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TEXT OF INTERVIEW

Kai Ryssdal: On the face of it, China's a capitalist's dream. A huge and increasingly wealthy market to sell into and an almost bottomless pool of cheap labor. Of course, it comes with the opportunity to really get clobbered — in ways foreign companies might not necessarily be thinking off.

Elizabeth Economy writes about one of them — the environment — in the June issue of the Harvard Business Review. Good to have you with us.

Elizabeth Economy: Thanks very much.

Ryssdal: So hit the highlights for me — the big issues that companies aught to be thinking about in regard to the environment and China, and that they are not.

Economy: Many multinationals at this point do realize that China, for example, faces very scarce water resources. But I think beyond that, what's happening in China is really a grassroots movement to hold multinationals accountable for much of the pollution challenge that China today faces — what they're doing with their water resources, how their factories down the supply chain might be polluting the air, polluting the water. So it's a huge emerging challenge for multinationals as they start to think about what kind of operation they want to run in China.

Ryssdal: All right. Well let's pretend for a second you've decided to leave the Council on Foreign Relations and become an international business consultant. What are the first three or four things you're gonna tell 'em to do?

Economy: Above all, they need to be very proactive. So whatever kind of industry they're in, they need to make sure that all of their equipment, all of their technology is top of the line. Because the Chinese are exteremly sensitive to the idea that other countries and other companies are off-loading lesser technology into China. Second, China gives a lot of points for doing the right thing when it comes to the environment. So one way to earn favor is to become engaged in environmental good works. And last but not least, you need to work at every level of the government. At that means working at the local level, and it means really, from the outset, talking to China's environmental NGO activists. All of these people are watching multinationals to insure that they're trying to do the right thing environmentally.

Ryssdal: China is, in maybe the truest sense of the word, a political economy. That is to say that government and some of these businesses are very closely intertwined, which sometimes puts multinationals at a competitive disadvantage in this regard.

Economy: Absolutely. And one of the things . . . for example, in the case of a wind-power firm that thought it had an agreement to establish a wind-power farm in China, the southern part of China. Worked for two years, provided the intellectual property information for all the wind measurements to the local county and provincial government. And after two years, when it was ready to begin development of the project, was told by the local government, "Actually, we've decided to grant this concession to a Chinese firm. And by the way, all the information you've provided, all that intellectual property's now lost." And the firm has decided not to sue, because it doesn't feel that it has a chance of winning in court. Because of precisely what you mentioned: the connections between the party officials, the local businesses and in fact, the party within the court system.

Ryssdal: When you talk to people in the Chinese government about this issue, what do they say when you bring up the point of . . . you know, it's going to impact China's Gross Domestic Product in a not-positive way if we don't get these environmental things under control, and multinationals, for all the problems they might bring you, are certainly bringing some benefits as well.

Economy: There's no doubt that both Chinese environmental officials and Chinese NGO, environmental NGO activists recognize that by and large, multinationals are trying to do the right thing when it comes to the environment in China. Nonetheless, they look out at China, this vast sea of environmental challenges, and they really want these multinationals to bear the brunt of the cost of it by sort of shaming and naming the factories that source to these multinationals first, think that they can make a good start in environmental clean-up. Because they know that these multinationals can't stand that kind of bad publicity.

Ryssdal: Elizabeth Economy is the director for Asia studies at the Council on Foreign Relations. Her article on the environmental risks and rewards of doing business in China is in the current issue of the Harvard Business Review. Dr. Economy, thanks so much for your time.

Economy: Thank you.

About the author

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy.

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