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American companies spent an estimated $100 million lobbying Congress for China’s admission to the World Trade Organization in 2000. Two decades later, U.S. business leaders are so exasperated with the way their companies are treated in what is now the world’s second-largest economy that some have emerged as China’s harshest critics. Far from counseling President Donald Trump to exercise restraint in confronting China, many have egged him on—and offered suggestions for applying additional pressure.
Wall Street Journal reporters Bob Davis and Lingling Wei offer a vivid account of how corporate America’s romance with China soured in Superpower Showdown: How the Battle Between Trump and Xi Threatens a New Cold War. (The book is out this week; you can read a Journal excerpt here.)
Showdown makes for fascinating, if grim reading. On the U.S. side, to hear Davis and Wei tell it, business and government leaders alike naively assumed that, as China’s economy expanded and became more complex, its leaders would abandon central planning and industrial policy for a more freewheeling, market-oriented system resembling American capitalism. The Chinese, for their part, assumed the levers of American democracy to be completely controlled by banks and businesses, who wouldn’t dare risk their access to the world’s fastest-growing market.
Both sides got it horribly wrong. China’s communist rulers lost whatever faith they had in the magic of the American economic model after the Global Financial Crisis, and in 2013 chose as their “paramount leader” a man who distrusted markets and saw expanding the role of state-owned firms as the surest way to strengthen China and consolidate his own power. Then in 2016, Americans, in a rebuke to Wall Street and big business, elected a populist reality TV star who played to the resentments of working-class voters by railing against China and illegal immigrants.
The end result: a mutually destructive trade standoff that the authors suggest is unlikely to end even if Trump loses the election. “Trump has reinvigorated the use of tariffs,” they write. Any Democrat who defeats him “would inherit a world where the United States has tariffs on hundreds of billions of dollars in imports from China and other nations. No president would simply roll back those tariffs. He or she would want a lot in return, meaning that the trade fight with Beijing would continue.”
The authors argue that the “phase one” trade deal struck by the two nations in January, even if it holds, will not fundamentally alter the way China does business. China’s leadership, they conclude, “finds it increasingly difficult to cut a deal with Washington, whoever is president, without being seen as caving in to what it views as American hegemony.”
There is one American business leader, though, who remains very much in love with China: Tesla founder Elon Musk.
On Wednesday, Tesla’s share price soared 9% to $1,025, a record-high that put the company’s valuation within hailing distance of Toyota Motor Corp. The trigger for Wednesday’s surge was a Musk memo to employees signaling plans to begin production of the all-electric Tesla Semi truck. Tesla’s valuation has more than doubled since the beginning of the year, in defiance of the global pandemic, on expectations that the future of the global auto industry is electric. But that bullish view is buoyed by Tesla’s unique position in China, the world’s largest market for electric vehicles, where late last year Tesla began production of the Model Y compact sport-utility vehicle at its sprawling, $5 billion Gigafactory outside Shanghai.
Musk’s vow to deliver 500,000 vehicles globally in 2020 hangs in doubt after local authorities in Fremont, California forced him to close the Tesla Gigafactory there for more than a month to stop the spread of the coronavirus. He feuded publicly with the local sheriff and police department, then sued Alameda County before eventually reopening the plant in defiance of local health officials.
In China, Musk’s relations with government are far more cordial. The Shanghai plant, which is financed by $1.6 billion in loans from Chinese banks, has been put on the fast-track for just about everything, including construction permits, regulatory approvals, and getting hooked up to the power grid.
In January 2019, after attending a groundbreaking ceremony for the plant, Musk jetted to Beijing where he met with Premier Li Keqiang in the party’s leadership compound in Zhongnanhai, next to the Forbidden City. Li offered to make Musk a permanent resident of China. Musk’s reply: “I love China very much and am willing to come here more.”
Those plans, as well as production at the Shanghai plant, were interrupted by the outbreak of the coronavirus in January. But within two weeks, the plant was back in business, thanks in part to local government officials who helped Tesla secure 10,000 masks and even arranged dormitories for plant workers.
Tesla sold about 11,000 Model 3 vehicles in China in May, up from 3,635 in April, according to the China Passenger Car Association. “Tesla has had a phenomenal run in China since opening the Shanghai Gigafactory,” said Michael Dunne, CEO of San Diego-based auto industry consultancy ZoZo Go. In China, “they’re just killing it.”
For more on the Chinese auto industry, don’t miss our Eastworld Spotlight interview with Dunne. Grady has a summary here.
More Eastworld news below!
Clay Chandler
clay.chandler@fortune.com
This edition of Eastworld was curated and produced by Grady McGregor. Reach him at grady.mcgregor@fortune.com.
