n January 2017, the world witnessed two important moments for U.S.-China relations: the inauguration of President Trump, and Xi Jinping’s address to the World Economic Forum. While Trump pushed forward “America First,” Xi expounded on the benefits of globalization at Davos, framing China’s ascendency to the world stage as one defined by benevolent cooperation. The business community was primed for a world where China would fill the void left by Trump’s retreat from global leadership.
In 2020, Beijing’s actions have not helped China live up to the position of global leadership outlined by Xi at Davos. Furthermore, Beijing’s handling of the COVID-19 outbreak and lack of transparency with multilateral institutions did little to stop the rapid spread of the coronavirus worldwide. In July, Beijing followed a year of protests in Hong Kong with the implementation of national security legislation. After the Trump administration articulated a stronger stance in opposition to China’s activities and territorial claims in the South China Sea, Beijing responded with live-fire military exercises near Vietnam’s coastline. Finally, in the years since Xi’s speech at Davos, ever-increasing evidence of human rights abuses by Beijing in Xinjiang has risen in prominence in the U.S. Congress and increasingly in international press.
In the United States, since taking office in January 2017, the Trump administration has lived up to the promise of “America First” on many fronts. This year, the United States has ramped up tension in the bilateral relationship by closing the Chinese consulate in Houston and imposing sanctions on Chinese government officials and companies complicit in human rights abuses. This spring, the U.S. Commerce Department wielded the Entity List to limit interaction of U.S. companies with Chinese entities, and identified Chinese companies that are complicit in human rights abuses in Xinjiang, which has prompted many multinationals to take a closer look at their supply chains in China. Finally, Trump’s August executive order restricting transactions with WeChat, pending the publication of the implementing regulations, has the potential to cripple the ability of U.S. companies to communicate with customers and market and sell their products in China.
These flashpoints mark a heightening friction between China and the U.S., further complicating the geopolitical environment within which multinational companies operate. And negative views of China in the United States are further intensifying. A survey conducted by APCO in April 2020 found that a plurality of Americans (42%) blame the Chinese Government for harm caused to the American people by the COVID-19 pandemic, and nearly half of Americans view China as “an enemy of the U.S.” (48%), with only 18% disagreeing with this statement. Pew research published in July showed 73% of people in the United States had an unfavorable view of China, and 78% blame the Chinese government’s initial handling of the COVID-19 outbreak in Wuhan for the global spread of the virus.
What should companies do right now?
China’s hardening foreign policy, trade, and human rights practices will force difficult choices for multinationals as they strive to adhere to sometimes conflicting laws and regulations in their home countries, in China, and to their own core values.
Questions business leaders must ask include:
• How will my business continue to grow sales in China while complying with competing stakeholder expectations? Can I do that while adhering to my core values?
• If the China operations of my business operate by a different set of values than headquarters, will headquarters employees voice opposition?
• How can I avoid becoming a target for retaliation from consumers, investors and regulators in my country of origin?
Hong Kong presents a particularly thorny issue which strikes at the core of China’s sovereignty. Companies seeking to comply with possible U.S. sanctions imposed in the context of evaluating Hong Kong’s autonomy could decide to move their Hong Kong operations elsewhere. But any shift will need to be carefully managed as Beijing might view corporate decampment from Hong Kong as a desertion of China—and could invite retaliation in the lucrative mainland market. U.S. companies seeking to comply with Trump’s executive order on WeChat have so far been left in the dark as to what a “transaction” entails, and whether the effect on their China business and operations will be either seriously inconvenient, or require a divestiture or market exit.
The case of Xinjiang is clearer. The U.S. government, the EU, and EU Member States are paying close attention to concerns around forced labor and other abuses. The scrutiny by governments, investors, employees and customers will only intensify for companies whose supply chains, products, partners or practices are implicated in such abuses. Companies should frankly acknowledge these issues and identify a clear path forward which incorporates due diligence and transparency efforts with respect to human rights issues and global supply chains.
