Can America Fight Back Against the Authoritarian Economic Statecraft of China? Bethany Allen Believes We Can

Bethany Allen is the China reporter at Axios and the author of Beijing Rules: How China Weaponized Its Economy to Confront the World.

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In the past 26 years, to this day, there has not been one major Hollywood production that has gone against a major Chinese Communist Party red line. Not one. Twenty-six years of silence.

Bethany Allen

Key Highlights

• Introduction – 0:48
• The Authoritarian Economic Statecraft of China – 3:32
• Trump Administration and China Policy – 22:24
• Another Cold War –  34:26
• American Options for Response – 48:16

Podcast Transcript

Sometimes it seems as though authoritarian governments like China and Russia have the advantage. They play according to their own rules. Meanwhile, democracies take the higher ground. They try to show restraint and when they don’t, they face criticism at home and abroad. Consequently, it feels as though democracies must fight back with one hand tied behind their back.

Bethany Allen does not believe this has to be the case. Bethany is the China reporter at Axios and the author of Beijing Rules: How China Weaponized Its Economy to Confront the World. On the surface this is yet another book about how China abuses its influence in the world. But it’s also about how the United States and other liberal democracies can fight back.

My conversation with Bethany discusses some cases where China has used its economic influence to impose its will on corporations, politicians, and even countries. But we also discuss some novel ways the United States and others could respond. We also talk about how views on China have changed in recent years and why it has happened. For longtime listeners, you’ll find this episode complements some past conversations with Aynne Kokas and Anne Applebaum. First time listeners will likely find it eye opening.

Now if you like this podcast, I hope you’ll tell friends and colleagues. Christmas is around the corner and I would love a 5-star rating from you on Spotify or Apple Podcasts. Recently, I’ve been talking to different organizations about sponsoring the podcast and a few are coming through. This means I will have some ads on the podcast starting in 2024. If you want to listen ad-free, I’ll have episodes available to monthly donors on Patreon or paid substribers on Apple Podcasts for $5/month. If you are a nonprofit organization, business, or academic institution and would like to sponsor the podcast, send me an email to jkempf@democracyparadox.com. You can also email me with questions or comments about past episodes. But for now… This is my conversation with Bethany Allen…

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I think probably starting in 2017 and 2018… maybe even 2016. I can’t put a single moment to that. It wasn’t one particular incident and the reason was because for a while, how people were thinking about this was that it was extraterritorial censorship. This was the frame that people were initially putting on it because so many of the prominent examples of it were about shutting down speech. A piece I wrote in, I think it was maybe 2018, maybe 2017, when the Chinese government, for example, required any airlines that had flights that flew to China, they used that as a hook to say, ‘airlines across all of your company everywhere need to make sure that the way that you talk about Taiwan is in line with our sovereignty claims.

Those demands were made to 18 airlines, if not more, and all of them immediately complied. Many airlines now will just refer to you’re flying to Taipei. They won’t say what country it’s in. It’s just Taipei. Out of time and space, we’re flying to Taipei. Who knows where that may be? Anyway, so it was initially viewed as a censorship thing. But what I started to think and to see and to observe was that that was really not doing justice to this kind of power.

There were more and more examples I was seeing of how the Chinese government was using this hook that its economy has not just to control speech, but also to shape government decision making, to shape the defense policies of countries, to shape and reshape multilateral institutions and foreign policies So, I started to try to think of how to think about this in a comprehensive way. What is the power that we’re looking at here? I love the National Endowment for Democracy’s term sharp power. They were the first to really come up with a useful term and I remember specifically right when they released that report, because it was such a useful term.

In my book, I use the term authoritarian economic statecraft. It’s kind of a little bit, if you will, a subset of sharp power, because I’m talking about something very specific. Anything that has to do with the economy. It was definitely a process for me of understanding that was actually a quite innovative way that the Chinese government was using its increasingly targeted levers of control over its own economy for geopolitical purposes.

