How to Respond to China’s Malign Influence on U.S. Companies? Decoupling is the only option

“The economic boom that China has achieved is truly amazing, especially in terms of infrastructure! I encourage people to see it for themselves. I encourage people to visit and see it for themselves.” This was a tweet sent by Elon Musk, a well-known American entrepreneur and CEO of Tesla Motors and Space X, on July 1 Beijing time as the Chinese Communist Party celebrated the 100th anniversary of its founding. He was replying to the tweet “China has built a moderately prosperous society” sent by the official Twitter account of Chinese official media Xinhua.

It’s no coincidence that John Donahoe, chief executive of Nike, a leading U.S. sports brand, made a surprising statement last week when discussing the company’s latest revenue report with Wall Street analysts. He said, “Nike is a brand that is in China and for China. (Nike is a brand that is of China and for China).”

Both U.S. companies are currently facing some trouble with their operations in China. After allowing Tesla to set up a wholly-owned factory in China with a lot of incentives, the Chinese government first banned Tesla cars from military facilities and family quarters, citing safety concerns about Tesla’s car cameras, and then unleashed the official media to hype the “Tesla car brake failure incident,” causing Tesla to be in a serious public relations The company has not been able to get out of the shadow of the incident. Nike, on the other hand, has faced a massive boycott by Chinese consumers for joining the move to remove Xinjiang cotton from its supply chain a few months ago.

How does China manipulate U.S. companies? House Republican lawmakers launch investigation

A preliminary investigative report suggests that the Chinese government launched a “malicious influence campaign” to manipulate and coerce U.S. companies to help Beijing implement its anti-American agenda.

According to the Washington Examiner, a conservative news website, Republican members of the U.S. House Intelligence Committee are investigating China’s manipulation of U.S. businesses. The report was obtained by the website.

According to the report, which was disclosed on the Washington Examiner website, U.S. companies “were manipulated and coerced into sharing key technologies with China” and “received guidance and direction from Chinese officials to influence business operations. The report also states that the Chinese Communist Party “influences U.S. industry and financial leaders to pressure local, state and federal executive and legislative bodies to act in Beijing’s favor to suppress negative comments by canceling contracts or withdrawing threats of access to the Chinese market. The Chinese government also routinely uses its leverage to influence U.S. media and entertainment organizations’ coverage of China.

In a recent interview with Fox News, Rep. Devin Nunes (R-Calif.), the committee’s No. 2 man, said the investigation covers a wide range of areas, including not only sports and entertainment, but also high-tech, agriculture and pharmaceutical industries.

Beijing’s bullying is more open and direct

Chris Balding, an American economics and finance scholar who used to teach at Peking University’s HSBC Business School in Shenzhen, believes the situation is indeed becoming more serious.

“The [U.S.] companies in China know that their business can be destroyed at the snap of a finger. So they are very, very careful to essentially act as proxies for Beijing and push the U.S. government or push other countries to take a more friendly position toward the Chinese Communist Party.” He said.

Michael Santoro, a professor at the University of Santa Clara (Calif.) School of Business, told Voice of America that to some extent, U.S. companies themselves should take some responsibility for this. But he also acknowledged that Beijing’s practice of bullying U.S. companies is no secret, it has just become more direct.

When you haven’t stood up to the (Chinese) government on anything for decades, the (Chinese) government thinks it has the power to force you to do things,” he said. And now they’re doing it openly, rather than quietly and subtly.”

For most U.S. companies, the Chinese market can still be lucrative, and China also has a robust supply chain unmatched anywhere else in the world.

Doug Guthrie, a former Apple, Inc. consultant, told the New York Times that China offers “scale, skills, infrastructure and government support that no other country can offer Apple.” And Apple’s annual revenue from Greater China exceeds $55 billion, far more than any U.S. company earns from China. Doug Gu is currently a professor and director of the China program at Arizona State University’s School of International Management.

How can U.S. companies get out? Is decoupling the only way out?

The price of relying on China, however, is that once you’re in, it’s hard to get out.

An investigation conducted by Republican members of the House Intelligence Committee noted that U.S. companies’ reliance on Chinese supplies leaves them vulnerable to pressure because China knows “its position in the U.S. supply chain can be exploited to jeopardize U.S. national security.”

Speaking to the Voice of America, Bryce Barros, a China affairs analyst at The German Marshal Fund, said decoupling from China may be the only way forward against a backdrop of rising U.S.-China tensions.

I think you’re going to see more decoupling in some areas,” he said. You’re seeing the most of that in anything to do with electronics and in the higher-end technology areas. Some of the U.S. companies I know are moving their electronics manufacturing in mainland China and putting it in other countries or around the Indo-Pacific where wages are cheaper or where they think it’s safer to do so without national security concerns.”

Balding, who taught in China for nine years, told Voice of America that this decoupling has actually begun, even within a company, such as many multinational companies that now distinguish between their China operations and non-China operations. The U.S. government should promote this trend, and one possible measure would be to help build other countries.

“Fundamentally, I think the U.S. government needs to push more for decoupling between China and the U.S.,” he said, “particularly in regions like Southeast Asia, where [the U.S.] is making commitments to countries that are also looking at China very worriedly, and they need to help build up these other countries. For example, Vietnam, which I’m very familiar with, and of course you could say India and other countries. I think Elon Musk is right to some extent, in that China has a very good supply chain. But saying things will never change is not the answer.”