additional market value whereas some observers believe that the attempt is essentially about creating a China-friendly bank that helps China reduce the risks of being vulnerable to potential future financial sanctions.

UG Investment, one of the oldest hedge funds specialising in Chinese markets, was planning to open its first office outside Greater China in a move that would help it guard against the risks from any military conflict between mainland China and Taiwan.

Academic research collaboration faces geopolitical divide
In the academic sector, Elsevier, the world’s largest scientific literature publisher, and the Association of Pacific Rim Universities have recently warned that ongoing geopolitical divisions around national interests and technological sovereignty may lead to “increased governance or controls related to research collaborations”.

It is also worth noting that there are growing links between the People’s Liberation Army (PLA) and Chinese universities which will complicate the latter’s research and philanthropic relationship with Western institutes. According to a July report by Intelligence Online, a group of high-ranking Chinese universities such as Tsinghua University, Fudan University, and Shanghai Jiaotong University have set up an experimental three-year training programme for future non-commissioned officers of the PLA. The initiative’s supervision will be shared between the universities involved, the Air Force Communication Non-commissioned Officer (NCO) Academy, the Naval Academy in Dalian, and the PLA Army Infantry Academy in Nanchang.

Risk management boosts reputational and financial strengths
As China is gearing up for the 20th Party Congress this month to map out national strategies for the next five years, geopolitical tensions between Beijing and Taiwan are likely to intensify. This can have a negative impact on a large number of Western organisations that have business and/or philanthropic interests in Greater China. Everything from mergers and acquisitions and supply chain operations to fundraising campaigns and joint ventures can be adversely affected.

Apart from the business sector, academic institutes also find themselves in a situation where a solid risk assessment procedure should be introduced or strengthened. To this end, many of them are carrying out political and regulatory due diligence on potential clients, partners, suppliers, and prospective donors that have a presence in the region.

Identifying and managing risks prior to engaging in a formal relationship is crucial for both private and non-profit organisations not only to guard against potential reputational damages and regulatory risks, but also possible financial losses that can arise as a result of the increasingly complex geopolitical landscape in East Asia.

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Nan Nielsen

Managing Director, Astra Diligence