Despite the turbulence contributed by both the U.S. and China over the last few years to the bilateral relationship, China still presents significant commercial opportunities for multinational companies. However, companies must be able to navigate this heightening tension by establishing trust in a business environment increasingly being drawn into the political fray.
a global affairs media network
Warning Signs: Geopolitical Headwinds for Multinationals in China
September 11, 2020
I
n January 2017, the world witnessed two important moments for U.S.-China relations: the inauguration of President Trump, and Xi Jinping’s address to the World Economic Forum. While Trump pushed forward “America First,” Xi expounded on the benefits of globalization at Davos, framing China’s ascendency to the world stage as one defined by benevolent cooperation. The business community was primed for a world where China would fill the void left by Trump’s retreat from global leadership.
In 2020, Beijing’s actions have not helped China live up to the position of global leadership outlined by Xi at Davos. Furthermore, Beijing’s handling of the COVID-19 outbreak and lack of transparency with multilateral institutions did little to stop the rapid spread of the coronavirus worldwide. In July, Beijing followed a year of protests in Hong Kong with the implementation of national security legislation. After the Trump administration articulated a stronger stance in opposition to China’s activities and territorial claims in the South China Sea, Beijing responded with live-fire military exercises near Vietnam’s coastline. Finally, in the years since Xi’s speech at Davos, ever-increasing evidence of human rights abuses by Beijing in Xinjiang has risen in prominence in the U.S. Congress and increasingly in international press.
In the United States, since taking office in January 2017, the Trump administration has lived up to the promise of “America First” on many fronts. This year, the United States has ramped up tension in the bilateral relationship by closing the Chinese consulate in Houston and imposing sanctions on Chinese government officials and companies complicit in human rights abuses. This spring, the U.S. Commerce Department wielded the Entity List to limit interaction of U.S. companies with Chinese entities, and identified Chinese companies that are complicit in human rights abuses in Xinjiang, which has prompted many multinationals to take a closer look at their supply chains in China. Finally, Trump’s August executive order restricting transactions with WeChat, pending the publication of the implementing regulations, has the potential to cripple the ability of U.S. companies to communicate with customers and market and sell their products in China.
These flashpoints mark a heightening friction between China and the U.S., further complicating the geopolitical environment within which multinational companies operate. And negative views of China in the United States are further intensifying. A survey conducted by APCO in April 2020 found that a plurality of Americans (42%) blame the Chinese Government for harm caused to the American people by the COVID-19 pandemic, and nearly half of Americans view China as “an enemy of the U.S.” (48%), with only 18% disagreeing with this statement. Pew research published in July showed 73% of people in the United States had an unfavorable view of China, and 78% blame the Chinese government’s initial handling of the COVID-19 outbreak in Wuhan for the global spread of the virus.
What should companies do right now?
China’s hardening foreign policy, trade, and human rights practices will force difficult choices for multinationals as they strive to adhere to sometimes conflicting laws and regulations in their home countries, in China, and to their own core values.
Questions business leaders must ask include:
• How will my business continue to grow sales in China while complying with competing stakeholder expectations? Can I do that while adhering to my core values?
• If the China operations of my business operate by a different set of values than headquarters, will headquarters employees voice opposition?
• How can I avoid becoming a target for retaliation from consumers, investors and regulators in my country of origin?
Hong Kong presents a particularly thorny issue which strikes at the core of China’s sovereignty. Companies seeking to comply with possible U.S. sanctions imposed in the context of evaluating Hong Kong’s autonomy could decide to move their Hong Kong operations elsewhere. But any shift will need to be carefully managed as Beijing might view corporate decampment from Hong Kong as a desertion of China—and could invite retaliation in the lucrative mainland market. U.S. companies seeking to comply with Trump’s executive order on WeChat have so far been left in the dark as to what a “transaction” entails, and whether the effect on their China business and operations will be either seriously inconvenient, or require a divestiture or market exit.
The case of Xinjiang is clearer. The U.S. government, the EU, and EU Member States are paying close attention to concerns around forced labor and other abuses. The scrutiny by governments, investors, employees and customers will only intensify for companies whose supply chains, products, partners or practices are implicated in such abuses. Companies should frankly acknowledge these issues and identify a clear path forward which incorporates due diligence and transparency efforts with respect to human rights issues and global supply chains.
Despite the turbulence contributed by both the U.S. and China over the last few years to the bilateral relationship, China still presents significant commercial opportunities for multinational companies. However, companies must be able to navigate this heightening tension by establishing trust in a business environment increasingly being drawn into the political fray.
