‘Several Things Have Shocked Me’: An Ex-Insider on Business in China

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

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

Mr. Shum left China in 2015 as 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 detained her after a high-ranking political ally was held on suspicion of corruption.)

Mr. Shum told the story of their rise and fall — and the murky reality 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 of them has seen Duan since she vanished) and says it is unsafe for him to travel to China.

Mr. Shum will testify next week in Congress about the challenges for U.S. businesses operating in China. This conversation has been condensed 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, especially in shifting the general public’s views. That has helped to speed things up in terms of how policymakers deal with China — they now have a tide to ride.

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

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

How is this affecting governance and business?

It adds to the growing insecurity of the Chinese Communist Party, so the government is tightening control using measures it introduced during the pandemic. That is affecting business: Raids on due diligence firms with Western ties and restrictions on access to Wind, a Chinese data provider, are part of an effort to control foreigners.

How are international companies adjusting?

Companies are overwhelmingly reducing their exposure. People talk about “deglobalization,” but the proper term is “reglobalization minus China.” You won’t have one country replacing China, but operations are spreading to Vietnam, Indonesia, Sri Lanka, India and elsewhere. Look at how many Taiwanese manufacturers are moving into Mexico on a large scale. And then you have friendshoring and nearshoring in Europe.

Does the U.S.’s messaging — tough talk while also saying it wants to maintain dialogue — complicate matters?

After four years of Trump and three years of Biden, you see a general consistency on China policy. A slight change or variation in tone won’t affect China’s perception that the U.S.’s view of it is set. They need some lessening of tension for the sake of reviving business confidence and bringing in more capital. If they can mitigate or delay U.S. measures, they want to do that.