The de-listing case against China is growing stronger at every turn. And with good reason. When it comes to doing business in America, Chinese companies are all take and no give.
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By now, we are quite familiar with the litany of charges against Chinese companies for their nefarious business practices. From clandestine commercial espionage to outright technology theft, Chinese corporations operating in the U.S. take full advantage of the latitude and commercial freedom afforded by American laws and the easy access to the American market.
With a few exceptions, our liberal economic environment allows corporations, including foreign firms, to engage in a wide range of business activities.
Chinese companies, however, have pushed the envelope of legality in many cases, employing an arsenal of shady tactics to gain as much or as little advantage as possible. They systematically scrape the American landscape for every bit of data, information and intellectual property available, contributing little or nothing in exchange.
And that goes for TikTok and other seemingly benign consumer apps. Jingoism aside, it is one thing when the likes of Facebook, Google and other American firms leverage our data.
It is another thing altogether when a foreign company linked to a foreign government does the same or worse.
The former is a matter of privacy best left to the Federal Trade Commission. The latter is a matter of foreign policy best left to Congress and the Executive Branch.
President Donald Trump has threatened to delist as many as 200 Chinese companies from the U.S. stock exchange unless they comply with a new set of American laws and regulations designed for more transparency.
Proposed legislation would require firms publicly traded on American exchanges to adhere to new standards in financial auditing. While this may appear heavy handed, Rep. Brad Sherman, D- Calif., said: “This is not an anti-China provision. This is an investor-protection provision.” Among other things, the audits are designed to reveal the nature and scope of foreign government ownership and control over these companies.
This is the latest proposal from the Executive Branch to balance the scales of trade and investment between China and the United States. It's all intended to bring Chinese firms into compliance with the principles of fairness and equity that govern commerce and international trade, and to remove them from the American economic theatre.
These extraordinary measures follow the president’s mandates to limit Huawei and TikTok – two Chinese companies thought to be under the dominion and control of the Chinese government—from accessing the data and sensitive information of American companies and consumers. Some of their greatest technology applications leverage access to data gleefully provided by American consumers.
Undoubtedly national security is the core concern. But beyond that, there are other compelling reasons why the U.S. needs to toughen up on Chinese companies. Not the least of which is that their companies care little about the emerging American business ethos which values environmental, social and governance (ESG) principles.
What does that mean?
In plain terms, it means that Chinese firms, on the whole, pay little or no attention to an emerging, but well recognized, set of guidelines that American and European companies adhere to when looking at global investments.
When investors, regulators and activists discuss environmental issues, they focus on factors like energy consumption, pollution, climate change, waste production, natural resource preservation and animal welfare, among others. Chinese companies give these areas short shrift.
On social matters, most investors focus on corporate practices relating to human rights, labor practices, community engagement, diversity, inclusion, health and safety, and stakeholder relations.
The record of Chinese companies in these areas is abysmal both at home and abroad.
And in the area of corporate governance, U.S. and global investors focus on business practices relating to the quality of management, board independence, conflicts of interest, executive compensation, shareholder rights and transparency, among others.
Transparency is not a common practice among Chinese companies; indeed opacity is the rule.
By ignoring, avoiding or disobeying many of these norms, Chinese firms flout their intent to play by their own set of rules in the U.S. This at a time when Chinese foreign investment in the U.S., which reached a high water mark in 2016 at $53 billon spread over 61 deals, has come under much greater scrutiny.
That level of investment tapered off substantially to $3 billion on 8 deals in 2019. And COVID -19 has slowed the investment even further.
Nevertheless, there remain many companies operating in America with notable levels of Chinese ownership. A few of the leading examples include Reddit, which received a $150 million investment from China’s Tencent in 2019. TikTok, the viral video platform owned by China’s ByteDance is valued at $ 100 billion.
Universal Music Group received a $3.4 billion investment from Tencent in 2019. Warner Music received a $200 million investment from Tencent in 2020. Riot Games is 100% owned by Tencent, which also owned 40% of Epic Games, creator of Fortnite, the world’s most profitable game.
AMC Theaters was bought by the Dalian Wanda Group in 2012 for $2.6 billion. The iconic group was started over a century ago in Missouri. The Wanda Group also purchased Legendary Entertainment Group, a major Hollywood studio, for $3.5 billion in 2016. At the time, it was the largest China – Hollywood deal.
In other sectors, Smithfield Foods was bought by China’s WH Group for $4.7 billion in 2013. GE Appliances was acquired by China’s Qingdao Haier Co. for $5.6 billion in 2016. Ingram Micro was acquired by China’s HNA Group for $6 billion in 2016. The China Investment Corporation invested $100 million in Airbnb, Inc. in 2017.
Other iconic acquisitions by China include IBM’s x86 Server Business for $2.1 billion in 2014, the Waldorf Astoria New York for $1.95 billion and The Brooklyn Nets along with the Barclays Center, acquired by Alibaba co-founder Joseph Tsai for $2.35 billion. Lexmark International Inc. was bought by a consortium of Chinese investors for $3.6 billion in 2016. Motorola Mobility was bought by the China-based Lenovo Group for approximately $2.91 billion in 2014.
Investments and acquisitions by Chinese firms with strong ties to the Chinese government pose other problems for American policymakers and industry. Their access to low labor costs and proprietary supply chains give them a competitive advantage and undercuts American growth at a critical economic inflection point.
Adding insult to injury, Chinese companies are known to take full advantage of every loophole, exception and exemption allowed by our laws but have a scant record of philanthropy, diversity, community engagement or reinvestment in the United States. Even at a time when American companies are scrambling to address social issues, Chinese firms in the U.S. sit idly by.
While free trade and foreign investment are lofty goals and benchmarks of healthy economies, they only succeed when the parties play by the rules.
When it comes to Chinese companies investing and doing business in America, fairness seems to be a foreign concept.
© 2020 Adonis E. Hoffman
Adonis Hoffman is CEO of The Advisory Counsel, LLC and co-founder of The American Social Impact Foundation. He held senior legal and policy positions in Congress and at the FCC. Hoffman is the author of "Doing Good—the New Rules of Corporate Responsibility, Conscience and Character. "