Exposing corporate America’s ‘China problem’

OPINION:

Concern for threats to national security and economic vitality in the United States from the communist Chinese — including actions like buying swaths of real estate and farmland, stealing American intellectual property and military secrets, and the infiltrating of U.S. companies and markets by Chinese state-owned companies — are on the radar of government watchdogs like the Congressional-Executive Commission on China.

Lesser known are the vulnerabilities of American corporations to the tyrannical whims of the government and its dictatorial leader, Xi Jinping — namely, U.S.-based companies with significant operations on the Chinese mainland.

Apple Inc., for example, is finally learning that the concentration of manufacturing of its technology products in a few Chinese factories is unhealthy for the bottom line. Delivery of some iPhone models during the holiday shopping season was delayed due to Mr. Xi’s oppressive “zero COVID-19” lockdown policies and resultant protests, leaving key factories understaffed and less than optimized. CEO Tim Cook scrambled to move some production to other countries, including India and Vietnam.

Complicating matters, U.S. relations with China are also tenuous due to the communist government’s military expansion and saber rattling toward Taiwan; its human rights violations against the Tibetans and Uyghurs; its elimination of freedoms in Hong Kong; and its widespread censorship practices.

Mismanagement and blind spots in the face of evil, as exhibited by Mr. Cook and executives like him, can be costly for their companies’ customers, employees, vendors and shareholders. Apple is not the only American corporation with significant exposure to risk in China. Others that heavily depend on access there include:

• Disney, which operates theme parks in both Hong Kong and Shanghai, depends on access to the market for its entertainment content. The company gave a Chinese-controlled entity majority control over the Shanghai resort, which has been closed for extensive periods recently due to the “zero COVID-19” policies.
• Comcast, whose subsidiary NBCUniversal depended on access to the country for its broadcast content and for coverage of the last Winter Olympics, also opened a Universal Studios resort in Beijing last year, which is expected to generate more than $1 billion per year for the company, according to CEO Brian Roberts.
• McDonald’s, which expects to operate more than 5,400 locations by the end of 2022 in China and Hong Kong.
• Starbucks, which reports it has 5,400 stores across more than 200 cities in China.
• Boeing, whose planes account for more than half of the commercial jetliners operating in China, according to the company.
• General Motors, which co-owns “Shanghai GM” with the Chinese state-owned SAIC Motor Corp., relies on access to the consumer market there, and with ambitious electric vehicle production goals, is dependent on China’s vast ownership of metals mining companies for EV batteries.
• Merck & Co., which has extensive research and development activities in China.
• Walmart, which operates more than 400 stores across the communist nation.

My organization, the National Legal and Policy Center, is a shareholder in all of the companies mentioned above (including Apple). For the upcoming annual corporate meetings in spring 2023 — known as “proxy season” — we will sponsor proposals for each company, asking executive leaders to research and publish a “Communist China Risk Audit” report, which is to annually inform “shareholders on the nature and extent to which corporate operations depend on, and are vulnerable to, Communist China.”

It’s not unreasonable to ask for such transparency. Stock values have tumbled this year across multiple Fortune 500 companies, at a time in which nearly all U.S.-based corporations have shut down activities — some permanently — in Russia due to the invasion of Ukraine.

But for many companies, including the aforementioned ones, dropping business in Russia is pocket change compared with what they stand to lose in China. Would they take a similar principled stand if Mr. Xi follows through on his threat to overtake Taiwan?

When it comes to brutal Chinese oppression, years of enormous profits have caused much of corporate America to look the other way. Now Apple may have reached its bearable pain limit. What about the other companies — and what does that mean for their shareholders?

• Paul Chesser is director of the Corporate Integrity Project for the National Legal and Policy Center.