Dec 21, 2021 - World

Why U.S. giants keep caving to China

Illustration of the domino effect on business

Illustration: Sarah Grillo/Axios

The Chinese government increasingly is using its economic weight to reshape global behavior and strengthen its own authoritarianism. And democratic governments have left companies to fend for themselves.

Why it matters: Global businesses and nonprofits learned the hard way this year that taking a stand for democratic values can cause massive revenue losses in the Chinese market.

The big picture: Critics often lambast companies that make concessions to Beijing as "caving" or "selling out." But the forces behind the wave of capitulation are larger than individual company decisions.

How it works: Through state-fanned patriotic boycotts, website shutdowns and other retaliatory measures, the Chinese government pressures international firms and other organizations to avoid statements or actions that cross Chinese Communist Party red lines.

  • Those often include support for democracy in Hong Kong, acknowledging human rights abuses in Tibet and Xinjiang, upholding Taiwan's autonomy, or discussing the coronavirus pandemic's origin in China.

What's happening: This year, numerous companies have felt pressure from Beijing.

  • Fashion companies Zara and Hugo Boss walked back statements distancing their operations from Xinjiang cotton.
  • LinkedIn blocked the accounts of several foreign journalists on its China-based website.
  • The Marriott hotel in Prague declined to host a November conference of activists and leaders from China's Uyghur diaspora, citing "political neutrality."

Prominent individuals with interests in China have repeatedly dodged questions about the mass internment camps in Xinjiang.

  • Bridgewater Associates founder Ray Dalio said, "I can't be an expert in those kinds of things," when asked in an interview with CNBC how human rights issues in China inform his decision to invest there. He referred to China as a "strict parent" in its approach to managing its population.
  • IOC official Richard Pound said, "I simply do not know. Personally, I do not know," when asked in an interview with German radio broadcaster Deutschlandfunk if he knew about the human rights violations occurring in Xinjiang.

But the results of Beijing's strategy increasingly go far beyond just censorship. The Chinese government has tightened its legal environment, forcing companies to hand over technology and data in order to continue operating there, threatening the security of users and the integrity of markets.

  • Some firms such as LinkedIn and Yahoo announced this year they were leaving the Chinese market due to the difficult regulatory environment.

But others have stayed, handing over key aspects of their business as they have done in no other market.

  • Apple CEO Tim Cook said in November that Apple has a "responsibility" to do business wherever it can, including China, despite the government's human rights abuses there. Apple censors apps from its China app store. Apple also stores encryption keys at the Chinese state-owned company that operates Apple's data center in China, the New York Times reported in June.
  • Amazon has also transferred cloud technology to local Chinese companies to comply with China's regulations and remain in the market, Reuters reported this month.

What to watch: Despite its tough policies on China in the past several years, the U.S. government has not yet established new mechanisms to support U.S. businesses facing CCP coercion, such as emergency aid to support them when facing revenue loss in China.

  • In October, a bipartisan group of lawmakers introduced a draft bill that if passed would create an interagency task force to come up with recommendations to address China's economic coercion.
  • The EU is considering a new set of anti-coercion trade instruments designed to blunt the force of Beijing's economic retaliation.

The bottom line: In a showdown between a powerful government and a single company, the government usually wins — unless an outside government steps in.

Go deeper: Global capitalism abets China's repression

Editor's note: This post has been updated to clarify that the company that operates Apple's data center in China is a Chinese state-owned company.

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