China’s Economic Extortion

Over the past few years, China has become far more interested (and active) in asserting its broad territorial claims over vast swathes of Asia, including the South China Sea. Now that territorial authoritarianism has been ported to the realm of business and economics.

Beijing is increasingly using punitive economic measures to force American and other non-Chinese companies to toe the Chinese line when it comes to recognizing these fairly outlandish claims. In the recent past, China has attacked The Gap, Delta Airlines, Marriott Hotels, fashion retailer Zara, and medical device manufacturer Medtronic for not following the Chinese claims on various geographical territories to a T. The offenses these companies committed include such devastating actions as creating a T-shirt with a map of China that (gasp!) doesn’t include Taiwan or the Indian territory (Arunachal Pradesh) the Chinese call ‘South Tibet’, listing Tibet and Taiwan as separate countries on a website, and including Taiwan in a pull-down menu on a survey. (See Episode 6 of our podcast The Rationalist for a deeper discussion of the Chinese views on Taiwan.)

These actions were met with a proportionate (ha!) response from the Chinese government: destruction of the offending clothing items, threats to suspend business in the country entirely for a period of time, shutting down of offensive websites, and/or requiring foreign companies which operate in China to follow the (controversial) Chinese claims. This is nothing less than pure extortion by the Chinese government.

China Territorial Claims 2
China’s territorial claims across Asia, including Taiwan, nearly all of the South China Sea, and the Indian-administered area of Arunachal Pradesh.   Image Credit: China People’s Daily

American and other Western companies should not be forced into recognizing Chinese dominance over areas that are clearly claimed (legally) by other nations in which they do business. They should not be forced to undergo extensive technology transfers when they wish to compete in China. This is not only anti-competitive and unfair, but also economically the equivalent of blackmail. Western nations like the US need to push back hard on this sort of malign behavior from Beijing, as it is clear that the companies involved cannot effectively do so due to concerns about market access. It is up to our governments and the international organizations in which we have invested significant power (like the World Trade Organization) to confront the Chinese over these practices and force them to comply with the more open rules of the world economy.

If we do not fight back against this activity, we are essentially ceding the playing field and the control over the rules of the game to the Chinese, who have clearly shown that they have no intention of being fair arbiters of global markets. Trade and international commerce are tides that lift all boats economically, but only when conducted in a reasonable and consistent manner across nation-states. The Chinese government quite obviously disagrees with this assertion, as they have continuously erected artificial barriers to entry into the Chinese market, now one of the largest in the world, and have extensively used our more open economies to increase Chinese state power (just look at Chinese-controlled investments across the West).

We should not be kowtowing to retrograde Chinese ideas of territorial expansionism and should protect our companies from being forced into this bad position. Just as our nation allows T-shirts to be printed with disparaging images or slogans towards the United States, so should the Chinese allow companies to list China-claimed areas as separate ‘nations’ for the purpose of commerce. Inserting one’s political fingers into the business pie is not only a recipe for making a mess, but also one that is deeply antithetical to an open, vibrant global economy.

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