Commentary on Political Economy

Friday, 26 March 2021


Beijing Targets American Business

The U.S. and China’s Communist Party are strategic and ideological competitors. CEOs have to decide which side they want to help win.

By Matt Pottinger
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In the weeks that surrounded President Biden’s inauguration, Chinese leaders waged an information campaign aimed at the U.S. Their flurry of speeches, letters and announcements was not, as the press first assumed, addressed mainly to the new administration. It was an effort to target the U.S. business community.

The Communist Party’s top diplomat, Yang Jiechi, spoke to a virtual audience of American business leaders and former government officials in early February. He painted a rosy picture of investment and trade opportunities in China before warning that Tibet, Xinjiang, Hong Kong and Taiwan are “red lines” that Americans would do well to keep quiet about. Mr. Yang excoriated Trump administration policies toward China and was unsubtle in pressing his audience to lobby the Biden administration to reverse them.

Opinion: Potomac Watch

General Secretary Xi Jinping, seated before a mural of the Great Wall of China, beamed himself to business elites in Davos, Switzerland, in late January. He urged them to resist efforts by European and American policy makers to “decouple” segments of their economies from China’s. Mr. Xi also wrote a personal letter to a prominent U.S. businessman exhorting him to “make active efforts to promote China-U.S. economic and trade cooperation.”

To make clear that these were requirements, not suggestions, Beijing announced sanctions on nearly 30 current or former U.S. government officials (me among them). These were in addition to the sanctions Beijing placed on American human-rights activists, pro-democracy foundations and some U.S. senators last year.


Beijing’s message is unmistakable: You must choose. If you want to do business in China, it must be at the expense of American values. You will meticulously ignore the genocide of ethnic and religious minorities inside China’s borders; you must disregard that Beijing has reneged on its major promises—including the international treaty guaranteeing a “high degree of autonomy” for Hong Kong; and you must stop engaging with security-minded officials in your own capital unless it’s to lobby them on Beijing’s behalf.

Another notable element of Beijing’s approach is its explicit goal of making the world permanently dependent on China, and exploiting that dependency for political ends. Mr. Xi has issued guidance, institutionalized this month by his rubber-stamp parliament, that he’s pursuing a grand strategy of making China independent of high-end imports from industrialized nations while making those nations heavily reliant on China for high-tech supplies and as a market for raw materials. In other words, decoupling is precisely Beijing’s strategy—so long as it’s on Beijing’s terms.

Even more remarkable, the Communist Party is no longer hiding its reasons for pursuing such a strategy. In a speech Mr. Xi delivered early last year, published only in late October in the party’s leading theoretical journal, Qiu Shi, he said China “must tighten international production chains’ dependence on China” with the aim of “forming powerful countermeasures and deterrent capabilities.”

This phrase—“powerful countermeasures and deterrent capabilities”—is party jargon for offensive leverage. Beijing’s grand strategy is to accumulate and exert economic leverage to achieve its political objectives around the world.

Here’s a recent example: After building significant trade volume with Australia over the years, Beijing last year suddenly began restricting imports of Australian wine, beef and barley for purely political reasons. Beijing released a list of 14 “disputes”—political demands of the Australian government. They include rolling back Australian laws designed to counter Beijing’s covert influence operations in Australian politics and society and even muzzling Australia’s free press to suppress news critical of China.

Australia’s travails are a foretaste of what Beijing has in store for the rest of the world. American businessmen, wishing for simple, lucrative commercial ties, have long resisted viewing U.S.-China relations as an ideological struggle. But strategic guidance issued by the leaders of both countries make clear the matter is settled: The ideological dimension of the competition is inescapable, even central.

Mr. Biden this month published his Interim National Security Strategic Guidance. The document puts China in a category by itself as “the only competitor potentially capable of combining its economic, diplomatic, military, and technological power to mount a sustained challenge to a stable and open international system.”

In his signed introduction to the document, Mr. Biden wrote: “I believe we are in the midst of a historic and fundamental debate about the future direction of our world. There are those who argue that, given all the challenges we face, autocracy is the best way forward. . . . We must prove that our model isn’t a relic of history; it’s the single best way to realize the promise of our future.”

