CEO Daily, Saturday, June 3, 2017

June 3, 2017, 1:33 PM UTC

Since Xi Jinping’s pilgrimage to Davos last January, pundits the world over have hailed him as the new champion of globalization and open markets. It has become fashionable to invoke Xi as a foil for Donald Trump, contrasting his promises that China will “keep its door wide open” and “say no to protectionism” with the U.S. president’s defiant vows to close borders, build walls, re-write trade agreements and put “America First.”

Trump offered new fodder for that view this week with his petulant tour of Europe, his refusal to affirm the principle of mutual defense for members of the North Atlantic Treaty Organization, and his announcement Thursday that the U.S. is “getting out” of the Paris agreement on climate change.

Western commentators were quick to proclaim a changing of the guard. Columbia University economy Jeffery Sachs charged that in pulling U.S. support for the Paris accord, Trump was not only forfeiting global leadership, but leading America right out of the civilized world. In the Los Angeles Times Tracy Wilkinson saw Trump’s withdrawal from the climate deal as “the most concrete sign yet” that his America first foreign policy “has begun to disrupt the global order and ultimately could cede Washington’s dominant role on the world stage to China.” New York Times Washington correspondent David Sanger called Trump’s climate decision a “strategic gift to the Chinese, who are eager to fill the void that Washington is leaving around the world on everything from setting the rules of trade and environmental standards to financing the infrastructure projects that give Beijing vast influence.” The Atlantic‘s Isaac Stone Fish declared China “the world’s most likable superpower.

But hang on a minute. Trump’s eagerness to cast aside the mantle of global leadership and Xi’s willingness to take it up are different things. Fish, at least, acknowledged the obvious, which is that “China is an illiberal, authoritarian nation” that has been run by the same party for seven decades–making it an unlikely global leader, at least for most Western countries. China has had little success in projecting “soft power” (despite considerable effort and investment), and has far less recent experience than the U.S. in managing global affairs. Indeed, since the 1980s, China has eschewed formal alliances with other nations as a matter of policy; the only two countries that come close to qualifying as China’s strategic allies are Pakistan and North Korea.

And for all the lofty rhetoric about globalization and open markets the reality is Xi has tightened the flow of capital and investment across China’s borders since taking power, and tends to the demands of his domestic constituents just as carefully as Trump. On Friday, those constituents helped scuttle a plan for China and the European Union to issue a joint statement of support for Paris climate accord at high-level trade talks in Brussels. China, the world’s biggest emitter of greenhouse gases, has says it will honor the Paris deal. But Chinese officials balked at European demands for trade liberalization and formal assurances that Beijing will scale back excess production by Chinese steel companies.

Or consider China’s new cybersecurity law which came into force on Thursday. China says the new measures are aimed at protecting the privacy of its citizens and fighting cyberterrorism. But companies from the U.S., Europe and Japan have decried the new law as thinly disguised “cyber-protectionism.” Critics say the new rules will raise costs disproportionately for foreign firms, force them to surrender source code, and give Chinese regulators unprecedented access to their data and technologies.

Those measures add to the myriad other restrictions on foreign technology firms in China. The list of global tech giants to have been banned or held to a token presence in China includes Amazon, Facebook, Google, eBay, PayPal, Netflix, Twitter and Uber.

Leaders of global firms operating in China say doing business there has become far more difficult in the five years since Xi became president. A recent survey by the American Chamber of Commerce in China found that more than 81% of its members feel China has become “less welcoming” to foreign businesses, up from 41% who felt that in 2013.

None of this is meant to endorse Trump’s lurch towards isolationism or detract from Xi’s pledge for an open China. It is rather to suggest that both men share a vision of global leadership that has far more in common than the pundits and their own rhetoric would have us believe.