So, Zoom is the platform we’re using right now. I’ve done a lot of my book talks on Zoom ironically. It’s an American company founded in 2011 by a naturalized American citizen originally born in China. It’s different from say, Google Meets or Webex, because it had a lot of employees in China. So, almost its entire R&D team was based in China, more than 700 employees. But, that aside, in 2019 the Chinese government blocked Zoom from the Chinese market. Zoom also was operating as a consumer platform in China. China blocked it.

The block we knew, but what was not public at the time was that the Chinese authorities demanded that Zoom come up with a rectification plan so that it would be more compliant with China’s demands for real time surveillance, handing over data to Chinese intelligence and security agencies, and real time censorship, so the ability to shut down meetings in real time, but only in the Chinese market. These demands were made only in the Chinese market and Zoom complied. As part of that agreement, Zoom agreed to designate one of its China based employees as the official liaison for the Ministry of State Security and the Ministry of Public Security, which are China’s intelligence and security agencies. What happened though over the next six months was that… Well, the pandemic happened. So, Zoom went from 10 million daily users to 300 million daily users.

This was an amazing windfall for Zoom. Also, an amazing windfall for China’s intelligence agencies, because now they maybe had access to meetings that were happening all around the world. So, what we saw from Zoom’s security agency liaison, his name is Julien Jin, was that he began to go beyond the official remit of his job and to spy on and collect information on meetings and users outside of the Chinese market. He found ways to get that information and hand it over to Chinese intelligence despite Zoom having some protections, a porous firewall, between its China based employees and the rest of its employees.

This came to a head in May and June of 2020 when there were for the first time ever Tiananmen memorials being hosted virtually on Zoom. This employee was able to shut down some of those meetings and get some of those user accounts suspended. It’s actually quite funny, a little bit funny to me, how he did some of this. For one of the meetings that he was able to shut down what he did was he fabricated evidence that there were accounts in the meeting that broke Zoom user guidelines. He created a bunch of fake email accounts and emailed these complaints to Zoom.

But what was so interesting about the accounts that he made was some of them were ISIS, some of them were Basque separatists, some of them were porn accounts, some of them were gambling accounts, and they were all in these Chinese pro-democracy meetings together, which is hilarious. I mean, why in the world would there be Basque separatists, ISIS, and porn accounts in a pro-democracy meeting? So, if Zoom had done even just the tiniest bit of due diligence, they would have realized that there was something wrong here because clearly a meeting with those accounts doesn’t make any narrative sense. It was just tailored to break Zoom’s user guidelines. In any case, those meetings were shut down. That’s when the people who were running those meetings came to me and said, ‘Hey, our account has been suspended and one of our meetings was shut down.’

I think it’s really important to note here that these are long time US residents. some of them US citizens. It was a paid account. Paid for with a US credit card. The meetings were being held in the US, on US servers, by a US company, and even so, the Chinese government was able to go in and shut those meetings down. Now this is not just censorship. It’s several things here. It’s shutting down freedom of assembly. It’s surveillance. It’s transnational repression. I think I would characterize this as transnational repression rather than censorship and it was also traditional sort of espionage based. You know, using China’s intelligence services to track people abroad. This was all made possible because Zoom needed access to the Chinese market.

So why did Zoom have 700 employees in China anyway? This is something that they disclosed in some of their filings to the US government. It was cheaper. They were able to save money on operating costs. It’s so interesting because in its late 2019 public disclosures, Zoom said they acknowledged that it was actually a risk. It was a reputational risk, an operating risk, and a political risk to have these employees in China. But they said, we decided to keep them there because this was good for our bottom line. Then they also there was that hook of access to the Chinese market. So, this is, I think, an excellent example of this authoritarian economic statecraft that China uses to project power into reaches far beyond its borders.

