If you’re doing business in China, let me tell you this, you’re in bed with the Chinese Communist Party (CCP), as announced by a US congressional committee this week. This is a stark wake-up call for American businesses, painting the contrast between corporate culture in China and the free world.
Rep. Mike Gallagher (R-Wis.), the straight-shooting chairman of the Select Committee on the Chinese Communist Party, minced no words in stating, “There’s no such thing as a ‘private company’ in China.” The foreign corporate world needs to understand that recent updates to Chinese laws, specifically the anti-espionage and data security laws, have legalized Beijing’s freedom to swipe data, seize assets, and plunder any Intellectual Property (IP) it desires.
Take heed of the CCP’s notorious strategy of inserting party members in businesses, schools, and institutions. It’s nothing short of a sly surveillance system that aids Beijing in gaining insider knowledge of business operations and confidential information. Rep. Gallagher further warned that through China’s Military-Civil Fusion policy, the CCP effectively transforms private entities into appendages of the People’s Liberation Army (PLA) or communist intelligence mechanisms. This policy doubles as a conduit for IP theft, leveraging the private sector for technological progression. Hence, every foreign enterprise setting foot in China is, wittingly or unwittingly, in cahoots with the CCP.
Foreign auditing, consulting, and due diligence firms have recently felt the heat from Beijing, with US companies like Bain & Co., Capvision, and Mintz Group feeling the burn. In Gallagher’s view, this aggression indicates the CCP’s growing discomfort with accurate business data being accessible to foreign firms operating in China. Gallagher challenges American executives to remove their gilded blinders and confront the escalating risks of Chinese business engagement.
Piper Lounsbury of Strategy Risks, a company specializing in managing China-related risks, testifies to the treacherous climate created by the CCP for US businesses in China. Their objectives: to sideline and replace American firms while exploiting them in the interim. She gave a first-hand account of a Fortune 100 American CEO threatened by a CCP official to surrender their latest high-tech IP or face losing market access in China.
The US economy bleeds anywhere from $225 to $600 billion annually due to the CCP’s persistent IP theft, as the Commission on the Theft of American Intellectual Property estimated in 2017. Lounsbury also cautioned that our data could be up for grabs by the CCP, hinting at the affiliation of our home-grown identity technology service providers with the Party.
The dangers of American investment in Chinese stocks were also laid bare. Gallagher derisively labeled investments in Chinese VIEs (Variable Interest Entities) as mere “side bets at a CCP-run casino.” These VIEs are essentially offshore shell companies set up by Chinese firms to skirt regulations restricting foreign investments. Investors end up with shares in these shell companies, bereft of traditional control, corporate governance, and claims on assets. Rep. Andy Barr (R-Ky.) proposed a ban on Chinese VIE investments, underlining the unusual investment nature lacking any significant legal rights.
Lastly, Shehzad Qazi, COO of China Beige Book International, blatantly stated that China’s economic data should be taken with a grain of salt. He rebuked Wall Street for proliferating Beijing’s economic and political propaganda and dictating the narrative on China’s economy to the Western world, which is currently being lured into believing a fictitious tale of China’s booming economy.
In a nutshell, American businesses need to see the Chinese market for what it is – a trap designed to strip them of their valuable assets while offering them a false sense of security. The risk is accurate, and the potential damages are vast. It’s high time American firms rethink their investment and business strategies regarding the People’s Republic of China.