Amid a flood of policy about-faces with U.S. President Joe Biden’s departure and President Donald Trump’s return to the White House, one constant has been sustained and growing tension in the China-U.S. relationship.
Trump’s policy-decrees-by-tweet and made-for-TV executive order signings, combined with often cryptic policy messaging and aggressive industrial policies from Beijing, have resulted in sustained confusion and uncertainty for businesses. But simultaneously, definitive actions by both governments have required U.S. companies with China operations to make significant changes to their businesses in areas such as export controls, data privacy, and supply chain management.
In addition to commercial and operational decouplings, U.S. companies must also develop new, bifurcated political playbooks for how they engage each government.
In their U.S. government relations strategy, all American companies should aim to avoid becoming a bit player in highly politicized narratives designed to be polarizing.
In China, U.S. companies of course must track and scenario plan around geopolitical headlines like cross-strait relations, tariffs and trade policies, and human rights. But they shouldn’t let the bilateral jousting on these issues overly distract them from the opportunity – and imperative – to pursue discrete corporate diplomacy opportunities.
A winning geopolitical strategy for U.S. companies in China should focus on that country’s domestic issues. These problems may receive much less attention outside of China, but they pose tremendous challenges to the authority and stability of the Chinese government and Communist Party. Understanding these issues and becoming a useful partner for both Beijing and local leaders to address these challenges can – quietly – generate valuable political capital for American companies.
Still, U.S. corporations also need to remember that, as is true all around the world, wading into local politics presents its own risks.
Address Youth Unemployment Beyond Just Job Creation
China’s youth unemployment rate reached 21.3 percent in June 2023. Not only has it not receded, but the problem is compounded by 12 million new graduates entering the job market each year. China’s government recently ceased publishing youth unemployment numbers because the data is so dismal. Policymakers have responded with company subsidies for hiring recent graduates and incubators that provide mentorship, funding, and resources to young entrepreneurs.
Public-private collaborations like Microsoft’s “Cloud and Mobile Technology Incubation Program” in Zhaoqing, which fosters startups, not only provide potential new economic value, but can maintain local corporate reputations – especially for tech firms that are shuttering prior investments made into China-based R&D capabilities.
However, partnering with government initiatives anywhere comes with the risk of changing policy priorities and funding being stopped. Once a multinational has put their name on a program, they must be prepared for scenarios if an initiative ends because of decisions outside of their control.
Be a “Study in China” Booster
Roughly 35,000 international students are currently enrolled at colleges and universities in China – a dramatic decline from pre-pandemic levels of almost half a million foreign students studying in the country at any one time. Xi Jinping himself has actively promoted the “Study in China” brand to spark a return to China by students from abroad.
Companies can support this Chinese leadership priority by sponsoring academic collaborations, as well as strengthening even broader people-to-people ties, such as the “Coca-Cola World Citizen Program,” which engages students in cultural exchanges, fostering goodwill.
Of course, geopolitical fluctuations and hampered academic freedoms can impact international students studying in China. Even more seriously, U.S. authorities have expressed concerns that academic exchange programs such as the Chinese government’s Thousand Talents Plan, which target global experts to enhance China’s scientific capabilities, may facilitate the transfer of sensitive technologies and intellectual property to China.
Help Bridge Still Huge Socio-economic divides
China may be “one market” but it’s comprised of vastly different subeconomies. The socio-economic disparity between China’s first and lower-tier cities remains significant. Government development initiatives in these latter regions include infrastructure projects and investment incentives.
This is a particularly ripe place for foreign companies to examine their own China footprints to see where they can make business decisions that improve local infrastructure and economic development in lower-tier cities.
Caterpillar has established manufacturing facilities and partnered on infrastructure projects in lower tier cities, which both enhance infrastructure and stimulate local economies. Likewise, Walmart’s strategic expansion into smaller Chinese cities not only taps new markets but increases access to essential goods in farther flung regions.
However, foreign companies engaging lower tier cities will need to navigate political sensitivities related to balancing urban-rural investment, supply chain and infrastructure challenges, as well as competition from local enterprises with strong community ties and government support.
Engaging in Specific Sustainability Efforts
China has committed to achieving carbon neutrality by 2060, implementing policies that promote renewable energy and pollution reduction. Many of its environmental goals are an explicit part of the “Made in China 2025” industrial policy priorities, including globally dominating the solar panel and electric vehicle industries. So foreign companies engaging domestically around sustainability initiatives can quickly bump up against issues related to market competition, trade dumping disputes, and IP protection threats.
But more benign opportunities exist to focus on domestic sustainable supply chains and local circular economy innovations, such as eco-friendly manufacturing, scaling recycling, innovative waste reduction, and products with sustainable life cycles.
Nike has adopted sustainable materials and manufacturing processes within its Chinese supply chain, reducing environmental impact and enhancing local sustainability standards. Starbucks promotes sustainable coffee farming practices and waste reduction in China, enhancing local environmental stewardship and brand loyalty.
The current China-U.S. geopolitical crossfire will not conclude any time soon. Therefore, U.S. companies should not solely avoid being caught in the barrage of bullets. Smart American executives will look beyond the current international headlines and try to find ways to become an indispensable partner on the internal issues occupying the thoughts – and concerns – of the Chinese leadership.