How Huawei Could Divide the World

(Bloomberg Businessweek) -- I’m an American journalist who lives in Beijing, but I just happened to be visiting South Korea when news broke that Meng Wanzhou, chief financial officer of Chinese telecom giant Huawei Technologies Co., had been arrested in Canada on Dec. 1. She was detained at the behest of the U.S. for allegedly misleading financial institutions about the company’s Iran business, causing them to violate U.S. sanctions. I called my wife, who works in the Chinese capital too, and joked about this ominous turn in Chinese-American relations: “Maybe it’s safer not to go back.”

The quip turned out not to be very funny after I did return. Within days, Chinese authorities scooped up two Canadian citizens who, despite Beijing’s denials, were soon seen by the outside world as pawns in China’s attempts to extract Meng from Canadian—and potential U.S.—custody. In Vancouver, Meng received a public hearing in an independent court. That’s in contrast to China, where it’s still unclear why the Canadians were detained and where, more fundamentally, law can be contravened by power and judges are instruments of the Communist Party. Even foreign nationals can vanish into prison cells. For now, the detention of Michael Kovrig, a former diplomat who works for a policy think tank, and Michael Spavor, a businessman, have made expatriate Americans like me worry how much we’re at Beijing’s mercy. In a similar way, Chinese businessmen saw Meng’s arrest as a disincentive to traveling to and investing in the U.S.

The detentions are the most frightening development yet taken in the widening confrontation between the U.S. and China. What started as a scuffle over tariffs and trade balances, then expanded into a battle for control of future technologies, may be degenerating into an intimate war against each other’s people. That makes it directly personal in a way trade and tariffs weren’t.

In a remarkable comment when asked on CNBC if a senior U.S. tech executive should be in China right now, Leland Miller, chief executive officer of research firm China Beige Book, said, “I would not. Too much risk.” According to Reuters, the U.S. Department of State is considering issuing a travel warning to Americans about visiting China. “Now the U.S. and Canadian executives could be a bit nervous traveling to China,” one Chinese newspaper editor tweeted in the wake of the Meng arrest, “and even more so for Chinese executives traveling to the U.S. and Canada.”

Is this how far we’ve fallen? The sad irony is that this ugly saga is unfolding as China celebrates the 40th anniversary of its embrace of the world. It was in December 1978 that paramount leader Deng Xiaoping told party members to “emancipate the mind”—to break with Maoist orthodoxy and revel in fresh thinking to help the nation. That launched his country’s capitalist reforms, a central pillar of which was “opening up” to end China’s poverty-creating isolation and integrate with the global economy. In flowed the capital and technology that contributed to China’s economic miracle and built the nation into the superpower it is today.

An often underappreciated aspect of that great integration is the people. Foreigners played an unheralded role in rebuilding China’s economy and fortunes. We tend to think of “intellectual property” as proprietary software code or secret cola recipes, but it’s more than that. It’s also the know-how about running modern factories or managing money that countless expatriate executives from the U.S. and around the world imported into China for industries from automobiles to fast food. And there’s been a return for that: The riches amassed by the Chinese are being spent on Buicks and Starbucks lattes and filling hotels from Times Square to Walt Disney World.

In the decades since China’s opening, Americans and Chinese have for the most part been able to set aside the vast divergence in their political systems to find common ground that their governments sometimes haven’t. For Americans, the fascination with the fabulous Middle Kingdom is a modern extension of the wonderment Marco Polo first sparked in the 14th century with tales of great “Cathay.” China was, and is, a fairytale land of imperial palaces, untold riches, and limitless opportunity. For Chinese, the U.S. remains something of the old “city on the hill,” whose lights may have dimmed a bit but is still a beacon of freedom and hope. That’s why more than 360,000 Chinese students were enrolled in U.S. universities in the last academic year, the most from any country and a record for China. I myself have become an avid student of Chinese history and philosophy since relocating to Beijing seven years ago.

Now we have to worry that those doors are closing. The Trump administration has started restricting visas for certain Chinese students, fearing they’ll steal U.S. technology, and he supposedly considered an outright ban. China’s government doesn’t go out of its way to encourage its citizens to visit anyway. Beijing’s embassy in Washington issued a warning for Chinese travelers this year about the frequent shootings and expensive health care in the U.S.

