See No Evil

How American businesses collaborate with China's repressive government

by G. Pascal Zachary

In These Times magazine, November 2005

Everyone I meet is afraid. The chief executive of one of China's largest hotel groups is afraid to complain to the police about the hustlers who sell fake watches outside the lobbies of his hotels. A Buddhist who runs a network of factories is afraid to speak openly about the Chinese occupation of Tibet. A sports marketing official, one of the agents for China's basketball stars, is afraid to speak out against misguided policies of the national sports system.

What is unusual about these people is not that they are afraid; many people in China are. What is unusual about these people is that they are Americans doing business in China-some even doing business successfully. What they fear, of course, is the same thing that China's people fear: the arbitrary power of government.

For Americans doing business in China, it is a short step between fear and collaboration, as I recently found during a two-week visit to Shanghai and Beijing, the two leading destinations in China for American "expats."

My first meeting in Shanghai was not with Americans, but with Chinese nationals working for them. On a Sunday afternoon I sat in a shiny Starbucks near the city's central park, tucked into the rear corner of the shop, drinking coffee with five young people (three men and two women) who each work for a large American company in China. They all agreed that working for an American company had benefits over employment with a Chinese company. There was more openness at work, more emphasis on performance and more room to take chances. But one thing was the same: If they were caught criticizing the government, or even breaking the petty rules that govern their social lives-such as the ban on meeting in formal associations that might touch on political and social issues-the American company would not intervene to help them.

A few days later, an American who used to work for Nike explains to me why he won't stick his neck out for the Chinese or even his own principles: fear of retaliation. The American has his own sports marketing company, organizes amateur basketball tournaments throughout China and even advises China's version of the NBA. He knows Yao Ming, star of the Houston Rockets, personally. When talk comes around to the poor performance of China's international basketball team, the American offers an explanation: China's government officials are ruining Yao Ming and other top players by making them play year-round for China's national team, often sacrificing time for much-needed rest and skills building. The American knows of what he speaks, since he is the agent for the country's leading point guard who, like Yao Ming, is a victim of the government's sports policies.

I say that this is a shame, and the American agrees. But he isn't about to campaign for better treatment of these stars. In his office we are surrounded by posters of leading Chinese athletes. He points to a poster of Wang Zhizhi, a tall Chinese man who backed up Shaquille O'Neal last year for the Miami Heat. Wang rebelled against the Chinese government by refusing to play for the national team at last year's Olympics. He is now persona non grata, not only to the Chinese government, but the sports marketing establishment here. This American won't touch him, nor will anyone else, out of fear of antagonizing the Chinese government and losing lucrative deals.
Free speech be damned

The sports marketer is guilty of keeping his mouth shut. But other Americans actively assist the Chinese government in the maintenance of its repressive regime. Even as I talk to the sports marketer, Microsoft is concocting an Orwellian policy for its new Chinese version of MSN, a news site and search engine. Microsoft has decided (and publicly confirmed this summer) that anyone in China doing a search containing the words "freedom" or "democracy" will be shown a message explaining that those words are banned and the requested search query will not be processed.

Now, Microsoft is one of the richest companies in the world and its founder Bill Gates has spent billions of dollars on a foundation to reduce global inequalities in health and education. And yet his own company is so intimidated by China's government that terms basic to free expression are banned from its search engine.

American collaboration gets even uglier than that, however. In September Internet company Yahoo admitted that its employees in China assisted the government in making a case against a dissident journalist named Shi Tao, jailed since April, apparently for revealing information about a crackdown by the Communist Party.

In response to a question about the journalist's fate at a Beijing Internet conference in September, Jerry Yang, an American co-founder of Yahoo, confirmed that his company had helped the Chinese government arrest and prosecute Shi Tao. Yang didn't give specifics, but Reporters Without Borders, a Paris-based advocacy group, has said that Yahoo officials in China helped the government track Shi Tao down using the IP address from which he read his Yahoo e-mail account.

Yang said that Yahoo receives "a lot" of requests for information from the Chinese government. "I do not like the outcome of what happens with these things," he said. "But we have to comply with the law. That's what you need to do to stay in business."

That kind of pragmatic attitude might pass muster in the United States or Europe, where courts are independent and the line between business and government is usually clear. But in China, the American who blithely assists the Chinese government is likely contributing to a heavy-handed injustice.

During my trip, American business people were fond of telling me that they could do more good being engaged with the Chinese than by openly complaining and taking the sort of adversarial position against government that is common in the United States. "The idea is to retain our credibility, our influence in China, so we can work behind the scenes for the right thing," the sports marketer told me.

Naturally, there is some truth to this. In Shanghai, I visited the home of an American who adopted Tibetan Buddhism as his religion some years ago. He first came to China in order to help rebuild monasteries and temples in Tibet that were damaged or destroyed during the '60s Cultural Revolution. His high-rise apartment in a fashionable part of Shanghai is festooned with Tibetan artifacts, and he is clearly pained by the hypocrisy of the Chinese government today, promoting Tibet as a tourist destination while at the same time repressing any authentic expressions by Tibet's people or religious leaders. And yet he tells me, "The price of getting to restore Tibet's cultural heritage is staying silent about China's true aims."