Well, I think it’s a great example too of how China takes advantage of American companies, because it wasn’t just Zoom trying to get access to the Chinese market. It was the fact that Zoom’s American and European customers wanted to be able to communicate with other companies or business representatives in China. So, if China cut off Zoom to the Chinese market, it was going to affect its American market. It was going to affect its European market. It was going to affect its international exposure because it wasn’t going to be able to connect its customers to people who are in China that they needed to be able to have communications with.

I mean, this really deals exactly with the problems that you’re talking about in terms of China being able to set its policies in a way that takes advantage of the limited power of each individual American company. Because America doesn’t stand up and protect the companies as a whole, China is actually working against each individual company separately.

That’s exactly right. One of the big points I make in my book and actually one of the reasons I wrote my book is because I want to reframe the discussion that we’re having about companies. I mean, I don’t love it when US companies choose to self-censor to please the Chinese government and I think it’s fine to name and shame them. But that’s not going to fix the problem. It’s just not. The Chinese market is too big. But more importantly, we have incentivized companies to behave this way. What have we told companies for 40 years? Just follow the laws and everything else is fair game. In fact, what you need to do, your number one job, your only job, is to make money. That’s your only job.

You know, as Milton Friedman wrote in his really influential essay, the social responsibility of companies is to increase profits for its shareholders. But what happened was and Milton Friedman, I think, couldn’t look forward into the future and understand that this was going to happen where an authoritarian foreign government has gained significant influence and sway over those profits. So, what would Milton Friedman have said in that case? The social responsibility of companies is to increase profits, but we acknowledge that by doing so, they have to obey the authoritarian demands of a foreign government. I think maybe that would have caused him to reframe some of his ideas. In any case, what companies need is more support from the US Government.

What I really mean by this isn’t that the US takes mercantilist stands, but rather creates laws and regulations to regulate what US Companies can do because that’s what we’ve told them. That’s the promise we’ve given to companies. Just follow the law. Everything else is fair game. So, what we should do is not rely on CEOs to be morally superior to everybody else. That’s not reasonable. We change the laws to reorient the market back towards something that is more democratic. So, in the case of Zoom, what would that look like if we’re not just expecting Zoom to be on a moral high ground and lose millions of dollars because they feel that they should or they feel that that would be the morally correct thing to do?

I make some recommendations in my book. One of them is that the US should require any US company to publicly disclose if they have an official liaison with a Chinese intelligence or security agency. They should publicly disclose the name of that employee, their remit, so what they are required to do, and they should also disclose the specific offices that they liaise with. So, in Julien Jin’s case, it would have been the Hangzhou branch of the Ministry of State Security and the Ministry of Public Security and sometimes also the Shanghai offices. To disclose that and also, to disclose what the demands are. This isn’t controlling the US company, it’s supporting the US company. What do I mean by that?

When you have the Chinese government versus one US company, this is the world’s largest and most powerful authoritarian government versus one company, who’s going to win every single time? Well, of course, the Chinese government’s going to win. When you have a regulation from the US government saying US company, you must do this. The US company can go into the Chinese government, whatever demand they’re making and say, ‘Look, we would love to comply, but unfortunately we have this law.’ So, if the Chinese government has a problem with that, they have to go to Washington. They have to talk to the US government. This raises the contest here. It’s a government to government contest, no longer a company to government contest, and that is a contest of equals.

That’s a very interesting question. What some people said in response to that question was Australia was targeted more heavily by the Chinese government, but that’s not true. The US has been among the top targets of China’s economic and political pressure, its covert political influence operations, its industrial espionage. The US has also been equally a target starting at the same time, which you can trace that back to the early 90s. The difference in Australia… I think there’s a few reasons. One of them is Australia is very close to China. It’s a smaller country. It has deeper links, deeper economic links. It’s not the economic juggernaut that the US is. It doesn’t have as much power vis a vis the Chinese economy or China overall. So, the pressure it was feeling felt more severe, but I think some of it is also a little bit just chance.