China isn’t rolling out the red carpet for foreigners, either. Officials sometimes run campaigns with videos and posters warning locals of foreign “spies.” Although policymakers profess to be wooing foreign talent to China’s tech sectors, in practice they’re scaring people off. The government in 2019 will increase the tax burden on some foreign residents, rendering the country, with its toxic air and rising costs, an even less attractive place to live. In a 2018 survey of U.S. businessmen by the American Chamber of Commerce in China, a staggering three out of four said they feel increasingly unwelcome in the country. That’s due in part to their belief that Chinese regulators do not treat them on equal terms with their domestic rivals. Beijing can also be quick to penalize foreign companies that run afoul of its political sensitivities. Earlier this year, authorities ordered Marriott International to shut down its website in the country after the hotel operator distributed a questionnaire listing Taiwan, Hong Kong, and Tibet as independent countries. (Beijing sees all of them as part of China.)

Perhaps shifting politics in the two countries made such antiforeign sentiment inevitable. In China, a surveillance-obsessed police state has intensified efforts to snuff out any civic action or alternative thinking—dangerous foreign ideals included. President Xi Jinping’s government launched a campaign against “western values” and purged foreign content from school textbooks. He’d prefer that educators teach Chinese literature and morality—or better yet, Communist Party ideology—that the regime considers more appropriate. The “opening up” so core to Deng and China’s success has become more rhetoric than reality as an increasingly nationalist government has stalled market reforms in favor of statist programs to develop Chinese champions. In a closely watched Dec. 18 speech celebrating the 40th anniversary of reform, Xi struck a defiant tone, saying no one can dictate to the country. Meanwhile, Trump’s “America First” mantra paints China as a technology-swindling, job-stealing threat to U.S. national security and economic primacy. In addition to trade-restricting tariffs, Washington has introduced more stringent controls on foreign investment—a move clearly designed to keep vital U.S. technology out of Chinese hands.

These policies on both sides of the Pacific have already started disentangling two economies tightly intertwined by supply chains, trade, and capital. A recent survey of U.S. companies in China discovered that nearly a fifth of respondents were considering relocating manufacturing operations out of the country because of the trade dispute and deteriorating U.S.-China relations. Trump is encouraging this withdrawal by attacking American companies from General Motors Co. to Apple Inc. for manufacturing in China rather than creating more jobs in the U.S. Chinese investment in the U.S. has plunged, not only because of perceived American hostility but also because China’s government has started controlling how its companies can invest abroad.

It then seems not all that surprising that a disengagement of the Chinese and American people would come next. Already, they’re divided digitally. China blocks major American social media—including Facebook, YouTube, and Instagram—along with a host of other prominent U.S. internet services. That’s locked many Chinese in their own digital universe, where they communicate on Tencent Holdings Ltd.’s WeChat instead of WhatsApp, microblog on Sina Weibo, not Twitter, and search on Baidu in place of Google—all are Chinese companies with a limited international presence.

Economic and political division is bad enough for the U.S.-China relationship. Curtailing exchanges between citizens would arguably be more worrisome. If executives, students, and tourists begin to fear traveling between the two countries—or aren’t permitted to—maintaining peaceful relations between the world’s greatest powers will be more difficult.

What would be lost is the mutual understanding—of each other’s cultures, societies, and ambitions—fostered by personal conversations and experience. Without that, there might be nothing left to prevent relations between Beijing and Washington from freezing over into a renewed cold war.

Sure, there are signs the current tussle might get resolved. At a December dinner after the latest Group of 20 summit in Argentina, Trump and Xi were able to call a truce in their trade war and restart negotiations. As it turned out, Huawei’s Meng was arrested the same day as Trump and Xi’s peacemaking dinner—but in a positive sign, Beijing so far has remained committed to pursuing trade talks anyway. It even appears Xi might be willing to compromise on China’s state-led industrial policies, a key concern of the White House that Beijing has previously considered sacrosanct. Trump has hinted (to the horror of those committed to an independent judiciary) that he could intervene on behalf of the arrested Meng to speed a trade deal. Skepticism reigns among China watchers that Xi will sincerely drop the “state” from China’s “state capitalism.” But maybe six months from now, tensions will ease and Americans can feel comfortable visiting the Great Wall without worrying about being trapped within it.

Or maybe not. We have to consider that the level of trust between China and the U.S. has diminished to an alarming degree, and rebuilding may take more than cutting tariffs. In the U.S., China has become in many eyes the new evil empire, a larcenous cheater bent on world domination at America’s expense. To the Chinese, the U.S. often seems an overbearing foreign power, intent on frustrating China’s rise. Deng’s spirit of openness, 40 years later, is in grave danger. That’s a setback not just for China and the U.S., but for the world.

To contact the editor responsible for this story: Howard Chua-Eoan at hchuaeoan@bloomberg.net

©2018 Bloomberg L.P.