Why is Beijing so ‘out and proud’ in using its power in ways that conflict with others’ interests, break international law and breach treaty commitments?

Since 2015, we’ve seen Xi Jinping’s government build military facilities on disputed territory in the South China Sea, end the ‘one country, two systems’ freedoms in Hong Kong, build huge detention camps in Xinjiang holding over a million Uyghurs and other Turkic Muslims, break treaties ^[1] it signed, pressure and intimidate Taiwan, and coerce governments, parliaments and companies that dare to not support these and other measures.

The answer seems to be Beijing’s ‘Tiananmen calculation’—a brutally cynical assessment that the Chinese Communist Party can use its growing military, technological and economic power as it wishes because the consequences are low and the benefits high.

While other states and civil-society groups will respond with sanctions, declarations, tariffs, arbitral proceedings ^[2] under the UN Convention on the Law of the Sea, and disputes at the World Trade Organization, all of those problems will be ephemeral. That’s because every government and every company wants the wealth they perceive will flow from keeping access to ‘the China market’—and they’ll compromise their other interests to get it.

The Tiananmen massacre was ordered by Deng Xiaoping because of the threat that the protest movement posed to continued CCP rule. Consideration of the global reaction was a second-order issue given what was at stake for the leadership. In the aftermath of the massacre by heavily armed People’s Liberation Army units, the US put economic sanctions in place against China, the Europeans imposed an arms embargo, and Australia gave citizenship to thousands of people who would otherwise have had to return to mainland China.

But in later years, we all got back to business, relegating pressure on the Chinese government over the massacre to backroom dialogues, and leaving the issue to human rights groups ^[3] and concerned citizens. Businesses got back to business, whatever their home governments thought or did.

This lesson of impunity has been learned well by Xi. The ‘China dream’ he has set out so clearly in speeches ^[4] shows he’s banking on that lesson to enable his use of power as a core element of his ‘rejuvenation of China as a great nation’ under the perpetual rule of the CCP.

Two examples are Hong Kong and Xinjiang.

Last year, Xi enacted a new national security law in Hong Kong, ending the political freedoms for its 7.5 million people that the Chinese government had guaranteed would last until 2047 under the treaty Beijing signed with the UK.

With this, he risked big Western companies based in Hong Kong leaving, as well as Hong Kong becoming a far less important financial gateway for foreign investment into China. Or did he? The US and EU imposed sanctions ^[5] on China that limited sales of equipment helping Chinese security forces implement the repressive law, and the US ended Hong Kong’s special economic status. Australia and the UK opened pathways to extended residence or citizenship for Hongkongers.

But business sailed on. It turns out that a significant number of big Western companies not only didn’t leave town, but signed a petition congratulating Beijing on the law, because it would bring stability to Hong Kong.

UK-origin banks HSBC and Standard Chartered both ^[6] signed the petition. And, going considerably further in showing where its future lies in a world of growing strategic competition between the US and China, HSBC recently announced ^[7] that it’s ending its retail bank presence in the US to concentrate on growing its Asian, and Chinese, business instead. And China’s advocates in the EU, such as Hungary ^[8], stopped the EU from taking further steps after Beijing imprisoned Hong Kong politicians.

But there are signs that this isn’t over: a survey of members of the American Chamber of Commerce in Hong Kong from May found that ^[9] ‘42% of the 325 respondents said they were considering or planning to leave the city, citing uneasiness over China’s new security law’.

On Xinjiang, the story is maybe uglier and bigger. The amount of factual information ^[10] showing China’s human rights abuses, including leaked Chinese government documents quoting Xi directing his officials to show no mercy, leaves no room to doubt the massive scale of the atrocities the Chinese government is committing against its own Uyghur and other Turkic Muslim peoples. It also leaves no doubt that this is a deliberate, centrally directed program led by Beijing.

Governments in many countries understand the gravity and scale of these abuses and have condemned ^[11] Beijing for them. Some parliaments ^[12], states and key officials ^[13] have found that Beijing’s state-directed abuses meet the definition of genocide ^[14] against the Uyghur people. The EU, US and like-minded nations have enacted sanctions, travel bans and asset freezes targeting Chinese officials ^[15] over Xinjiang.