There are a couple of investigative journalists who chose, starting in 2008 to start reporting on China’s covert political pressure in Australia. One of those is John Garneau. I feature him in one of my chapters and it’s just a little bit sort of chance that there was someone like him who had the background and the language skills and had the editorial support to be able to have these kinds of investigative articles. Nick McKenzie is another really excellent Australian investigative journalist. So, in Australia you had a greater degree of, transparency is not the right word, but you had much more in the public domain for more years than the US did. I mean, really it wasn’t until 2017 or 2018 that in the US there was more reporting around this.

But in Australia that started in 2008, so there was just more knowledge. Then I think another big factor was that John Garneau pulled a Matt Pottinger, but before Matt Pottinger did, which is to say he transitioned from journalism to government and became Malcolm Turnbull’s speechwriter and then ended up becoming an intelligence official tasked with writing this very influential intelligence report about China’s covert political interference in Australia. So, it all ties together. There are certainly lots of other academics and others in Australia who were paying attention to this long before they were in the US. So, I would say it was that combination of factors.

But what is so interesting is that I think much of the world, especially Europe, looked at the US and looked at the Trump administration as leading this pivot to a tougher policy on China. Because Trump was so deeply unpopular in Europe and many of his policies were viewed as so illegitimate, the US pivot on China was also viewed as a Trump thing or an illegitimate kind of racist, fear mongering thing. But what’s ironic is that really the US at this time was in part learning from the Australian experience.

So, for those of us who were very knowledgeable in this space of basically bad things the Chinese government was doing beyond its borders. You know, ways it was coercing other countries in a way that is harmful to democratic norms and principles. For those of us who are really well versed in the research that had gone into this, the reports that have been written, think tanks, the experts, the scholars, it was a relatively small community in the US and we were familiar with each other’s work. These were well respected scholars.

What we saw when the Trump administration began, acting on this was that we knew, we could see that if you followed the individuals who were very influential or instrumental within the Trump administration of implementing these policies, we knew where they were getting their information and it was from this body of respected research. For people like me who were situated in Washington, DC for the entirety of the Trump administration, it was a challenging time because, you know, how do you report on policies that are actually based in fact when so many other policies in the Trump administration were actually indeed harmful? It was a very challenging time to be a journalist and to report on that.

But it was so evident from an early time in the Biden campaign. I knew the people who Biden tapped when he was running, who were his national security advisors during his campaign, who were going to be the people who were going to be his China advisors. If he won, I knew them personally and they had been some of the people when they were not in government who had written some of this research that the Trump administration was using to make policies out of. So, when you see those people getting tapped for future positions, it’s obvious which direction the Biden administration is going to go. So, for those of us with this inside look, it was not a surprise at all that the Biden administration chose to continue these policies.

But I think for people without being plugged in that way it was, because of the way this was painted, and that was especially true in Europe, especially true in Europe. Now, I don’t think that the Trump administration got everything right on China, particularly when it comes to the way that Chinese citizens living in the US were treated or Chinese nationals or people who were originally born in China. The way that visas were blocked, the way that ethnic Chinese researchers and scholars were targeted for their research, sometimes at US universities. The way that this was put onto Chinese people themselves and some of the inflammatory and racist rhetoric that was used was really harmful and obviously was not based on good research.

But many of the other policies, especially in 2020, so if you look, there’s an internal list of all the public actions that the White House took just in 2020 alone and it was more than 200, more than 200 China related actions. I was very busy writing all that stuff up. What was so fascinating was that what Trump did as a person was he gave permission to people like Matt Pottinger and others to do things differently, to not be so constrained by the thinking of the past 30 years whether in terms of engagement with China – we have to engage, we have to engage, you have to engage, they’ll eventually become like us -and also in terms of neoliberal policies.

