Why are Chinese Companies ‘Unwelcome’ in US?

During the first month of 2018, the major Chinese companies Alibaba and Huawei were denied access to the US market. Undeniably, the cautiousness of the Chinese and US governments on investment have made it increasingly difficult for Chinese companies to expand their business to the US market. Professor Huang Yasheng from the Alfred P. Sloan School of Management said Chinese companies can win more chances by building their own image in the American community.

SEE ALSO: Chinese Capital Mergers with US Companies Fall 80%, Ant Financial Halts MoneyGram Acquisition

AT&T pulled out of an agreement to sell Huawei’s Mate 10 smartphone to US consumers. The decision means Huawei has to slow down its expansion into the US market.

One week before AT&T’s withdraw, Alibaba‘s Ant Financial gave up a plan to purchase MoneyGram for $1.2 billion after it was rejected by a US Committee in charge of reviewing foreign acquisitions.

Leading Chinese enterprises like Huawei and Alibaba have all encounter setbacks when expanding to the US. The recent instances were seen as a landmark event. Many Chinese media regard the setbacks as discrimination against Chinese enterprises, and criticized Trump’s conservative strategy. When Ant Financial failed to purchase MoneyGram, Foreign Ministry spokesman Geng Shuang said the Chinese government hopes the US will create a fair environment for Chinese companies.

In international trade – due to differences in politics, economy, culture and institutions – it is too simple to blame the continuous setbacks encountered by Chinese companies on unfair competition in the market.

If Chinese companies want to continue their expansion in the US, which is the world’s largest market, and to achieve their goals of internationalization, they must understand the changing and complex political relationship between China and the US. And they must try to be understood by American society.

SEE ALSO: Silicon Valley No Longer Land of Tech Dreams: Young Elites Return to China.

The Trump administration has been tightening trade and investment from China.

Events such as Huawei and Alibaba, in part, illustrate the continued tightening of Chinese trade and investment, as well as the immigration policies of the Trump administration.

The Trump administration has several features: first, it no longer believes that globalization will bring about a convergence of values; second, it does not believe in a political and economic win-win concept; third, although previous governments regarded China as a potential and long-term strategic rival, they still believed that strengthening economic ties with China would ease Sino-US strategic conflicts. The Trump administration does not accept this at all.

Last month, a group of US Congress members sent a letter to the Federal Communications Commission. They expressed worry about Huawei products in the US and cautioned against the potential agreement between AT&T and Huawei. Their concerns were mainly due to the relationship between Huawei and the Chinese government.The letter said Congress “has always been concerned about China’s overall spying activities, especially the role of Huawei in these espionage activities.”Similarly, in the case of Ant Financial’s purchase of MoneyGram, the New York Times reported that the purchase could give Ant Financial access to large amounts of information related to cash transfers in the US. Although Ant Financial pledged to take measures to protect user data, it failed to receive US regulatory approval. The failure of the deal also illustrated a growing concern between China and the US about personal data, the article said.

On the one hand, Trump has not welcomed investment from China, and on the other, American society has profound concerns about the backgrounds of Chinese enterprises. These two reasons caused setbacks that Chinese enterprises experienced when expanding into the US.

American society is deeply concerned about the background of Chinese companies.

Huawei and Alibaba are private enterprises. While everyone in China may regard their expansion as purely commercial behavior, Americans worry that the Chinese government may be involved in their behavior. This is the social consensus in regards to most Chinese enterprises.

The question that Americans worry about is the extent to which these companies are controlled or influenced by the Chinese government. When we visit Chinese companies, we often see pictures of corporate leaders and government officials on the walls. Even in private companies, we can often see signs of their leadership by the Chinese Communist Party. There is a paradox here. When at home, companies often emphasize and show off their relationship with the government: once abroad, they claim the company has nothing to do with the government. Is that credible?

It’s a deep problem. The international community does not believe Chinese enterprises are independent from the Chinese government. Some would argue that this is because the US doesn’t understand China or that it holds a hostile attitude toward China. But Chinese companies meet the same problems in Australia and Europe. There is an inevitable conflict between economic ambitions and China’s political system.

