Why U.S. business kowtows to China

In the USA, government serves the needs of business.  In China, business serves the strategic aims of government.

No foreign corporation is allowed to operate in China without conceding something of long-term benefit to China.  That can be manufacturing operations in China, transfer of technological knowledge or a Chinese stake in the company’s ownership.  It goes without saying that the CEOs do not criticize Chinese foreign policy.

Cartoon by Xu Jun for EEO

Cartoon by Xu Jun for Economic Observer

Barry C. Lynn, writing in the November issue of Harper’s, said that some American corporate executives have even submitted to Communist-style self-criticism sessions, in which they volunteer confessions of misdeeds without being accused.

As China becomes more powerful, and the United States becomes more dependent on the Chinese for finance and for critical manufactured items, the leverage of Beijing over the United States becomes greater.  Lynn explained the reasons:

First is the fact that so many U.S. companies now depend on China for the products they sell.  For Walmart, it’s barbecue grills and shoes.  For Apple, it’s assembly work.  For Pfizer, it’s chemicals.

And while foreign companies have talked a lot about reducing their reliance on China, they nevertheless keep upping the ante, year after year.  Just last April, General Motors announced plans to pour another $16 billion into China.   In September, Dell pledged a whopping $125 billion over the next five years, with an ominous promise to “closely integrate Dell China strategies with [Chinese] national policies.”

A second reason corporations are so willing to accede to Chinese diktats is the allure of Chinese markets.  For General Motors, China already accounts for roughly a third of the cars it sells.  For Qualcomm, China accounts for roughly half its business.  For Rio Tinto, China accounts for considerably more than half its output of iron ore.

Chinese sales of Apple’s iPhones topped U.S. sales in 2015 — and when global markets were tanking in late August, Tim Cook helped arrest a rout in the company’s stock by publicly assuring investors that the Cupertino giant had “continued to experience strong growth for our business in China through July and August.”

Source: Harper’s Magazine.

Chinese investors own the AMC Theater chain of movie theaters in the United States, and also are major investors in American-made movies.  China also is the world’s largest market for Hollywood movies.

The result: Chinese are never the foreign villains in American movies—Russians, Arabs, Colombians, North Koreans, anybody but Chinese.

Some American companies have refused to bow to the Chinese government’s demands, and have paid a price.

In March 2010, in response to growing censorship and a surprisingly sophisticated hack, Google redirected Chinese- and English-language searches from the mainland to servers in Hong Kong. 

Beijing responded by temporarily cutting off access to Google’s search engine and, more recently, to Gmail.  The cost to Google?  Access to the world’s largest market of Web users, 649 million strong and growing.

The story is much the same with the New York Times.  In October 2012, the paper published an article detailing how the family of former premier Wen Jiabao had accumulated more than $2 billion in assets by taking advantage of the “intersection of government and business.” 

Chinese authorities responded by blocking domestic access to the paper’s Chinese-language website and refused to provide visas to its reporters.  Despite being cut off from millions of potential readers and seeing a key bureau hobbled, the Times has not budged.

Source: Harper’s Magazine.

The significant thing about China’s pressure on Google and the New York Times is that these American companies got no backing from the U.S. government.  They were on their own.

In any case, most U.S. corporate executives don’t even put up a fight.  There is no conflict between their desire for short-term profits and stock gains and the long-term objectives of Chinese policy-makers.

The U.S. government sees a potential threat in the Chinese fortification of tiny islands in the South China Sea.  It should be more concerned about the increasing leverage of the Chinese government over U.S. business and the U.S. economy.

I am not anti-Chinese.  I have great respect for the achievements of China’s leaders during the past 40 years in raising their people out of poverty and misery.

But China is a foreign country.  Its interests are not American interests, and its values are not my values.  I do not criticize the Chinese government for supporting its national interests.  I criticize my American government for not supporting ours.

We Americans do not have the power to pressure the Chinese into ceasing to be economic nationalists.  It is foolish to even try.  What the U.S. government does have is the power to regulate corporations that operate in the United States, and to encourage or compel them to promote the well-being of the American people.


The New China Syndrome: American business meets its new master by Barry C. Lynn for Harper’s.  Most Harper’s articles are behind a paywall, but I think this may be available, at least temporarily.  If not, it is worthwhile to buy a copy or read one in a public library.

Xi Jinping visits UK: Britain finally learns how to kowtow to China by Geoffrey Smith for Fortune.  This is an example of the price of economic weakness.

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