But, once again, these government-level actions don’t seem to be affecting business in Xinjiang much. And when companies have poked their heads up on the abuses, they’ve had direct experience of Chinese economic coercion and CCP-stoked consumer boycotts.

Last year, in response to pressure from customers outside China, and revelations of Uyghur forced labour in multiple multinationals’ supply chains, the Swedish global clothing giant H&M announced ^[16] that it would terminate business relationships in Xinjiang it identified that involved the practice.

In March this year, Chinese authorities stoked consumer outrage ^[17] about H&M’s stance, leading to the removal of its advertising from Chinese digital sites and consumer boycotts.

The action against H&M seems almost certainly to be a signal to EU policymakers and businesses about the risk to their business plans if the EU proceeds down the path of continued pressure on Beijing over Xinjiang and refuses to ratify the Angela Merkel–led EU–China Investment Agreement. Targeting a European but non-EU member state company is a deliberate act, perhaps even an attempt to show some kind of odd restraint.

The effect on H&M is more interesting, though, and it’s not an effect that’s isolated to this one company. After the consumer boycotts began, the company issued a statement ^[18] that didn’t mention forced labour or Xinjiang, but instead said ‘We are dedicated to regaining the trust and confidence of our customers, colleagues, and business partners in China  By working together with stakeholders and partners, we believe we can take steps in our joint efforts to develop the fashion industry, as well as serve our customers and act in a respectful way.’

It wouldn’t be surprising if Beijing interpreted this as showing that its coercion is working and that the example it has made of H&M reduces the likelihood of companies making operational decisions Beijing doesn’t like in response to the abuses the Chinese state is committing in Xinjiang.

A last illustration of Beijing’s Tiananmen calculation proving prescient and powerful comes from a candid interview ^[19] that the CEO of Carlyle Group, Kewsong Lee, gave to Nikkei late May. This Washington-based investment firm has over US$260 billion in assets under management. Questioned about US–China strategic competition and the effect on his business, Lee simply said, ‘I think too many folks focus on headlines and are worried about the present moment when in light of the bigger picture of the trends of what’s happening, there’s just real opportunity.’

He was much more insightful about his company’s approach to Xi’s economic strategy of dual circulation ^[20]—which is about growing China’s domestic economy to be less dependent on others, while also increasing other economies’ dependence on China.

It’s all opportunity, Lee said. ‘But increasingly I think what’s going to be more important in the future with the US–China drift is an appreciation to understand that China is at a place where local companies with local entrepreneurs can meet with Carlyle on a local level, partner together, and grow locally, and they can be fabulous investments.’

Interpreting these remarks, it seems this huge US investment firm plans to actively engage with Chinese partners in ways that will help Xi succeed in making China’s economy less dependent on the US and other economies more dependent on China’s.

An outcome Beijing seeks from this is to be more able to exercise increased economic leverage over others. And we know that Beijing already uses its economic power coercively—with companies and with whole sectors and nations like Australia.

I don’t think the Carlyle CEO is alone in this thinking. I’d be surprised if Xi doesn’t expect many boardrooms to help him out by thinking similarly, even when in the longer term it’s deeply against their business interests.

With the 32nd anniversary of the Tiananmen Square massacre coming in the lead-up to the centenary of the CCP in July, though, I think it’s time to take stock and use government policy and regulation to reconnect businesses based in jurisdictions subject to coercive Chinese power to their nations’ strategic and security needs.

There are encouraging signs in things like the G7 statement ^[21] on acting against states’ use of economic coercion and the Biden administration’s commitment to not reset ^[22] US–China relations while Beijing is economically coercing US allies.

For Australia, a primary direction of this government–business partnership has to be pre-emptive diversification from the high levels of dependence on the single China market for our exports and on China as a source of imports—currently both at levels above the global average. Beijing’s coercion is helping this happen with our exports, but there’s equally important work to be done on imports.

The business community needs to be part of this story. It must not turn its face away with lines about shareholders and profits being the focus and not national security and strategy. As we see with Xi’s China, state interests have a way of getting in the middle of business interests.

What we need most from here is a rebuilding of the partnerships between governments and between government and industry to thrive in a world where Xi’s Tiananmen calculation turns out to be not just cynical, but wrong.