This candor is helpful. Beijing’s dirty secret is that Mr. Xi, in his internal speeches, has for years been describing the competition in precisely these ideological terms. Consider a passage from his seminal speech—kept secret for six years—to the Communist Party Central Committee on Jan. 5, 2013.

“There are people who believe that communism is an unattainable hope, or even that it is beyond hoping for—that communism is an illusion. . . . Facts have repeatedly told us that Marx and Engels’s analysis of the basic contradictions in capitalist society is not outdated, nor is the historical-materialist view that capitalism is bound to die out and socialism is bound to win. This is an inevitable trend in social and historical development. But the road is tortuous. The eventual demise of capitalism and the ultimate victory of socialism will require a long historical process to reach completion.”

The Biden and Xi quotations are almost mirror images of each other. The president’s quotation serves as a belated American rejoinder to Mr. Xi’s furtive call for the defeat of capitalism and democracy, which he made during President Obama’s first term.

Mr. Biden’s guidance also signals that while his tactics will deviate from the Trump administration’s, there is significant continuity in U.S. strategy. It reflects the bipartisan consensus on China that has emerged over the past few years. No wonder, then, that Beijing is focusing its influence activities on other segments of American society, the business community in particular. Beijing knows that its efforts to influence Washington are increasingly in vain.

So what should American CEOs do? First, they should come to grips with how much the situation has changed over the past few years—and acknowledge that those changes are almost certainly here to stay.

CEOs will find it increasingly difficult to please both Washington and Beijing. Mr. Biden’s strategic guidance flatly states: “We will ensure that U.S. companies do not sacrifice American values in doing business in China.” Chinese leaders, as mentioned, are issuing high-decibel warnings that multinationals must abandon such values as the price of doing business in China. Like sailors straddling two boats, American companies are likely to get wet.

One prudent step would be for CEOs to review formally how the new geopolitical reality affects them on both sides of the Pacific. The great-power competition with China has introduced a thicket of new regulatory, fiduciary and reputational risks to which corporations are only waking up. Beijing’s intensifying use of extrajudicial tools is another threat. The Communist leadership’s decision to take hostage two Canadian citizens, Michael Kovrig and Michael Spavor, is a case in point.

Another prudent step would be to draw up contingencies for diversifying supply chains. The rush to concentrate so much of the world’s manufacturing on the east coast of an autocratically ruled country was an aberration, and an unsustainable one.

No one in Washington is seriously threatening a wholesale decoupling of the two economies. That’s a straw-man argument put forward by Chinese propagandists and a few alarmists here at home. But decoupling of a more limited variety—particularly in key technologies—is well under way, as it should be. In the Trump administration, we called it “selective decoupling.” Some Biden administration officials use the term “managed decoupling.” Sen. Tom Cotton and others on Capitol Hill have adopted “targeted decoupling.” When so many different political voices are using such similar language, CEOs need to pay attention.

A favorite analogy in Beijing and Washington is that our countries are running a marathon, and only one contestant will win. It’s a fine metaphor, but it’s closer to the truth that we’re in a 400-meter dash that we have to win to qualify for the next leg of the marathon. If, over the next four years, we fail to set the right conditions, we could put ourselves on track to lose the race, although we might not realize it until several years after it’s too late to win.

Above all, it will require America and its allies to consider in every policy we adopt, every bill we introduce, and every partnership that government and industry undertake, whether it increases our collective leverage in this competition or surrenders leverage to a hostile dictatorship in Beijing. The present balance of the leverage is heavily in our favor. It’s up to us to keep it that way.

Beijing knows it is in a sprint, too. Mr. Xi’s January 2013 speech shows he is aware that members of his own party harbor doubts about their system. His fellow party members know its advantages are fleeting and its shortcomings—including waste, bureaucratic inertia, and the unforgivingly magnified consequences of each miscalculation—will start to show before too long, if they haven’t already.

Beijing is trying to engineer victory from the mind of a single leader; free societies like ours harness the human spirit. Therein lies our ultimate advantage. The Communist Party’s leaders are right about one thing: American CEOs, their boards and their investors have to decide which side they want to help win.

Mr. Pottinger served as deputy White House national security adviser, 2019-21. This is adapted from a speech he delivered at the Hoover Institution March 10. 

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