Xi Jinping’s China Increases the Use of Economic Coercion.

The list of taboo topics for the CCP continues to grow.

This is a subject on which foreign companies in China prefer to remain discreet. They may be subject to economic pressure from Beijing to dissuade them from crossing certain red lines or to punish them for doing so.

Germany's Merics (Mercator Institute for China Studies) has identified 123 cases of coercion by China since February 2010 and has seen an upsurge in cases since 2018. “While the list of significant cases of economic coercion is growing, they are only the tip of the iceberg, as many go unreported,” the think tank wrote in a study released in late August 2022.

The triggers are multiple, although the majority of cases identified are on China's traditional red lines:

• Xinjiang.

• Tibet.

• Taiwan.

• Hong Kong.

• Human rights.

• Territorial claims in the China Sea.

But Merics notes that Beijing's susceptibility tends to expand to new fields, such as China's international image (investigation into the origin of COVID-19), the treatment of Chinese companies abroad (the case of Huawei during the 5G tenders), or even policies deemed anti-Chinese abroad.

Informal pressures

The forms of pressure are generally opaque and informal, allowing Beijing to easily deny the use of coercion. In the Chinese authorities' toolbox, boycotts are the weapon of choice for targeting companies, accounting for more than half of the cases identified. This is what was decided against the Swedish brand H&M for having distanced itself from the cotton of Xinjiang, in a context of strong diplomatic tension between Beijing and Stockholm.

Then comes the administrative discrimination, counting for 20% of the cases (like sudden customs complications). Threats in the air are sometimes used to try to make a government or a company back down. Beijing hopes to “capitalize on the fear and uncertainty” that its threats create, even without real action, Merics notes. This is the method used so that countries like France or Germany do not exclude Huawei from 5G.

Trade or tourism restrictions are also part of the mix.

Selected targets

Beijing does not choose its targets by chance. Foreign companies “providing key technologies, intermediate products or important investments” are rarely affected. On the other hand, sectors or companies that do not contribute to national strategic objectives are much more exposed.

Wherever possible, Beijing will also try to kill two birds with one stone by pressuring a foreign company to support a local competitor. As a result, foreign manufacturers in the automotive or electronics sectors are much less targeted than consumer goods companies. “High dependence on China does not automatically translate into increased vulnerability to economic pressure,” Merics observes.

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Some reading

• The Chinese Economy Is More Than Ever Caught in the Trap of Xi Jinping’s Zero-COVID. This is how a wrong strategy followed inflexibly can plummet an entire economy.

• Putin Wants to Be the Anti-western Godfather, but Xi Jinping Will Not Follow Him in His Crusade in Ukraine. China is much more powerful than Russia, and its interests are more global and diverse.

• Apple Under Tim Cook’s Reign: No More Wow Effect, Now It’s a Steamroller. The real challenge in the future may come from the antitrust authorities.

• Nassim Nicholas Taleb Is Wrong — Bitcoin Is Not a “Tumor”, but the Cure for the Current Sick System. Nassim Nicholas Taleb followed the opposite path of Michael J. Saylor.

• More Than Ever in Trouble, Vladimir Putin Is Desperately Seeking the Support of Xi Jinping. “Hello Xi, I beg you to help me.”

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