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American business sours on China

By Gideon Rachman
Published: July 12 2010 22:19 | Last updated: July 12 2010 22:19

Multinational companies still have a vaguely villainous image for much of the left. But they are one of the
most powerful forces in the world pushing for peace, prosperity and international co-operation.

Were it not for the power of big business, the relationship between the US and China might have gone
sour years ago. There are forces on both sides of the Pacific – Chinese nationalists, American trade
unionists, the military establishments of both countries – that would be happy with a more adversarial
relationship. For the past generation it has been US multinationals that have made the counter-argument –
that a stronger and more prosperous China could be good for America.

So it is ominous, not just for business but for international politics, that corporate America is showing
increasing signs of disillusionment with China.

In recent months, three of the most celebrated and powerful companies Gideon Rachman blog
in the US have clashed with the Chinese government. Google,
Goldman Sachs and General Electric are symbols of American Across the
globe: Read the
prowess in technology, finance and industry. FT’s international
affairs
Google’s high-profile dispute over censorship came within an ace of columnist’s
forcing the company out of China. Even after last week’s face-saving authoritative and lively
compromise, the company’s future in China remains highly uncertain. commentary
Last month, the backlash against Goldman Sachs reached China, as the
banking group found itself accused in the official media of “going around
the Chinese market slurping gold and sucking silver”, and of making excessive profits.

Complaints from Jeff Immelt, GE’s chief executive – even though they were later qualified – are
particularly telling because Mr Immelt has made a substantial personal commitment to the Chinese
market. Last year, I visited GE’s gleaming new research facility in Shanghai. Under Jack Welch, Mr
Immelt’s predecessor, the company had made a modest investment in China-based research. Mr Immelt
has stepped it up considerably. GE now employs more than 2,000 Chinese engineers working on cutting-
edge environmental and healthcare technology, much of it designed for the local market. Last year GE
made more than $6bn in sales in China.

Yet these are relatively modest figures for one of America’s most beyondbrics

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beyondbrics
successful multinationals. GE’s overall revenues worldwide last year
were $157bn and the company had been hoping to make $10bn a year ’
in China by now. At a private dinner in Italy last month, Mr Immelt gave ‘US wants China
voice to his frustrations about the way the Chinese government is to break down
trade barriers -
treating foreign companies, saying: “I’m not sure that in the end they but what of its
want any of us to win or any of us to be successful.” own?’

These remarks challenge the way in which both American and Chinese
political leaders have talked about the relationship between their two nations. On a visit to a Boeing
factory in the US a couple of years ago, Hu Jintao, the Chinese president, lauded a big Chinese order as
an example of “win-win” logic. Successive US presidents, including Barack Obama, have said the US
welcomes the rise of China because, in a globalised world, both sides gain from burgeoning business ties.

In some ways, it is a strange time for multinationals to go sour on China. For many, the Chinese market is
finally beginning to deliver on its long-anticipated promise. American fast food companies such as KFC
and McDonald’s are doing very well. China is now the world’s largest market for vehicles.

And yet when Google, Goldman Sachs and GE all run into difficulties simultaneously, it seems clear that
a bigger trend is at work. Privately, senior US officials have been worrying for some time that Chinese
trade and economic policy is taking a more nationalist direction that is penalising US companies. They
worry that, after 30 years of strong economic growth, China believes it can now afford to take a less
welcoming attitude to foreign investment, and instead concentrate on promoting national champions.

A souring in the relationship between American business and China would come at a particularly bad
time in relations between the two countries. The Great Recession has begun to undermine the US’s
acceptance of globalisation. With US unemployment still uncomfortably close to 10 per cent and the
country’s power to shape the world challenged by rising budget deficits and military setbacks, American
politicians and academics are increasingly questioning if the US should welcome the rise of China. Anti-
Chinese sentiment is reflected in the push in Congress to impose trade sanctions on the country’s goods,
in response to China’s refusal to let its currency rise substantially against the dollar.

In the past, American business has acted as the single biggest constraint on an anti-Chinese backlash in
the US. If companies such as GE, Google and Goldman Sachs qualify their support for China or refuse to
speak up, the protectionist bandwagon will gather speed.

The Chinese government, of course, is not stupid. China’s growing confidence in dealing with the US,
and the world in general, is still matched by a cautious desire to avoid conflict. At strategic moments, the
Chinese government is likely to make tactical concessions – whether on Google or the currency – in an
effort to head off a damaging conflict with the US. But with American business and the American public
increasingly restive, the risks of miscalculation are growing.

Post comments at gideon.rachman@ft.com

More columns at www.ft.com/gideonrachman

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