This is something that I speak about in my book a lot. This idea that the government can’t do that. This isn’t something the government can do, right? We can’t get involved in trade. Trump didn’t care about that. He was like super not neoliberal. That didn’t bother him. So, he empowered people to break things, to try new things and I do think that the Trump administration was very innovative in trying new things. Actually, going back to Zoom, after I broke the story about this, the Department of Justice launched an investigation into what had happened at Zoom.

Up to that point, when I had spoken with people who had been targeted on US soil in this way before, because that was not new, or when I spoke to people in the government, the thinking was, ‘It’s super unfortunate when the Chinese government pressures US companies to censor in this way or it’s super unfortunate when you feel you’re being under this kind of pressure, but it’s not illegal. There’s nothing we can do about it. There’s no mechanism that we can use to use the arm of government or the arm of law enforcement to go out to try to change this behavior or to say that it’s illegal.’ So, six months after this investigation was launched, they issued a public indictment, a 40-page detailed public indictment and an arrest warrant for Julien Jin.

The two charges against Julien Jin were actually very innovative. It was the first time that these charges had been used in this way and one of them was conspiracy to transfer personal information across borders. I can’t remember what the other one was, but they had never been used in this way. The Department of Justice, the FBI special agent who was in charge of this, Joseph Hugdahl, it was clear that he had worked really hard to find ways that behavior that happened in China channels back to US soil to say this broke this US law and this broke this US law. So, that was the attitude we saw throughout the Trump administration, trying new things.

The Biden administration has not been innovative in that way, but I don’t think that they necessarily need to. It’s always great for government to be innovative, but I think a lot of the framework was there and so they could extend these policies such as the growing use of the Commerce Department entities list, for example, more sanctions, this kind of thing. They could extend and codify what the Trump administration had done. What the Biden administration has done that is so valuable is repair our relationships with our allies, try to bring them along because we all know what Trump was like as president. He would bully our closest allies and really damage those relationships.

The Biden administration has worked really hard to repair them and to work in a multilateral way, to get away from the idea that this was just like the crazy US pulling another Iraq. That this was actually a multilateral thing that many democracies view as important. The Biden administration has done a lot of good work with that. They also have been innovative to some extent. For several years now, there has been discussion of the need for an outbound CFIUS, so outbound investment screening. The White House issued that executive order a few months ago. It was not huge in scope. It was on a small scale, but the first attempt at outbound investment screening. It’s a very interesting new idea and new mechanism.

You’re exactly right about that and for anyone who’s interested in learning about the factional struggles in the first year of the Trump administration, I really recommend Josh Rogin’s book, Chaos Under Heaven. He talks about that in the first year after Trump took office his administration did basically nothing on China. They had no China policy. They did nothing. Then a year later, they launched the trade war, which was a different thing. The trade war was about the economy. It wasn’t about geopolitics. Now, Trump was acting on real problems. The launch of the trade war was the initial shock that broke things and made future policies seem more possible and more realistic.

But it was a bit different and the people who were involved in the trade war, the actual people in the administration, were different than the people who became more involved in the real geopolitical struggle a couple of years later. What we see in the Trump administration over those four years is a gradual growing assertiveness or hawkishness, if you will. It gradually expanded across more and more sectors. The interesting thing is that to the extent this happened, except for the trade war, it was mostly Trump just not caring. He would give people a green light. Just go do whatever you want. It’s fine. I don’t care. So, what about when he didn’t do that? Up until the beginning of the pandemic, Trump still hoped to get more concessions from China on trade.

I think it was January 2020 that the phase one trade deal was signed. He hoped for a phase two. He hoped for more. Because of that, he was not willing to let some of his administration officials, particularly, for example, in the National Security Council or in Human Rights offices, take some of the actions that they wanted. But the pandemic really changed… It didn’t change Trump’s mind, I think, so much as just frustrated him. He stopped viewing Xi Jinping as a buddy that he could maybe massage and get what he wanted from and began viewing him and viewing China as a real bad guy, as a real adversary. He stopped caring about trying to curry favor or trying to get concessions.

