The Winter Olympics begin today. As China displays its futuristic transport infrastructure and shiny bullet trains compared to New York’s crumbling subway system and rusty bridges, it is worth remembering how China grew so fast.
One look at the World Bank’s GDP growth chart over the last decade and it is clear – no country in the developing world has grown as fast as China. It’s GDP is now half that of the U.S. while other big developing countries are flat. How did they do it?
Putting aside the hard-working Chinese people and China’s lending spree, one way the Chinese Communist Party built its Frankenstein Monster economy of mercantilist, state-centered capitalism is from the support of American corporations and Washington lawmakers.
Opening China to the U.S. began in the Nixon-era. It went into fifth gear in the late 1990s.
In 2000, President Bill Clinton granted China Permanent Normal Trade Relations (PNTR) status. A year later, China ascended to the World Trade Organization. The Chinese economy became enmeshed with the U.S. It would be where the U.S. manufactures everything. The U.S. consumer would happily buy it all, leading to job deserts from upstate New York to the inland empire of California.
Today, the U.S. multinational is not only interested in manufacturing there, they want to sell their movies, open theme parks, help China build its semiconductor industry, and sell retirement plans. China’s growth is thanks in large part to the U.S.
People have had it. So have many lawmakers in Washington. Over the last four years, new laws, tariffs and regulations have been put in place to make it harder for the likes of BlackRock and Vanguard to invest in Chinese defense contractors, and Intel and The Gap from doing business with Chinese companies. These policies have widespread support among American voters. (link to MC poll on tariffs)
On Thursday, in a first-ever study scoring American multinationals based on their ties to China’s military-surveillance industries and forced labor, U.S. companies got failing grades.
The 76-page report by Horizon Advisory, in partnership with the Victims of Communism Memorial Foundation (VOC), is a must-read for anyone interested in what American multinationals are up to in China.
The prime companies scoring failing grades on the Horizon Advisory list are similar to the ones being built on CPA’s own in-house “Hall of Shame” list of China-centered U.S. firms.
This includes Amazon, which censors book reviews for Xi Jinping. (Amazon is also fast becoming China’s virtual shopping mall in the U.S.)
The Horizon Advisory report gives a detailed look into Amazon and others, highlighting their business ties to malign Chinese entities, along with their interests in mainland China.
Report author Nathan Picarsic of Horizon joined VOC CEO Andrew Bremberg in a four-panel discussion about their new Corporate Complicity Scorecard report on Friday.
“The goal of the report was not just to look at an ad hoc indicator of risk looking at one company and one sector, but to look at a subset of global corporates that show their exposure to this malign aspect of the Chinese economy,” said Picarsic. “Just doing business in China is not an offense. But there are degrees of offense that can be monitored along the lines of the malign aspects of the Chinese Communist Parties (surveillance) program and will give companies a chance to live up to the virtues they often promote at home,” he said.
“U.S. corporate leaders have been very happy to say one thing about their morals and social responsibility, and very happy to do something else in China either actively or complicity. They assumed there will be no accountability between how they behave here and how they behave in the Chinese market. U.S. and global corporate leaders, for at least a generation, have been willing to trade exposure to China’s military, surveillance state, and human rights abuses in exchange for market access and decreased costs. The CCP and Chinese corporate players are adept at leveraging both of these to ensnare U.S. corporates and there needs to be an awakening to understand the risks.” — Nathan Picarsic, Horizon Advisory
Here is what some of the panelists said:
On forced labor in Xinjiang, Adrian Zenz, Director and Senior Fellow in China Studies at VOC (and regularly smeared by Chinese media) said that Dell recently closed a store in Xinjiang due to weak demand. But had advertised for a sales position, citing that the hire would be working with a “diverse” workforce. U.S. and European corporations have been using the rhetoric of diversity and inclusion as a cover while promoting policies their customers are against.
