The sight of one of the most powerful and influential men in global finance issuing a grovelling apology to the Chinese Communist Party (CCP) must surely rank as one of the most excruciating acts of the year. In November, Jamie Dimon, the Chief Executive Officer of JP Morgan, one of the largest investment banks in the world, humorously remarked that JP Morgan is likely to outlive the CCP. This off the cuff comment provoked fury from Beijing, pressuring Dimon to retract his statement. This particular incident reflects a much wider and sometimes sinister pattern of questionable business practices in China.
China’s ruler, Xi Jingping, has made no secret of his plans to take China into the geopolitical stratosphere. Schemes such as the Belt and Road Initiative, a global infrastructure investment scheme into which China has poured $200 billion, are part of China’s effort to develop its economic hegemony. Central to this vision is Xi’s core economic ideal: ‘socialism with Chinese characteristics’. This deceivingly vague message has had significant implications for how China behaves as a player in the global economy. The phrase has been used by the CCP since China emerged from the period of extreme turbulence and isolation under Chairman Mao. However, under Xi, it has come to represent a distinct brand of political-economic ideology.
At its core, the ideology stresses that although private enterprise has a key place within China’s economy, essentially no one is above the rule of the CCP, meaning total compliance with their authority is essential for permission to participate in commercial activity. It is within this context that Dimon’s rapid apology should be seen. Compliance with the CCP’s authority does not just mean abiding by the rules. Compliance in this case means not doing anything that undermines the legitimacy of the CCP and its decisions. Dimon’s retraction is only the latest in a series of efforts by the CCP to browbeat global businesses operating in China into conformity. The most striking example of this relates to the supply of cotton from the Xinjiang region in China to many of the world’s premier retailers such as Nike and H&M.
Many fashion retailers use vast quantities of cotton produced from Xinjiang to make its products. However, this region has recently become the focus of intense international scrutiny. Home to the ethnic Uighur Muslim minority, the region which produces 80% of China’s raw cotton has witnessed some of the most terrifying state-sponsored repression of the century. The Muslim minority have been subjected to appalling measures such as mass sterilisations and- crucially for businesses- forced labour in the cotton fields. Many fashion retailers, including Nike and H&M, are members of the international non-profit Better Cotton Initiative (BCI), which seeks to promote sustainable and ethical supply chains in the industry.
The BCI has been vocal in drawing attention to Xinjiang and retailers have subsequently raised question marks about their supply. In spite of their good intentions, these protests are hastily silenced by the CCP, which has equated such remarks with attacks on China itself. It is therefore hardly surprising that a consumer boycott was rapidly organised across Chinese social media platforms, against retailers like H&M. This neatly sums up the risks that global businesses face in operating in China. The political conditions on the ground in China make it impossible for companies to continue to operate in the same style as they do in the West. Many firms’ dependence on Chinese exports and the spending power of Chinese consumers means that to operate in China profitably, principle must be put aside.
The Chinese response to the fashion retailers also links back to the role of the party in the economy. At the same time as Chinese consumers were self-organising boycotts, major ecommerce sites such as Alibaba and JD.com removed all H&M products from their websites, and ride-hailing apps removed references to the stores on their app’s maps. What this illustrates clearly is that businesses interact with the CCP in two ways. Firstly, the condition of total compliance is rigorously expected. And secondly, the party is more than ready to use its power to direct certain companies to act in such a way that backs up its own interests. In essence, socialism with Chinese characteristics means directing the economy to the interest of the CCP. This applies equally to both foreign and Chinese firms.
The Chinese ride-hailing app, Didi, in which the state has a controlling share, was floated publicly on the New York Stock Exchange (NYSE) six months ago. However, at the start of December, the company was ordered by the CCP to delist from the NYSE and set up instead on the Hong Kong Exchange (SEHK). We shouldn’t simply understand this peculiar relationship between state, party and commerce in terms of simple power grabbing, but instead as a product of a highly developed ideology.
Western executives negotiating entry into the Chinese market are often astonished by the near fanatical devotion of Chinese officials demanding that firms hand over intellectual property rights or majority stakes to the state.The influential China commentators Rana Mitter and Elsbeth Johnson in the Harvard Business Review, have highlighted that China functions as a Marxist-Lennist state. As opposed to only being focused on economic outcomes, China is concerned also with gaining and maintaining control over the system itself. This is unlikely to ever change because it is absolutely integral to China’s own brand of authoritarianism.
When attempting to understand how the CCP interacts with the commercial sphere, it is clear that although actions are taken in response to an immediate situation, they are grounded in a firm and unflinching ideology that places enormous importance on party control. This is the inherent risk for global businesses operating in China. The potential for enormous revenues comes at the price of intense political conditions, totally unlike any Western country. With the reality on the ground in China unlikely to change anytime soon, the question is: will global businesses reach a point where such conditions become too hot to handle?
This is the first article in a new series dedicated to business in China.
