To avoid being penalized further, foreign firms expanding in China tend not to speak out about the unfair regulatory treatment they face. This works to China’s benefit, as it is difficult for corporations to prevent their technology and trade secrets from being misappropriated or extracted through soft coercion if they do not discuss the regulatory challenges they face publicly. Short-term profits are the bribe China pays to convince foreign firms to transfer their technologies and capabilities.
But it isn’t just the Chinese Communist Party that is at fault. Chief executives and board members of some American, British and European companies take the short-term view and allow for the transfer (by grant, sale or theft) of technology. Corporate leaders also cut research and development funding when shareholder activists show up at their doors. These companies might also spend so much on hefty stock buybacks that they struggle to invest for the future.
Such financial decisions impair leadership and stewardship, as well as diminish social and political responsibility. This behavior needs to be addressed by corporate management, not just by governments.
Corporate boards and executive leaders need to speak out and act with a higher purpose, even if short-term costs and implicit penalties are levied by Chinese authorities. Many issues are existential, as they impact not just international business, but democracy itself.
Weak economies and job losses flowing from the forfeiture of technological leadership have serious political and social implications. The decreased economic prowess of corporations within liberal democracies has ramifications that extend to national and international security, all the way to the survival of the global economic commons itself.
But it is important to note that the Chinese people are not the enemy. It is the Chinese Communist Party that has become the enemy of democracy by aggressively positioning China as a strategic rival of the United States, Europe and Japan.
Still, multinational corporations cannot, and should not, decouple from China completely; there is simply too much to gain, for both parties. Multinationals should continue to trade with China in many categories, including some high-tech products, but they must engage with their eyes wide open. Unilateral efforts to deny China access to leading-edge products will rarely work in the longer term, hence the need for international collaboration in research and technology development.