But the function basically was him just opening the floodgates, just saying fine, you do whatever you want. I will sign it. It is fine. That’s why in 2020 there was this dramatic increase in the number of White House actions on China because everybody could just do what they wanted. They knew they were pretty much going to get a green light. So, it was just people frantically thinking this is on my wishlist and this and this and this and this and this.

The best example of that is, I think it was taken the very last day of the Trump administration, when the Trump administration designated what had happened in Xinjiang as a genocide. That was something that Trump personally doesn’t care about at all. We know for a fact that Trump did not care about Xinjiang and was happy for Xi Jinping to do whatever he wanted there. Trump actually blocked and delayed actions on the genocide in Xinjiang because he was hoping for these trade concessions. But he eventually just lifted the floodgates, let everything through and that is a little bit more of his role in it.

I don’t think anything really is inevitable. I would say it’s a choice and when it comes to the use of economic statecraft, in this sense, it’s been a bit like this famous Deng Xiaoping saying, ‘feeling the stones as you can go across the river,’ so figuring it out as you go. We see the earliest examples of this, of China’s weaponization of its economy for illiberal purposes quite a long time ago. Twenty-six years ago is the first big example I know of with Hollywood. Everyone knows this example these days. In 1987, there were two movies about Tibet that came out presenting Tibetans as victims of Chinese military occupation and colonialism. That really rubbed the CCP the wrong way. They barred the two studios that had made those movies from the Chinese market.

That was like an earthquake across Hollywood. It really shocked the industry and it has been one of the most successful examples of economic coercion because in the past 26 years, to this day, there has not been one major Hollywood production that has gone against a major Chinese Communist Party red line, not one. Twenty-six years of silence on that and what’s especially astonishing about that is that in 1997, the Chinese economy was one tenth the size of the US. It was not huge. Not the way it is now. But even more shocking is that the Chinese box office was negligible in 1997. There was not money to be made in 1997. Rather, it was the promise of future wealth that drove these companies.

They didn’t actually earn anything by being silent – not in the beginning. It was in the future, in the future, in the future, we’ll make money. It was this idea, this perception, that they would eventually become rich by having access to the Chinese box office, which is now just recently, just in the past few years, has become the world’s largest box office. It took more than two decades. That was a very early success for the Chinese government and we see them over the past 26 years further honing their ability to do this and the ways by which they do it. The foundation for China’s extension of its power beyond its borders through its economy is the way it does this domestically. What are the mechanisms by which it does this?

The foundation of it is what some scholars are now calling party state capitalism. This is the way that the Chinese government exerts selective political control over economic behavior inside of China for political reasons, not for purely economic reasons. It’s different. What we’re talking about here is different than a communist style centrally planned economy. This is not the five-year plan dictating how many widgets each factory in Zhejiang province needs to produce in the next five years. That’s not what it is. There is an element of market economics. There’s an element of market capitalism where companies make their own decisions. But what we’ve seen is across the board. The Chinese Communist Party has found ways to build levers of control over even very small individual private company decisions to be used at selective, crucial moments.

Some of these mechanisms are having a Communist Party cell embedded in private companies, even up to the level of the board, so that there’s a direct connection, explicitly making united front work about private enterprise behavior and other mechanisms like this. Certainly, the way that the Chinese government cracked down on Jack Ma and the tech industry as a show of power is how this works abroad too. So, if there’s an Australian company or a US company or a Korean company that does something politically wrong in Beijing’s eyes, they can lean on their private companies to shut off this behavior even without issuing a formal sanction of any kind.

What we have seen in the past few years, really since the pandemic, is China’s growing adoption of more formal sanction-like measures including their anti-foreign sanctions law, which theoretically punishes companies for complying with foreign sanctions. It’s a direct pushback against sanctions and it’s a list. It’s an actual list. They’ve also rolled out actual sanctions. So, for example, there are now Chinese government sanctions against some members of the European Parliament, against think tanks in the US and in Europe and in the UK, formal financial asset related sanctions. What we’re seeing, I think, right now with innovations in the Trump administration and the Biden administration, now we’re talking about economic innovations for the point of political purposes in China.

