To Extort U.S. Firms, Xi Passes Laws that Firms Cannot Obey

(p. B1) Doug Guthrie spent 1994 riding a single-speed bicycle between factories in Shanghai for a dissertation on Chinese industry. Within years, he was one of America’s leading experts on China’s turn toward capitalism and was helping companies venture East.

Two decades later, in 2014, Apple hired him to help navigate perhaps its most important market. By then, he was worried about China’s new direction.

China’s new leader, Xi Jinping, was leaning on Western companies to strengthen his grip on the country. Mr. Guthrie realized that few companies were bigger targets, or more vulnerable, than Apple. It assembled nearly every Apple device in China and had made the region its No. 2 sales market.

So Mr. Guthrie began touring the company with a slide show and lecture to ring the alarm. Apple, he said, had no Plan B.

“I was going around to business leaders, and I’m like: ‘Do you guys understand who Xi Jinping is? Are you listening to what’s going on here?’” Mr. Guthrie said in an interview. “That was my big calling card.”

His warnings were prescient. China has taken a nationalist, au-(p. B3)thoritarian turn under Mr. Xi, and American companies like Apple, Nike and the National Basketball Association are facing a dilemma. While doing business in China often remains lucrative, it also increasingly requires uncomfortable compromises.

That trend raises the question of whether, instead of empowering the Chinese people, American investment in the country has empowered the Chinese Communist Party.

. . .

Mr. Guthrie’s career arc and evolving view of China tell the story of Western industry’s complicated dance with the country over the past three decades. Mr. Guthrie and many executives, politicians and academics had bet that Western investment in China would lead the country to liberalize. It is now clear that they miscalculated.

“We were wrong,” said Mr. Guthrie, who left Apple in 2019. “The wild card was Xi Jinping.”

In recent years, China shut down Marriott’s website after it listed Tibet and Taiwan as separate countries in a customer survey. It suspended sign-ups to LinkedIn after the site failed to censor enough political content. And the Communist Party urged a boycott of Western apparel companies that criticized forced-labor practices in Xinjiang, a Chinese region where the government is repressing Uyghurs, the country’s Muslim ethnic minority.

. . .

In 2014, China’s so-called dispatch labor law went into effect, limiting the share of temporary workers in a company’s work force to 10 percent. From Day 1, Apple and its suppliers were in violation.

At a Foxconn plant in Zhengzhou, China, the world’s biggest iPhone factory, temporary workers made up as much as half of the work force, according to a report by China Labor Watch, an advocacy group. After the report, Apple confirmed that the factory broke the law.

Apple executives were concerned and confused, Mr. Guthrie said. They knew the company couldn’t comply because it needed the extra workers to meet periods of intense demand, such as the holidays.

. . .

“‘This is the point. You are supposed to be out of compliance,’” he said he had told them. “‘Not so they can shut you down, but so you’ll figure out what they want you to do and figure out how to do it.’”

Mr. Guthrie, who is often tucking his long, graying hair behind his ears, began giving his lecture on Apple’s risk in China around that time. Its extreme reliance on the country left it with little leverage to resist.

Apple continued to grapple with demands from the government.

. . .

To measure the success of their lobbying, Apple executives looked to the government’s annual corporate social responsibility scores, a proxy for the Communist Party’s view of a company.

. . .

Apple’s score steadily improved. From 2016 to 2020, its ranking among all companies in China rose from No. 141 to No. 30.

Apple didn’t always successfully resist the government’s demands. Over that period, Mr. Cook had agreed to store his Chinese customers’ private data — and the digital keys to unlock that data — on computer servers owned and run by the Chinese government.

For the full story, see:

Jack Nicas. “A Warning On China Is Prescient For Apple.” The New York Times (Friday, June 18, 2021): B1 & B3.

(Note: ellipses added.)

(Note: the online version of the story has the date June 17, 2021, and has the title “He Warned Apple About the Risks in China. Then They Became Reality.”)

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