MATTHEW POTTINGER FOR NEXT

SECRETARY OF STATE ! 
Beijing Targets American Business
The U.S. and China’s Communist Party are strategic and
ideological competitors. CEOs have to decide which side they
want to help win.
By Matt Pottinger
March 26, 2021 2:27 pm ET

ILLUSTRATION: DAVID KLEIN

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In the weeks that surrounded President Biden’s inauguration, Chinese

leaders waged an information campaign aimed at the U.S. Their flurry of
speeches, letters and announcements was not, as the press first assumed,
addressed mainly to the new administration. It was an effort to target the
U.S. business community.

The Communist Party’s top diplomat, Yang Jiechi, spoke to a virtual

audience of American business leaders and former government officials in
early February. He painted a rosy picture of investment and trade
opportunities in China before warning that Tibet, Xinjiang, Hong Kong and
Taiwan are “red lines” that Americans would do well to keep quiet about.
Mr. Yang excoriated Trump administration policies toward China and was
unsubtle in pressing his audience to lobby the Biden administration to
reverse them.

Opinion: Potomac Watch

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General Secretary Xi Jinping, seated before a mural of the Great Wall of

China, beamed himself to business elites in Davos, Switzerland, in late
January. He urged them to resist efforts by European and American policy
makers to “decouple” segments of their economies from China’s. Mr. Xi
also wrote a personal letter to a prominent U.S. businessman exhorting him
to “make active efforts to promote China-U.S. economic and trade
cooperation.”

To make clear that these were requirements, not suggestions, Beijing

announced sanctions on nearly 30 current or former U.S. government
officials (me among them). These were in addition to the sanctions Beijing
placed on American human-rights activists, pro-democracy foundations and
some U.S. senators last year.

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Beijing’s message is unmistakable: You must choose. If you want to do
business in China, it must be at the expense of American values. You will
meticulously ignore the genocide of ethnic and religious minorities inside
China’s borders; you must disregard that Beijing has reneged on its major
promises—including the international treaty guaranteeing a “high degree of
autonomy” for Hong Kong; and you must stop engaging with security-
minded officials in your own capital unless it’s to lobby them on Beijing’s
behalf.

Another notable element of Beijing’s approach is its explicit goal of making

the world permanently dependent on China, and exploiting that
dependency for political ends. Mr. Xi has issued guidance, institutionalized
this month by his rubber-stamp parliament, that he’s pursuing a grand
strategy of making China independent of high-end imports from
industrialized nations while making those nations heavily reliant on China
for high-tech supplies and as a market for raw materials. In other words,
decoupling is precisely Beijing’s strategy—so long as it’s on Beijing’s terms.

Even more remarkable, the Communist Party is no longer hiding its

reasons for pursuing such a strategy. In a speech Mr. Xi delivered early last
year, published only in late October in the party’s leading theoretical
journal, Qiu Shi, he said China “must tighten international production
chains’ dependence on China” with the aim of “forming powerful
countermeasures and deterrent capabilities.”

This phrase—“powerful countermeasures and deterrent capabilities”—is

party jargon for offensive leverage. Beijing’s grand strategy is to
accumulate and exert economic leverage to achieve its political objectives
around the world.

Here’s a recent example: After building significant trade volume with

Australia over the years, Beijing last year suddenly began restricting
imports of Australian wine, beef and barley for purely political reasons.
Beijing released a list of 14 “disputes”—political demands of the Australian
government. They include rolling back Australian laws designed to counter
Beijing’s covert influence operations in Australian politics and society and
even muzzling Australia’s free press to suppress news critical of China.

Australia’s travails are a foretaste of what Beijing has in store for the rest of
the world. American businessmen, wishing for simple, lucrative commercial
ties, have long resisted viewing U.S.-China relations as an ideological
struggle. But strategic guidance issued by the leaders of both countries
make clear the matter is settled: The ideological dimension of the
competition is inescapable, even central.
Mr. Biden this month published his Interim National Security Strategic
Guidance. The document puts China in a category by itself as “the only
competitor potentially capable of combining its economic, diplomatic,
military, and technological power to mount a sustained challenge to a
stable and open international system.”

In his signed introduction to the document, Mr. Biden wrote: “I believe we

are in the midst of a historic and fundamental debate about the future
direction of our world. There are those who argue that, given all the
challenges we face, autocracy is the best way forward. . . . We must prove
that our model isn’t a relic of history; it’s the single best way to realize the
promise of our future.”