What I think we may see in the future is an economic arms race where both sides are trying to create ever sharper and more innovative economic tools to try to control and shape the behavior of the other side and with that a gradual pulling of these two poles into something like porous economic blocks or economic spheres of influence.

Closer to what we had in the Cold War between the United States and Russia, although it’s difficult to imagine that it can actually get to that point the way that supply chains are interconnected. The way that the world is globalized. The thing that strikes me about the movie industry with Hollywood and it being affected by China is the fact that that’s one of the creative industries. I mean, that is one of the industries that’s supposed to be expressing different forms of speech and really any type of entertainment industry kind of falls into that bucket. Even sports kind of falls into that bucket with different stars like Serena Williams and LeBron James able to use their social media platforms to make political statements at times that can really change people’s opinions and change people’s minds.

The NBA is, again, another great example of being controlled by China, because when Daryl Morey puts out his tweet for standing up for the people in Hong Kong, I mean, the most innocent possible way of expressing support, China hit back against the NBA and the NBA pretty much more or less caved in response. So, I guess my concern here is if these different industries that are based around speech and based around expression are able to be shaped by China so much, how can any American company really do business with China and for us not to be concerned about those different links?

Yeah, that’s a great question. This is a place, again, where the neoliberal water in which we swim is not sufficient. The idea is that up to this point has been, something for civil society. Governments can’t get involved here. We have to have hashtag campaigns. We have to have consumer boycotts. That doesn’t work. It clearly doesn’t work. That hasn’t worked against Hollywood. That hasn’t worked against NBA. It hasn’t worked against Tesla opening a showroom in Urumqi in Xinjiang. It doesn’t work. To go back to this idea that companies need support and they need to be able to interact with the Chinese market knowing that the US government and all of its institutions and power are behind them. What does that look like?

What can we not do in democracies? We talked some about how in the contest between authoritarianism and democracy, it’s sometimes an asymmetric contest because democracies cannot and should not adopt all the tools that authoritarian governments can. So, the US government cannot pass a law telling companies that they must criticize the genocide in Xinjiang. No, we can’t do that and we don’t want to do that. So, what should we do? What can we do? There’s a number of things that we can do.

First of all is to have a mechanism. Make it explicit that any time a company is punished in the Chinese market for free speech, whether that’s the company’s own speech or a company’s employees acting in their own private capacity, if they are punished in the Chinese market, that there is a mechanism and a fund for emergency assistance and relief from the US government. So, in that case, the NBA is estimated to have lost $200 million in the Chinese market. If there was an emergency relief fund from the US government that was ready and available for companies to make claims on, ‘This is happening to us in the Chinese market,’ and they know that they can get some emergency assistance, that helps blunt the power of China’s control over its market.

It’s even better in a multilateral sense or an international sense on a government level when a country or a government is under pressure from China for authoritarian reasons. So, Lithuania, for example, when it decided to improve its unofficial ties with Taiwan or Australia in 2020 when the Prime Minister Scott Morrison called for an independent inquiry into the origins of the coronavirus, both of these countries faced these wide sweeping sanctions and tariffs from China.

If there had been some kind of multilateral mechanism, an emergency relief fund on an international level to send targeted aid to these industries, not only would it help those industries in the short term, it would also be a deterrence for this kind of power, this kind of pressure from the Chinese government to know that it may not have the psychological power, the fear that it does in the minds of CEOs and governments everywhere around the world. That’s one example.