China in the World

Are the U.S. and China "destined for war"? Harvard government scholar Graham Allison poses that ominous question in a book published earlier this week. Allison is neither doom-monger nor China-basher; he is a respected former dean of Harvard's Kennedy School of Government and co-author of what many regard as the definitive account of how the U.S. and Soviet Union averted nuclear war during the Cuban Missile crisis. The book expands on his influential earlier essays suggesting the U.S. and China risk stumbling into what Allison calls the "Thucydides Trap," a reference to the the Ancient Greek historian's account of the Peloponnesian Wars between Sparta and Athens in the 5th century BC. In Thucydides' telling, the underlying cause of those wars was the rising economic and military might of Athens, and the challenge that posed to the established power, Sparta. Allison sees the same tension in the modern U.S. - China relationship. He stops short of declaring war inevitable but warns that in periods of dramatic change in relative power status among major nations, violent conflict is the rule, not the exception.


Will America remain the dominant power in the Pacific? The other big book China hands will be lugging to the beach this summer is By More Than Providence: Grand Strategy and American Power in the Asia Pacific Since 1783 by Asia scholar and former Bush national security advisor Michael J. Green. Green traces America's quest for naval pre-emininence in the Pacific from the early days of the republic through to the Obama administration's "pivot" to Asia, exploring the contributions of key strategists and political leaders along the way. Among Green's insights is that early American strategists had a keen understanding of Asia's importance to America's economic well-being and military security--an awareness he finds lacking among modern policymakers.


Technology and innovation

Is China outsmarting America in A.I.?  China has launched a concerted, nationwide push to increase funding for artificial intelligence, even as the Trump administration's new budget proposal would slash government support for A.I. research programs. The Times finds that Beijing is "readying a new multibillion-dollar initiative to fund moon-shot projects, startups and academic research, all with the aim of growing China's A.I. capabilities."  New York Times


China tech firms' push for "world domination" starts in Southeast Asia. PricewaterhouseCoopers says China's overseas technology investments more than doubled to $37.8 billion last year. The biggest deals were in Southeast Asia. Alibaba paid $1 billion in 2016 for control of Singapore-based e-commerce player Lazada Group SA. WeChat-operator Tencent--already a backer of Sea Ltd., Southeast Asia’s most valuable startup--is said to be close to investing in Indonesian ride-sharing giant Go-Jek. Didi Chuxing, Asia’s most valuable startup, owns a stake in car-hailing peer Grab and has declared plans to go global. Bloomberg


Alibaba falls out with a courier.  Shares SF Express, one of China's leading courier services, took a pounding Friday as it emerged the company had it had tangled with one of its largest customers, Cainiao, the logistics arm of e-commerce giant Alibaba. Cainiao instructed merchants on Thursday to select other couriers for shipping because SF Express had stopped sharing customer data with Cainiao. SF Express confirmed the dispute on social media, and vowed it would "continue to guard its core competitiveness" and hoped other couriers would "be vigilant against Cainiao dipping its finger in courier companies core data." Financial Times

In Case You Missed It

Is China's economy turning Japanese? Financial Times

Organizations call out Ivanka Trump brand over labor scandal  The Atlantic

John McCain: China acting like a bully The Australian

Chinese ping-pong legend suspended over gambling debts with Sands Casino in Singapore

Politics and Policy

Guo Wenhui is ready for his close-up. The New York Times finally sat down for an extended interview with Guo Wenhui, the Chinese billionaire-in-exile who has been using Twitter to lob corruption allegations at some of China's most powerful politicians. It's a fascinating profile complete with a portrait of Guo standing tanned and confident on the terrace of his Manhattan apartment. Among other things, Guo has claimed that relatives of China's anti-corruption czar Wang Qishan secretly hold shares in one of China's largest and most mysterious conglomerates. The allegations remain unsubstantiated, but the Times suggests that they are having the desired effect. China's state-media has abandoned its campaign to discredit him and Guo says his wife and daughter have been allowed to visit him in New York. Guo's "ability to stare down the world's most powerful authoritarian nation," says the Times, "has underscored the mystery, in China and abroad, about how he acquired his billions, what he knows and who, if anyone is backing him." New York Times


Who owns HNA?  The Financial Times, has an extended look at HNA Group, the conglomerate at the center of Guo's allegations. The piece is long, filled with detail but sheds no further light on allegations ask Wang or other senior party officials. Financial Times


Read More

Great ResignationDiversity and InclusionCompensationCEO DailyCFO DailyModern Board