Xi Gives America Inc. a Reality Check

On his first visit to China as U.S. Treasury secretary almost a decade ago, Hank Paulson made a point of flying first to Hangzhou to seek out Xi Jinping, then a provincial leader and an ardent champion of private enterprise.

Their meeting in a city that has minted tycoons like Alibaba founder Jack Ma conveyed Mr. Paulson’s hope to improve overall ties by focusing on business, the traditional pillar of the relationship.

That support is now crumbling. As president, Mr. Xi isn’t nearly so wedded to the private sector. His nationalist agenda alarms companies from Silicon Valley to Wall Street. Increasingly, Chinese state banks and telecommunications companies are buying technology made locally for national-security reasons, bypassing American tech giants. And although U.S.-China trade reached almost $600 billion last year, business has turned into an arena of strategic rivalry; White House threats to retaliate over alleged Chinese hacking of U.S. company servers almost spoiled Mr. Xi’s state visit to the U.S. this week. Only last-minute diplomacy rescued the trip.

The progressive souring of corporate America on China may turn out to be more destabilizing for relations between the world’s two largest economies than even military tensions bubbling in East Asia.

That’s because the U.S. business lobby had been one group consistently arguing for “constructive engagement” with China, a reliable counterweight to those pulling in the opposite direction — Pentagon hawks, protectionist labor unions, human-rights critics and, as we’re seeing now in a presidential-election season, China-bashing politicians. Donald Trump said he’d cancel Mr. Xi’s gala dinner in Washington and “get him a McDonald’s hamburger.”

Mr. Xi understands the risks as well as anybody, which is why he’s stopping in Seattle en route to Washington with a business delegation that includes some of China’s most powerful executives, including Alibaba’s Mr. Ma.

Mr. Paulson, through his Paulson Institute, has pulled in similarly high-powered U.S. CEOs, including Mary Barra of General Motors, Tim Cook of Apple Inc. and Warren Buffett for a business “round table” with the visitors on Wednesday.

Don’t count on much straight-talking on policy issues. Former U.S. administration officials complain that American business moguls often pound tables at the White House to demand action to open up Chinese markets, but turn meek in the presence of Chinese officialdom. China still has immense leverage: For all their complaints, U.S. tech companies can’t simply walk away from the huge Chinese market, and not all of them are suffering. Mr. Cook has said he expects that China will overtake the Americas to become Apple’s biggest market.

Mr. Xi’s Friday summit in Washington is likely to be an even more awkward encounter. The Obama administration views cyberattacks that target companies as tantamount to an act of war. If countries choose this form of competition, Mr. Obama warned this month, “I guarantee you we will win if we have to.”

In a sign of how seriously the U.S. views the threat to its businesses, Treasury Secretary Jacob Lew in an op-ed in The Wall Street Journal just ahead of Mr. Xi’s arrival questioned “excessively broad reviews for foreign investments” and called on China to provide “fair market access” to foreign companies.

How did relations get to this point under a supposedly pro-business Chinese president?

Mr. Xi’s priorities have shifted. As the Communist Party secretary of coastal Zhejiang province, his brief was to schmooze prospective foreign investors and woo job-creating Chinese private enterprises. In Beijing, politics comes first.

Those in the West who thought they were getting a Gorbachev-style reformer didn’t take the trouble to listen to what he was actually saying, or heard only selectively.

When Mr. Xi outlined a 60-point agenda for economic overhauls at a landmark party gathering in 2013, the phrase that stuck in excited Western minds was that markets would be given a “decisive role.” It appeared to be an invitation to private firms to break into sectors currently dominated by state monopolies.

But he’d earlier set out his political goals in a key speech to party members. “To run the country well we must first run the party well,” he declared. “Only socialism can save China.”

Mr. Xi has made it clear that mass privatizations are not part of the rescue plan. Quite the reverse: He wants to strengthen “national champions” subsidized to compete against foreign multinationals. That policy direction is reflected in the painfully slow pace of progress in negotiating a U.S.-China bilateral investment treaty that American companies are counting on to gain market access.

In his book Dealing With China: An Insider Unmasks the New Economic Superpower, Mr. Paulson describes Mr. Xi in glowing terms as they met in Hangzhou, calling him “extraordinarily effective” in promoting private enterprise, with a personality to make things happen.

Mr. Xi’s challenge will be to convince Americans he still means business as president. It will be a tough sell.

 

Andrew Browne