Another is if the U. S. government sanctioned several of the top Chinese companies that are most complicit in creating the architecture of censorship inside of China. So, if there was a sanction against these companies for implementing Chinese government censorship, so sanctioning Baidu, sanctioning Tencent, this would do a number of things. But most importantly, for our purposes, it would create a halo of deterrence around implementing Chinese government censorship. It would certainly discourage or make it impossible for US companies to partner with these major companies. But it would also create a halo of deterrence around partnering with any Chinese company that censors. Part of what we’re looking for here is that deterrence, because the Chinese government doesn’t go around censoring or blocking all companies for all speech all the time. It kills the chicken to scare the monkey – make an example.

If we can have our own example to push back against that, that can help right this market distortion. I do want to make a point also that while we’ve talked a lot about shaping the behavior of companies, China’s authoritarian economic statecraft and economic coercion also is directly targeted at shaping government behavior. I’ll give a really good example of this. There was a report from Reuters last week about how in 2016 the South Korean government said it was going to install a US made missile defense system known as THAAD. This was to increase its overall defense capabilities against North Korea, but Beijing didn’t like it because in theory this missile defense system could also be used against China.

So as a result, there were these sweeping economic sanctions from China against various sectors of the South Korean economy including K-Pop stars who were blocked from performing in China and K-Pop music blocked from being streamed on Chinese streaming sites and Chinese tourists were no longer allowed into South Korea. The South Korean retail chain Lotte suddenly faced a lot of problems in the Chinese market. So really extensive, but informal and opaque sanctions. Last year, there was a South Korean marine technology company that had made an agreement with Taiwan to help provide some of the parts and technology for Taiwan’s own indigenous submarine project, to help Taiwan build its own indigenous submarines for the first time. South Korean authorities arrested the executive director of the South Korean company and fined the company for what it said was endangering South Korean national security.

In the affidavit for this South Korean man’s arrest, the authorities made explicit mention to the controversy around THAAD in 2016. They explicitly said we are afraid of economic retaliation because of this behavior like what happened in 2016. Basically, this kind of economic coercion caused South Korean authorities to arrest one of their own citizens for totally legitimate trade behavior that is probably, at the end of the day, in South Korea’s long term national interest. South Korea supports Taiwan informally as a democracy. Certainly, it’s in US interest and Japanese interest for Taiwan to be able to defend itself. So, you see South Korea being incentivized to act against its own national interest and defense interest to avoid economic coercion from China – just the fear, just the fear of economic coercion from China.

I love that question. Let me tell you why. For many years now, people believed that it’s not possible. People have essentially given up on the idea that the US government or democratic governments can do anything to stop the Chinese government from censoring inside of the Chinese market. We’ve given up on that. All we ever talk about is when the Chinese government basically is able to censor outside of the Chinese market. We say that it’s not possible. It’s not possible. It’s not possible. But what’s so extraordinary about that is the Chinese government has demonstrated that it is possible. We’re living that right now. It is absolutely possible for a government to use economic pressure to change the speech, behavior, and actions of actors beyond its borders. Beijing has proved that to us. Thank you, Beijing.

Of course, it’s still possible to change some of the risk calculus inside of China that Chinese companies are making. We just haven’t tried. So, I mentioned sanctioning Chinese companies for implementing Chinese government censorship. Now, that is not going to stop Beijing from having a very, very tough hand of censorship, but what it is going to do is for the first time force Chinese companies to have a risk and benefit analysis of certain kinds of behavior. Because up to this point, Tencent has faced zero repercussions for obeying Chinese censorship laws. None. There’s never been any attempt. That risk calculus would then travel up to Beijing. We talk about how US companies and US corporate interests have formed an informal pro-Beijing lobby in Washington, DC and in capitals all around the world.

We haven’t, I think, done a good enough job of trying to do the inverse of that, using Chinese companies to lobby Beijing in the other direction to the extent that they are able to do that. What if major Chinese companies came to the Chinese government and said, ‘You’re making these censorship demands on us. Of course, we’ll obey them if you make them, but we want you to know that it will hurt our bottom lines to do so.’ That kind of risk and benefit analysis is what we want. Even if all they’re doing is thinking about that, that is the first step of deterrence.