When I bluntly respond that he is a collaborator in China's occupation, he nods his head sadly and says he is "resigned" to China's domination of Tibet. Speaking out on Tibet would only draw the scrutiny of the Chinese government and, of course, doom his growing business of supplying low-priced manufactured goods to American chain stores.
Profits not worth the price

Another troubling part about the collaboration of American business with the Chinese government is that, even in narrow business terms, it is failing. The terms of trade between the United States and China are ever-worsening. Chinese goods are flooding into the country, and manufacturing jobs are still flowing out of the United States and into China. U.S. exporters are selling an impressive $3.5 billion worth of goods per month to China-twice the amount of goods exported from the United States to China five years ago, and nearly ten times the amount of 15 years ago. But Chinese exporters to the United States are doing even better: Sales topped $20 billion per month this summer, and show no signs of slowing down. The trade deficit in merchandise with China topped $100 billion in 2002, $124 billion in 2003 and $160 billion last year. This year, the deficit will approach a whopping $200 billion.

To be sure, the growth in China's domestic economy offers plenty of opportunities for U.S. companies. For years, spending on China's infrastructure has been rising, and now consumer spending is exploding. An estimated 350 million Chinese-more than the population of the entire United States-spend $10 per month on cell phone services alone. For an American company, success in China, even with products that are made in China, can be the difference between survival and failure. Witness, for instance, the great boost that ailing General Motors has had in China, where its cars are top-sellers.

On the other hand, Chinese copycats-stealing everything from movies and software to plans for machinery and chip-making equipment-take unfair advantage of the relative openness of American companies. The Chinese are also frantically trying to nurture home-grown businesses that can compete with the best from America. At the same time, the Chinese government has held down the value of its own currency, making it cheaper for American companies to invest in China-and cheaper for American consumers to buy imported Chinese goods. While recently the country slightly raised the value of its currency (and may do so again periodically), most observers think that China's currency will remain artificially low, or "cheap" in economic terms, for many years to come.

Because of the complex economic dance between China and the United States, the combination of fear and collaboration is a toxic brew for even well-intentioned Americans doing business in the country. As the New York Times editorial page opined recently, "Because China is too lucrative a market to resist, American and European businessmen have ended up endorsing the party line through their silence-or worse. They are not molding China; China is molding them." In short, "constructive engagement" with China is a myth.

Some senior American executives of leading multinational corporations privately fret that their Chinese experiment will end badly, and not the least because they recognize that their investments in China have helped prop up an authoritarian regime that may be incubating social revolution or worse. Underneath the seemingly stable surface, dissent and unrest in China is rising. Even statistics from the government's own police force show a troubling trend: The number of mass protests reached 74,000 last year, compared to 10,000 in 1994.

With hundreds of unreported protests now taking place in China each week, far-sighted American executives are beginning to ponder what will happen to their investments if China implodes. One chief executive of a Fortune 500 company told me after I returned from China that he has a wait-and-see attitude, but feels increasingly doubtful that constructive engagement with China will bear fruit.

"We're capitalists and supposed to be running a business for a profit," he says. "So you don't want to leave a big market. On the other hand, China has serious political problems and the Chinese people lack basic freedoms. I'm not in China to solve the political problems, but if they aren't solved, foreign companies are either going to get kicked out of China, ultimately, or leave."

So, how should Americans respond to this situation?

First, Americans ought to squarely face their striking cycle of dependency with China, its government and economy. The U.S. government's huge deficits are partly financed by the Chinese government, which, through state-owned banks, buys U.S. Treasury bills with profits generated from exporting goods to the American market and the savings of ordinary Chinese citizens. The Chinese don't need to invest all or even a large part of their savings in their own country because American banks and corporations (as well as European and Japanese businesses) are willing to finance a great deal of the capital needed for the expansion of China's economy. Foreign investors do this because they believe that investment opportunities in both public infrastructure and private enterprise are better in China than in their own countries, and besides, European and North American investors are awash in cash anyway. The Chinese government makes investing in China even more attractive to foreigners by holding down the value of its currency, the yuan.

Ultimately, however, the Chinese end up holding a huge amount of U.S. dollars, leaving them vulnerable to sharing the pain of any American economic setbacks, such as steeper declines in the value of the dollar. Moveover, because America is the largest, most lucrative market for Chinese-made goods, China's business and economic elite are trapped in a dilemma of their own making: Americans are now hooked on cheap Chinese goods, while the Chinese are hooked on selling to Americans. Raising prices could enrich Chinese producers, but also cause a collapse in demand for their products.

This interdependency between the U.S. and Chinese economies means that American business executives, government policymakers and perhaps even ordinary citizens have more leverage with the government of China than they realize. Consider this crucial question: Who can more easily afford a rupture? The Americans, with their vastly diversified economy, or the Chinese, whose economic empire is essentially built on satisfying one single, bargain-hungry customer-America?

I don't know the answer to that question, but let me suggest that, for Americans at least, the price of having principles may be to test China's resolve more often and more pointedly. I am reminded of this possibility when I turned up at a Web café on one of the last days of my recent visit. It was 8:30 and the café was just opening. I'd been there three mornings running and a woman had helped me navigate the Chinese keyboard and screen prompts so I could reach an English interface. This morning the routine was different. There was a black vinyl binder at the front counter in front of her. Inside was a sheet for foreign nationals who wanted to use the Web. Before I could log in, I had to write my name and my passport number and state the purpose of my visit.

I complained to the woman about the sign-up sheet-she showed me to a PC anyway. Before I sat down, a man appeared and he said that unless I signed the book, I couldn't use the Web café.

I told him I refused to sign. He waved his hand angrily at me, showing me the door. "American go home," he told me.

And that's what I did.

G. Pascal Zachary teaches journalism at Stanford University and is a fellow at the German Marshall Fund. He is the author of The Diversity Advantage: Multicultural Identity in the New World Economy.

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