This candor is helpful. Beijing’s dirty secret is that Mr. Xi, in his internal
speeches, has for years been describing the competition in precisely these
ideological terms. Consider a passage from his seminal speech—kept
secret for six years—to the Communist Party Central Committee on Jan. 5,
2013.

“There are people who believe that communism is an unattainable hope, or

even that it is beyond hoping for—that communism is an illusion. . . . Facts
have repeatedly told us that Marx and Engels’s analysis of the basic
contradictions in capitalist society is not outdated, nor is the historical-
materialist view that capitalism is bound to die out and socialism is bound
to win. This is an inevitable trend in social and historical development. But
the road is tortuous. The eventual demise of capitalism and the ultimate
victory of socialism will require a long historical process to reach
completion.”

The Biden and Xi quotations are almost mirror images of each other. The
president’s quotation serves as a belated American rejoinder to Mr. Xi’s
furtive call for the defeat of capitalism and democracy, which he made
during President Obama’s first term.

Mr. Biden’s guidance also signals that while his tactics will deviate from the
Trump administration’s, there is significant continuity in U.S. strategy. It
reflects the bipartisan consensus on China that has emerged over the past
few years. No wonder, then, that Beijing is focusing its influence activities
on other segments of American society, the business community in
particular. Beijing knows that its efforts to influence Washington are
increasingly in vain.

So what should American CEOs do? First, they should come to grips with
how much the situation has changed over the past few years—and
acknowledge that those changes are almost certainly here to stay.
CEOs will find it increasingly difficult to please both Washington and
Beijing. Mr. Biden’s strategic guidance flatly states: “We will ensure that
U.S. companies do not sacrifice American values in doing business in
China.” Chinese leaders, as mentioned, are issuing high-decibel warnings
that multinationals must abandon such values as the price of doing
business in China. Like sailors straddling two boats, American companies
are likely to get wet.

One prudent step would be for CEOs to review formally how the new
geopolitical reality affects them on both sides of the Pacific. The great-
power competition with China has introduced a thicket of new regulatory,
fiduciary and reputational risks to which corporations are only waking up.
Beijing’s intensifying use of extrajudicial tools is another threat. The
Communist leadership’s decision to take hostage two Canadian citizens,
Michael Kovrig and Michael Spavor, is a case in point.

Another prudent step would be to draw up contingencies for diversifying

supply chains. The rush to concentrate so much of the world’s
manufacturing on the east coast of an autocratically ruled country was an
aberration, and an unsustainable one.

No one in Washington is seriously threatening a wholesale decoupling of

the two economies. That’s a straw-man argument put forward by Chinese
propagandists and a few alarmists here at home. But decoupling of a more
limited variety—particularly in key technologies—is well under way, as it
should be. In the Trump administration, we called it “selective decoupling.”
Some Biden administration officials use the term “managed decoupling.”
Sen. Tom Cotton and others on Capitol Hill have adopted “targeted
decoupling.” When so many different political voices are using such similar
language, CEOs need to pay attention.

A favorite analogy in Beijing and Washington is that our countries are

running a marathon, and only one contestant will win. It’s a fine metaphor,
but it’s closer to the truth that we’re in a 400-meter dash that we have to
win to qualify for the next leg of the marathon. If, over the next four years,
we fail to set the right conditions, we could put ourselves on track to lose
the race, although we might not realize it until several years after it’s too
late to win.

Above all, it will require America and its allies to consider in every policy we
adopt, every bill we introduce, and every partnership that government and
industry undertake, whether it increases our collective leverage in this
competition or surrenders leverage to a hostile dictatorship in Beijing. The
present balance of the leverage is heavily in our favor. It’s up to us to keep
it that way.
Beijing knows it is in a sprint, too. Mr. Xi’s January 2013 speech shows he
is aware that members of his own party harbor doubts about their system.
His fellow party members know its advantages are fleeting and its
shortcomings—including waste, bureaucratic inertia, and the unforgivingly
magnified consequences of each miscalculation—will start to show before
too long, if they haven’t already.

Beijing is trying to engineer victory from the mind of a single leader; free
societies like ours harness the human spirit. Therein lies our ultimate
advantage. The Communist Party’s leaders are right about one thing:
American CEOs, their boards and their investors have to decide which side
they want to help win.

Mr. Pottinger served as deputy White House national security adviser,

2019-21. This is adapted from a speech he delivered at the Hoover
Institution March 10.