U.S. companies are under tremendous pressure to implement policies and focus on investments that promote environmental sustainability and other social and governance goals. But one of the most important social responsibility decisions American companies will make is whether or how they should continue to do business in China.
The Chinese Communist Party (CCP), which will have an iron grip on China for the foreseeable future, is committing an ongoing genocide in Xinjiang. They have violated their international legal obligations by dismantling institutions that guaranteed the freedom of Hong Kong and sentenced the leaders of the democracy movement to prison. Even now, the CCP is turning their sights to Taiwan after devouring Hong Kong.
The threat from the CCP is a generational political, economic, democratic and moral challenge that businesses cannot hope to ignore, placate, or appease. As their power and leverage grows, China’s actions have already proven that they will increasingly demand more deference from businesses that will prove untenable to any executives who believe in the core values of Western democracy.
COVID has shown that the U.S. was overexposed to unstable supply chains for critical goods and services outside its borders. Companies also need to recognize the risks and vulnerability from their economic ties with China that often implicitly support the malign actions of the Chinese Communist Party. That does not mean halting all investment and trade with China — but it does mean starting to offset for the impact of inadvertent support for the Chinese government, just like companies would offset for carbon emissions.
In 2019, the U.S. imported $472 billion in goods and services from China and directly invested $13 billion into China. While COVID led to a decrease in 2020, the scale of U.S. contributions to the Chinese economy — and by proxy, the Chinese government’s coffers — are substantial. Again, companies do not need to withdraw all business with China tomorrow — but as corporate boards continue investing and operating in China, they should consider these suggestions:
First, companies should work to find alternate sources of goods and services to reduce dependence on China. This also will serve as a hedge against increased geopolitical risk emanating from the already-fraught U.S.-China relationship. At a minimum, companies need to closely monitor their business supply chains to ensure they do not include the use of forced labor or supply materials like cotton and solar panel components from Xinjiang. For example, the textile industry could turn to our neighbor (and USMCA partner) Mexico. Solar panel components can easily be developed and sourced through investment with European companies and those right here at home.
Next, building off those supply chain relocations, companies should Invest and trade more with China’s democratic targets — particularly Taiwan, Japan, South Korea and Australia. Since they are the target of China’s political predations, bolstering their economies will enable these governments to fend off economic pressure campaigns from Beijing and maintain their remarkably robust democratic institutions. Taiwan is the smallest and most vulnerable of these countries by far, and China has set its eyes on taking over the island. Companies, non-profits and individuals should think of ways to support the people of Taiwan — the coming five years will be crucial for their survival.
While we don’t need to boycott all business in China, Xinjiang is another story. We should pressure companies to close all factories and relocate business from there and boycott those who continue to support forced labor and the ongoing genocide. The CEO of Volkswagen Group China said recently that they would continue to operate its factory in Xinjiang “as long as we believe that it is economically feasible.” Which begs the question — would you turn a blind eye to genocide in any country besides China? How is it acceptable to allow for the same business in Xinjiang that you wouldn’t allow for in Darfur or Myanmar? Human rights activists and ordinary consumers should discourage any business with companies operating in Xinjiang until they leave.
Like planting trees to soak up carbon, corporate social responsibility departments should also consider donating to organizations that promote human rights accountability in China. If the company does not want to overtly irritate the CCP, the corporate officers should do so in their individual capacities, much like corporate officers often donate to political action committees.
Finally, as my old colleague Keith Krach noted, companies with investment portfolios in emerging markets should ensure that their mutual funds and ETFs do not contribute to companies involved in forced labor or profiting from genocide. Even better, adjust the portfolio away from Chinese investments altogether.
I hope these offsets are not needed permanently — when China ceases its genocide, stops arresting legislators in Hong Kong and lowers its tensions with Taiwan, companies should resume strong business ties with China. But we are far from that time — and businesses need to take social responsibility for the dark future that the Chinese Communist Party has in store for the world.
Morgan D. Ortagus has served in the last three presidential administrations as U.S. Department of State spokesperson, U.S. Treasury attache to Saudi Arabia and as a U.S. Navy Reserve intelligence officer, in addition to many senior roles in the private sector. She is a senior advisor to the Scowcroft Center at the Atlantic Council.