by Steve Okun
This article originally appeared in The Straits Times, 16 December 2021
Tighter curbs on doing business with China loom as corporate leaders are warned that they cannot be bystanders in broader geopolitical rivalry.
"The chief business of the American people is business."
The 1925 quote by President Calvin Coolidge shows the then alignment between CEOs and government officials. In 2021, business runs up against national security.
At the centre of the growing tensions between the United States business community versus the US government and wider strategic community sits China.
The US government sees China as its only competitor capable of mounting a sustained challenge to a stable and open international system, yet US law imposes few restrictions on businesses which assist China, intentionally or otherwise, in accomplishing that feat.
The US strategic community, policymakers and a bipartisan group of legislators now challenge the notion that businesses should be free from further restrictions on activities that could potentially harm the national interest. And they are itching to do something about it.
In decades past, the US business and strategic communities' interests aligned when it came to China. Both believed economic and diplomatic engagement would lead to China becoming more integrated into the liberal international order. This complementary viewpoint no longer holds true. As China under President Xi Jinping has grown economically and militarily more powerful, it has taken to poking the US with an increasingly sharp stick.
The guiding principle of China as a potential threat will only harden as the next generation of US leaders who experienced China as a country that did not live up to its trade commitments, forced technology transfers as a price for market entry, and routinely engaged in cyber theft, ascend into more senior roles.
But American businesses do not appear to fully appreciate this trajectory.
While businesses follow the law on doing business in China, most want their core actions to be driven by the bottom line. As Mr Alan Beebe, president of the American Chamber of Commerce in China, recently told The Wire China: "We hope that the national security lane is as narrow as possible, so that the commercial lane is as wide as possible."
Despite his hopes, the trend heads in the opposite direction.
While China has never been more important to US businesses despite the generational headwinds, any CEO that does business in the US and China needs to understand that US strategic interests will make it increasingly difficult for his firm to do business in China.
Trade and investment figures underscore the interconnected- ness of the US and China. US goods and services trade with China totalled an estimated US$615.2 billion (S$841 billion) last year. Cumulative US foreign direct investment amounted to US$123.9 billion, of which about US$12 billion was injected last year, a 9.4 per cent increase from the previous year - a remarkable figure given the pandemic and trade war.
"The volume of trade and investment belies the uncertainty about how the trade relationship will develop, being robust and brittle at the same time," Mr Ryan Hass, senior fellow at the Brookings Institute, told me.
The business perspective
When it comes to China, many American business leaders, with the CEO of the Women's Tennis Association proving the exception, follow the guiding principle laid down by US economist and Nobel laureate Milton Friedman - that a business must first and foremost maximise revenues and increase sharehold
American investor Ray Dalio recently echoed those sentiments about doing business in China - that if the law does not prohibit it, then one is free to do it. For that, he was criticised by former private equity titan and current Republican Senator Mitt Romney, who called it a "sad moral lapse" that ignored China's human rights abuses.
Mr Dalio's not alone. Two months ago, global investment firm BlackRock made similar arguments in response to criticism of its business activities in China. And last month in Singapore, former US Treasury secretary Hank Paulson argued for the importance of having a US business presence in China.
"American multinationals set high business standards and the world's second-largest economy, China, could learn much from seeing American corporate social responsibility and business integrity in action," he said.
Such rhetoric mirrors US foreign policy consensus of the past, as when then President Bill Clinton argued in 2000 for China's entry into the World Trade Organisation.
Beijing counts on the US business community to continue to support the status quo. During a virtual dialogue in late November with representatives from the US business community, China's Vice-Foreign Minister Xie Feng called on them to be "guardians" of US-China cooperation.
But such appeals overlook a hardening of attitude towards China in Washington and the US imperative of better aligning the interests of business with those of national security.
National security interests
Mr Kurt Campbell, US coordinator for Indo-Pacific affairs on the National Security Council, could not have been clearer when he said: "The period that was broadly described as engagement has come to an end."
US Undersecretary of State for Economic Growth, Energy and the Environment Jose Fernandez recently gave a highly critical assessment of the role China has played in the global economy over the past 20 years and told business leaders bluntly that they were "not bystanders in the broader economic and strategic relationship".
"Please be mindful how your activities can affect US national security and the fundamental values that we hold dear," he cautioned.
In a recent paper from the National Counterintelligence and Security Centre, intelligence officials specifically warned American technology firms against working with China on artificial intelligence, quantum computing, bioscience, semiconductors and autonomous systems.
With the US strategic community framing the situation as one of national security, tougher measures should be anticipated to get businesses to comply.
Such laws exist now, but they apply to a relatively narrow classification of technologies subject to export restrictions or to sanctions on specific individuals or companies.
Going beyond US law today, US Representative Mike Gallagher, a Republican, suggests the creation of an outbound investment review mechanism to ensure that US companies, especially those that receive public financing, are not funding Chinese innovation capabilities. The idea followed a similar one from US Senators Bob Casey (Democrat) and John Cornyn (Republican).
Mr Matt Pottinger, former deputy national security adviser under president Donald Trump, agrees, arguing that the US must take bolder steps to stem the flow of US capital into China's so-called military-civil fusion enterprises and to frustrate Beijing's aspiration for leadership in, and even monopoly control of, high-tech industries.
To be sure, a wholesale decoupling benefits neither party despite what some in both countries think.
But given the current bipartisan sentiments on the China threat, CEOs doing business in China must prepare for increasingly restrictive rules.
This goes beyond the US making it tougher for Chinese firms to list in New York. It envisions making it more difficult for businesses to invest in China, especially in those sectors which impact national security, from finance to information technology to supply chain and beyond. In short, do not count on the coming years to be business as usual.