Zenz: Dell operates AI and computing labs in partnership with the Chinese Institute of Automation, which develops surveillance systems used in Xinjiang. The big problem is that the atrocity in Xinjiang is far-reaching. It has linkages to other parts of the country via labor transfers. Some western companies have taken steps, but only after media reporting. Companies are hoping it blows over. Or are not sure what to do. They’re not being proactive. This slow walking and hedging of bets mean the Chinese state has managed to position itself in a way that it uses American corporations’ complicity to its advantage. It’s very strategic. Washington needs very clear parameters for these companies to take the right steps.
Isaac Stone Fish, CEO of Strategy Risks and former Asia editor for Foreign Policy magazine, said the Uyghur Forced Labor Protection law, signed by President last month, is a start. More needs to be done. He believes more will be done.
Fish: Tactical risk and national security risk do not motivate companies to change. What’s making them think twice is the Uyghur law and maybe new ones coming down the pipeline that will restrict companies doing business with the Chinese military, and intelligence forces. I think the U.S. government is training companies first not to work in Xinjiang and then later…not to work with the CCP. If you are a big multinational, everything you do in China has some sort of relationship with the CCP.
Matthew Turpin, visiting fellow of the Hoover Institution, said U.S. consumers need to be more inclined to buy American-made goods. Consumers have power.
Turpin: We shouldn’t pretend that the world is only made up of the U.S. and China. There are other countries that would love to see the benefits that China has had during the last 20 years of globalization. Diversifying our trade and bringing those benefits to other people, particularly those that protect the environment and observe human rights are the places we should be privileging for our business; not because it is the moral thing to do, but because it is better for us in terms of national security. If we don’t do that, we will continue to see the CCP concluding that their approach works and we will not be able to get ourselves out from underneath this.
Richard Goldberg, senior advisor at the Foundation for Defense of Democracies, says more trade restrictions are needed or the U.S. will lose this trade war.
Goldberg: We have to re-evaluate PNTR and Beijing needs to know that this is on the table. There are things state governments can do, too, especially with state pension funds invested in China.
Wall Street will only divest from China when forced to divest from China. Many of the most well-known investors in the U.S. are constantly praising the Chinese economy and telling their investors – big ones and small ones who hold mutual funds and ETFs – to put their money there. This includes people like Ray Dalio and, of course, Larry Fink. We need to place more restrictions on China’s access to American capital. These fund managers will not do it on their own. They need someone to force their hand, either in Washington or like we are seeing at Yale, among students advocating for some Chinese companies to be removed from the University’s endowment. – Robby Smith, National Security Advisor, CPA.
CPA’s National Security Advisor, Robby Smith, asked panelists about the Entity List, and the contradictions at work whereas companies like Intel can be restricted from selling computer hardware to Huawei, but will invest tens of millions of dollars (which goes very far in China) into China’s nascent semiconductor industry.
See Robby Smith’s op-ed on China and the Olympics in The Washington Times.
Intel does not seem to see that they might be shooting themselves in the foot. So Washington might have to provide the bulletproofing. Instead, we end up with a case of one step forward with Entity List restrictions, and one and a half steps backward by allowing American chip makers to help China chip makers beat them in the future.
“That is going to be an increasing threat that companies do not fully appreciate yet,” said Picarsic. “It is possible we reach a point where there are sets of civilian-use technology that are no longer acceptable for Western companies to be a part of. Even legacy industrial companies like GE do not fully appreciate the risks involved.”
In another example of Washington’s one step forward, one and a half steps back approach to China, the White House greatly weakened the Section 201 solar tariffs today (link to CPA comment). This comes less than 24 hours after both President Biden and his Transportation Secretary Peter Buttigieg touted U.S. manufacturing.
Turpin responded to the news of more solar imports, calling Biden’s decision “unfortunate”.
“We are trading principle for expediency,” he said. “As we try to reinvent our energy economy, the last thing we should be doing is trading carbon-emitting energy sources for energy sources produced on the backs of slave labor,” he said about Xinjiang’s polysilicon market. This product is banned from the U.S. Polysilicon goes into making solar wafers as well as semiconductors.
“One of the benefits of tariffs…is that it makes the market work so that we can have others produce, too,” Turpin said. “The CCP wants to create dependence among countries during the build-out of a new energy system. We should be resisting that.”