From the big screen to boardrooms, China is tightening grips on US companies

While the word “decoupling” sounds like a sudden, abrupt process, it is, more often than not, a slow unwinding, punctuated by bursts of deterioration in the relationship. As talk of a U.S.-China “decoupling” has subsided somewhat since the height of the Trump administration trade wars, both Washington and Beijing are moving in directions that will increasingly force corporate boardrooms to address their reliance on Beijing and China’s influence over American companies.

When looking at the engines of American corporate power — vital for our soft power and international competitiveness — Wall Street, Hollywood and Silicon Valley are some of our most powerful private sector forces, yet we see clear examples of Beijing’s influence over all three. On Wall Street, investment banks see opportunities to deepen investments in China, while China sees it as an avenue to influence American politics and forestall tough measures by the Biden administration. In Hollywood, the examples abound from John Cena’s groveling to censoring Tom Cruise’s Top Gun jacket to Disney thanking Xinjiang’s genocidal security bureau for their assistance. Finally, in Silicon Valley, Chinese state-affiliated venture capital funds seek influence over our startups, while major players, like Apple, know that their business in China depends entirely on the Communist Party’s favor. 

For many companies, this has of course been seen as part of doing business with China. Access to a market of 1.3 billion people and China’s supply chains was part of “Globalization 101” for many a company, and, for decades, Washington assumed that commerce would reform China while Beijing believed that commercial ties would ultimately forestall political pressure on human rights or brutalities like Tiananmen Square. However, even as companies may try to focus on the bottom line, politics on both sides of the Pacific are speeding difficult choices.

In China, Xi Jinping’s consolidation of power and reshaping of the Chinese Communist Party have reached the point where he is now cracking down on key entrepreneurs while moving against the free press and judiciary in the commercial hub of Hong Kong. Alibaba Group  co founder Jack Ma — perhaps the “most famous Chinese capitalist”— has been silenced after his critiques of the party. Other tech companies are in the crosshairs, while Beijing’s plans for digital currencies, fintech regulation and a return to state-control over key industries presage not only more of the Little Red Book but also more red ink. While we may take some solace in the fact that China’s most competitive companies may now be hamstrung by a return to statism, there must also be a clear-eyed understanding about how the CCP now views the Chinese economy and the role of its main companies.

In Washington, the U.S. Innovation and Competition Act signals not only bipartisan support for investments in the long-haul competition with China, but also a recognition of vulnerable supply chains that are reliant on China, as well as a recognition of China’s influence in corporate America. While providing investments in research and development and other incentives, the legislation also looks at China’s influence over corporate America, including measures suggesting further congressional review of Chinese influence in fields ranging from academia and entertainment to agriculture and finance. Within the legislation is also text suggesting the creation of a “code of conduct” for U.S. corporate dealings with China.

These are just previews of what could come from both Washington and Beijing as corporate, commercial, and economic ties are increasingly caught up in geopolitical competition. Advanced technologies will obviously be the most significant area of competition, due to the importance of technologies ranging from 5G networks to artificial intelligence to quantum computing.

Policymakers in Washington who understand the nature of Beijing’s challenge and the long-haul competition ahead need to be aware of two key headwinds. Some key American constituencies will protest as we take a harder line towards a geopolitical competitor they only see as a lucrative business partner. At the same time, we must also be prepared for Beijing to retaliate against American companies. There is already a track record of arrests and detentions we should be aware of, and we should hold no illusions about the CCP’s willingness to confront the United States and its allies — via governments or companies — at this point.

Of course no company wants to disrupt their business, yet at the same time, they cannot ignore the changing realities of U.S.-China relations. Assumptions about how we have done business will change, and as we deal with a competitor who again sees zero division between the state and private enterprise, we need to harness the strengths of both our government and private sector, better encourage their coordination on geopolitical and technical issues, and ensure that the United States is ready for the competition ahead.

Dan Mahaffee is senior vice president at the Center for the Study of the Presidency & Congress (CSPC).