Eastworld news
South Korea
The U.S. is planning packed political rallies while recording 20,000 COVID-19 cases per day, but Daegu, a city in southern South Korea, is refusing to relax some social distancing measures amid relative safety. Daegu was once the epicenter of COVID-19 in South Korea, but transmission of the virus has all but vanished. The city’s shops, offices, and schools have largely reopened, but masks remain ubiquitous, large gatherings are banned, and students returning to college are required to take coronavirus tests before moving back to their dorms. Wall Street Journal
Breaking the banks
HSBC was caught in geopolitical crossfire again this week after a company executive told U.K. Prime Minister Boris Johnson that the company may be at risk of repercussions in China if the U.K. blocks the Chinese tech giant Huawei from building its 5G networks. This caused U.S. Secretary of State Mike Pompeo to decry China’s “coercive bullying tactics,” and said that HSBC should serve as a “cautionary tale” for businesses working with Beijing. Last week, the London-based bank’s head of Asia operations controversially declared support for the new national security law in Hong Kong, but it doesn't seem as though that was enough to earn Beijing's goodwill. Fortune
Grounded
It is not a good time to be running an airline. This week, the Hong Kong government gave Cathay Pacific, the city’s flagship carrier, a $3.9 billion dollar bailout amid record losses induced by the pandemic and political unrest. Airlines across Asia are in need of aid—some are getting it; others aren't. Thai Airways, Thailand’s national carrier, is undergoing ‘rehabilitation’ after reporting record losses, the Malaysian AirAsia is cutting its workforce by up to 30%, and Virgin Australia is up for sale, just to name a few. This week, Fortune’s Naomi Xu Elegant looked at how airlines in Asia are struggling to recover amid the pandemic. Fortune
A dangerous retweet
Twitter is banned in China, yet the social media platform remains an essential tool for its diplomats to communicate messaging abroad. But that only represents the tip of the iceberg in terms of how China’s state apparatus has used the platform to advance its own interests. Last fall, Twitter suspended 200,000 accounts in what it called state-backed information campaign from China. Now, in an investigation published this week, the New York Times found that thousands of accounts have acted suspiciously on the platform, working largely to amplify pro-China voices with few of their own followers. The new report suggests that China’s state-backed accounts may be growing more sophisticated by avoiding tell-tale suspicious activities like opening thousands of accounts on the same day. New York Times
A stalled economy
Chinese Premier Li Keqiang said that 600 million Chinese people still struggle to make ends meet in a press conference in late May, following the central government's annual Two Sessions meeting that sets the country's economic agenda each year. To address this, Li said, China should embrace a 'street-stall economy,' and encourage Chinese citizens looking to set up small, vendor-style shops and restaurants. Street vendors had long been a hallmark of Chinese cities until government campaigns in recent years cracked down on them for being "unhygenic and uncivilized." This contradicting messaging has left some vendors wary of going back to the streets. New York Times
Coronavirus by country
North Korea
We are only six weeks on from CNN reporting that North Korea’s leader Kim Jung Un’s health was in “grave danger.” Now, Kim’s health may be fine, but the citizens of his country appear to be in dire straights. The government of North Korea hasn’t confirmed a single case of coronavirus, but in March announced that the country was instituting quarantine measures to combat the outbreak. In May, the government said it had over 2,000 people under medical observation. Multiple outbreaks in Chinese cities along North Korea’s border have raised suspicions that the government hasn’t been forthcoming in reporting its coronavirus situation. Meanwhile, the country’s border with China, which North Koreans depend on to trade food and other essential goods, remains closed. This week, UN officials warned that the border closings may be creating a disastrous humanitarian situation in the country, with up to 40% of its population at risk of malnutrition because of the virus. DW News
Markets and movers
Jio Platforms – This week, the telecoms arm of the India’s largest conglomerate, Reliance Industries Limited, closed its eighth deal in the last seven weeks, securing a $750 million investment from the Abu Dhabi Investment Authority. The company has now raised a total of $13 billion since it secured nearly $6 billion from Facebook in April. Bloomberg
Netease – The Chinese gaming firm raised $2.7 billion in a secondary listing on the Hong Kong stock exchange on Thursday. The firm is already listed on Nasdaq, but the move may help protect it as U.S. authorities apply added pressure on Chinese companies listed on U.S. exchanges. Fortune
Tiki – This week, Vietnam’s largest e-commerce platform raised over $130 million from Northstar, a Singaporean private equity firm. It follows news that Tiki plans to merge with its largest domestic competitor Sendo, which would provide Vietnam with a powerful homegrown challenger to foreign e-commerce firms like the Singaporean firms Shopee and Lazada. Deal Street Asia
Optim – The Japanese online business platforms company is booming amid a digital push during the pandemic, pushing its founder, Shunji Sugaya, into Japan's billionaire class. Softbank had offered Sugaya $2.8 million for his company in 2000, but Sugaya turned it down and his company is now worth over $1.6 billion. Fortune
Final figure
8,981
It has been roughly one year since the first mass protest of Hong Kong pro-democracy movement on June 9 2019, when more than a million people took to the streets in opposition to an extradition bill proposed in the city’s legislature. And while Hong Kong’s protest movement faces an uncertain future in light of Beijing’s new national security law, the next battle between protesters and authorities may play out in courts. Thousands of protesters who were arrested during the city's year of unrest are awaiting charges and trials tied to their participation in the protests. On Thursday, the South China Morning Post illustrated on its front page the 8,981 people who have been arrested in protests since the first march, and the accompanying online graphic vividly captured the scope and diversity of those who've been arrested. South China Morning Post