To some extent, Chinese enterprises themselves cannot solve this problem. Huawei and Alibaba were caught in the changing geopolitical environment. The Chinese government has decreasing leverage to change this situation. In the past, it would move to limit foreign companies’ access to China. The value of that threat is shrinking since so many foreign companies are leaving from China.

De-globalization began in China even before the Trump era.

As early as 2008, China tightened its policy on foreign investment. Although the amount of foreign investment in China improved, there was a fundamental structural change. The proportion of Western multinationals has been on the decline. Most investment now comes from Hong Kong, and it is primarily limited to real estate. Western countries are withdrawing their capital from China in mass.

When discussing the problem for overseas investment, China only sees barriers others set for China while ignoring the numerous restrictions set by Chinese government, such as forcing foreign companies to share intellectual property rights with China enterprises, use local procurement and so on.

Indeed, even under Trump’s tightening policy, the number of Chinese companies investing in the US is several times higher than the number of US companies investing in China. So the criticism that America has become less open in attracting foreign investment is correct – but not comprehensive. De-globalization began in China before the Trump era. Could anyone imagine the Chinese government would allow MoneyGram to purchase Alipay?

SEE ALSO: Kai-fu Lee: Why American Companies Struggle in China.

Chinese media reported that Huawei president Ren Zhengfei responded to the rejection in his internal speeches. “This loss is nothing, and we will get up and fight again. We are young, passionate and fearless. We will fight like heroes,” he said. Huawei will not easily give up the US market.

Similarly, the acquisition of MoneyGram is just one of Alibaba‘s many plans for expansion. Although Alibaba has been successful in China, it has a long way to go when compared to Amazon and eBay. Given the current tight trade between the US and China, it may be more difficult for Alibaba and other well-known Chinese companies to acquire US companies.

If Chinese enterprises want to conquer the US market, they will need an appropriate and timely strategy. Under the current situation, if it is impossible for companies to demonstrate that their behavior has nothing to do with the government, they should at least show their willingness to work hard to comply with the US expectations. Enterprises should learn to take actions that are in line with the US social structure.

For one thing, they could participate in activities that are supported by communities.

Companies like Huawei could establish a foundation, support local education and work to alleviate poverty. They should take on more corporate social responsibility.

Japanese enterprises didn’t meet so suspicion when they entered the US market, but they were questioned about how much they were being subsidized by the Japanese government. Many large Japanese enterprises established charitable foundations in the US and strived to win community support. The US is a democratic society. Even if Congress or Trump’s White House is hostile, you can win support and acceptance through society at large.

Chinese companies are too naive when dealings with American media. As they are big, perhaps they are too used to being treated with deference. But the US media environment is just the opposite. The bigger the enterprise, the more reporters want to expose its shortcomings.

Winning in the US requires more than just hiring PR companies. Businesses must make a real contribution to American society, such as creating jobs and supporting education. They can learn from Japanese companies and establish charity foundations to support universities. Chinese enterprises should cultivate an image of corporate social responsibility.

Chinese companies can also choose to forge closer ties with local governments in the US.

Because the US is a federal state, the central government may influence business, but it is only a part of the political power.

Guangdong, for example, is a sister province with Massachusetts. The two complement each other. In its relationship with Massachusetts, Guangdong acts as a manufacturing province and undertakes large- and small-scale production.

Although the friendly relationship is established, neither side knows enough about the other. Compared with Japan, South Korea and Taiwan in the 1960s, Guangdong has been poor at gathering information abroad.

Big economies such as Guangdong should have their own agencies. Guangdong could set up offices in Boston and Cambridge. It’s not just about connecting with the Massachusetts government, it’s about connecting with business and academia.

For many Chinese enterprises, their visits to Massachusetts just skim the surface. If Chinese companies want to gain a foothold in the US, they must have permanent institutions. The agency could communicate regularly with locals, get immersed in American society, and let the US understand Chinese companies in the American way.

The Fortune Forum held in Guangzhou last year attracted many top US companies. Why can’t companies like Huawei and Tencent hold similar events in the US? This kind of business summit complies with the American style. The openness and discussion could help America learn more about Chinese enterprises and Chinese society.