Corporate America got called on the carpet for its stand-down approach to China in a one-hour panel discussion at the Hudson Institute on Monday.
The visual used to describe what has become a two-against-one battle over China policy was the $40,000 ticket to sit at Xi Jinping’s dinner table at the Hyatt Regency in San Francisco last month during the Asia Pacific Economic Cooperation meetings. It was there that A-list CEOs such as Tim Cook of Apple, wholly reliant on China to make iPhones, gave Xi numerous standing ovations. In the battle against China, it is Washington in one corner and China in the other, accompanied by a well-built, oiled-up and suntanned Corporate America by its side.
“This is a guy who has stolen billions of their IP, and imprisoned Uyghur Muslims for no reason. One thing that should worry all of us is that they have co-opted Corporate America to serve their ends rather than serve our ends,” said Gabriel Noronha, executive director of Polaris National Security. Noronha was one of three panelists at Hudson’s event called “The Perils of Corporate Engagement with China.”
Corporate America gives Xi Jinping standing ovations, to the detriment of the U.S. economy and national security, says Gabe Noronha of Polaris National Security during a Hudson Institute event.
Noronha said that the Xi dinner reminded him how U.S. companies are “going out of their way to preserve business as usual. There is the peril that corporate engagement with China goes against our own national security interests. The more dependent we are, the more we lose all ability to fight an economic fight with China. We are losing that fight, and I think it is getting worse,” he said, noting the recent debacle in Washington where the House removed roadblocks to outbound investments in China in the recent National Defense Authorization Act. Some politicians, like Rep. Patrick McHenry (R-NC), said that more investments in China meant more U.S. involvement and we could persuade them to play by the rules. But Noronha said, “that idea has completely failed already.”
Thomas J. Duesterberg was one of two Hudson Senior Fellows on the panel. He called the standing ovation “incredible”, but not in a positive sense.
“Xi had the major leaders of American business at his feet, and did he give them any hope that the problems businesses have expressed concerns with over the years are going to be resolved? Not at all. He had an opportunity to make some concessions, but he did not and yet they cheered,” he said. “I find that absolutely incredible.”
Panel moderator Morgan Ortagus, a former State Department Spokeswoman who founded Polaris, said Trump was able to change the conversation about China and that there is now a “sea change” on Capitol Hill, despite the obvious obstacles.
“Americans are worried about what our corporations are doing in China, but they really don’t know what they can do to stop it,” she said. “I don’t think there is a better picture we can paint of the cognitive dissidence between Corporate America and national security than the picture of them all giving a standing ovation to Xi Jinping last month in San Francisco. We have to find a China policy that’s best for the American people.”
China Risks & 2024 Predictions
From left to right, moderator Morgan Ortagus, Gabe Noronha, David Asher and Thomas Duesterberg.
Duesterberg warned companies of China’s civil-military fusion strategy. He said he believes high-tech equipment sold to China today is either being co-opted by the Chinese military or reverse-engineered.
“If you are selling aviation equipment and avionics to China, that technology is going to the military to build fighter planes,” he said.
Noronha said global business consultancy McKinsey & Company was working on both U.S. defense contracts and Chinese.
“McKinsey has contracts with the Department of Defense, but also works with China defense contracts,” he said. “You have a company doing business with the U.S. government, and also doing defense contract work for our number one adversary. This is not sustainable,” Noronha said. “More and more companies are just acting brazenly; they think they can get away with it and the American consumer is not penalizing these companies. Ten years ago or so we had all these campaigns about free trade and fair trade. You’re just not seeing that at all with China, and no one is really holding companies accountable for their work there. Lawmakers need to lead the charge on that.”
Hudson Institute Senior Fellow David Asher said investors are more at risk there now than they were a few years ago when Wall Street loved China. Bond defaults in real estate are no longer a rarity. And China’s economy is growing at its slowest pace since it entered the World Trade Organization in 2001, with economic data hard to come by, and harder to trust.
“The U.S. investor has about $300 billion to $500 billion in hard investment in China; which you can value higher if you adjust for the value of those assets today,” he said. It was unclear if he was talking about portfolio investments in stocks and bonds, or corporate investments in office buildings and capital equipment used to make manufactured goods exported to the U.S.
“That is more than double what China invests here,” he noted of the lopsided relationship. “Look what has happened to U.S. investments in Russia. That can be the fate of U.S. investments in China someday and you are going to have to be prepared for that reality. No foreign investor is safe in China,” Asher said, describing the taxes and fees one must pay to move money out of the country.
When asked by Ortagus what small to mid-sized enterprises (SME) should do if they want to contract a manufacturer in China, or sell there, Asher said they should not consider sourcing from China at all.
“For SMEs, going into China at this stage as an offshore alternative to domestic production is not only downright unpatriotic but it is not even practical,” Asher said. “You’re dealing with a whimsical government in Beijing today, subject to outbursts. You’re not dealing with the old black cats and white cats diplomacy of that past, which was one part capitalist and one part communist; that was the Deng Xiaoping model. Today you are just dealing with red cats…the communists. The bureaucracy alone is ridiculous. You can go to Asian alternatives, but I’m an America first guy,” he said.
For 2024 predictions, the two Hudson fellows expect more economic strife in China, and a sanctions package in the works for January 2025.
“There is not much China can do to undermine our economy,” Duesterberg said, something that might rile the ag exporter states. “There is much more we can do to undermine theirs.”
Then there is Asher on sanctions ideas.
“We are going to come up with a sanctions list here at Hudson, including going after nuclear and biological entities that are shopping freely here in the U.S. for this stuff. It’ll be called ‘Sanctioning China’ and we will have all the details on how to write sanctions in the official format,” Asher said. “They will be ready for the next government to implement on day one.”
