American values or Chinese profits? US companies face crosswinds.

A quarter-century ago, President Bill Clinton took a gamble on China. Instead of punishing Beijing for its human rights violations, he decided to engage it.

The strategy seemed to work for a long time, with increasing trade paralleled by Chinese political reforms and, at times, cooperation with the West. But human rights violations and intellectual property theft didn’t go away, China began championing state-owned businesses again, and President Xi Jinping pulled China back toward its more authoritarian past, including forcing foreign companies doing business in China to bend to its will.

This thorny reality burst onto American consciousness this month due to one American’s personal tweet in support of antigovernment protesters in Hong Kong. The problem: That American happened to be general manager of a team in the NBA, which has legions of fans in China. 

The resulting tremors in both nations have elevated a question that may persist as China’s economic might grows: Does doing business with China mean silencing a portion of one’s moral soul? 

The financial and ethical stakes are apparent. Beijing canceled NBA preseason broadcasts and has demanded an apology for the Houston Rockets official’s tweet. Americans across the political spectrum condemned China’s move as an attack on freedom of speech.

All this adds tension to already fraught U.S.-China trade talks, strengthens the hand of those seeking a decoupling of the two economies, and pushes many U.S. companies and organizations into a seemingly untenable balancing act between American values and Chinese profits.

“The West needs to modify its approach,” Scott Kennedy, a China expert at the Center for Strategic & International Studies (CSIS), writes in an email. “The Trump administration’s approach of pressure is part of the broader search for a new strategy. They have not been successful, and the U.S. will eventually end up with a more nuanced mix of both engagement and pressure.”

A long-simmering issue

China’s attempts to muzzle U.S. entities isn’t limited to the NBA – nor is it new. In 2010, Google pulled out of China in part because of the regime’s requirements that it censor politically sensitive material for Chinese users. And Beijing has long censored scenes of violence and sex from Hollywood films for cultural reasons. But the censorship has intensified and expanded in the past two years, China watchers say.

Last year, Beijing pressured American Airlines, Delta Air Lines, and United Airlines to remove from their websites all references to Taiwan. 

The ongoing Hong Kong protests have caused even more hypersensitivity. In the past month alone, official pressure prompted Google to pull a mobile game about a Hong Kong protester from its app store. Apple deleted, reinstated, then deleted again an app that Hong Kong protesters used to track police. 

China also banned “Once Upon a Time in Hollywood” after director Quentin Tarantino refused to change the portrayal of martial artist Bruce Lee in the film. 

China also deleted “South Park” episodes – and even online discussions of them on its version of the internet – after the Comedy Central show mocked Hollywood for making concessions to Chinese censors.  

Notably, those changes were demanded for Chinese-language versions of movies and websites meant for China’s domestic audience. What’s different about the current NBA controversy is that China clamped down on an English-language tweet on a website not even accessible in mainland China.

In doing so, it may have overreached. 

“The censorate is paying attention to behavior in any language on any platform anywhere in the world,” says Dr. Kennedy of CSIS. “I’m actually not sure this is sustainable for Beijing to do.”

And it may not be the intention of the Chinese Communist Party to try to curb the West’s free speech. 

“At home and abroad, the CCP is fighting a defensive ideological battle against liberal norms of democracy and human rights, but so far at least, it is not engaged in a determined effort to spread autocracy,” writes Jessica Chen Weiss, a Cornell University professor and author of “Powerful Patriots: Nationalist Protest in China’s Foreign Relations.”

It’s also not clear that the negative reaction to the NBA tweet originated with the government, says Jennifer Pan, a Stanford University professor who studies Chinese political communication. “Usually, when protests happen against a foreign company, it’s started by Chinese consumers” and the government follows. (The push to change “Once Upon a Time in Hollywood” reportedly came from Mr. Lee’s daughter, who didn’t like the portrayal of her father in the film.)

New backlash in U.S.

Nevertheless, the moves by U.S. companies to accommodate Beijing have created a harsh backlash across the U.S. political spectrum this month: from Republican Sen. Ted Cruz of Texas and Democratic Rep. Alexandria Ocasio-Cortez of New York criticizing Apple in an open letter, to Democratic presidential candidate Elizabeth Warren and Vice President Mike Pence criticizing the NBA.

By “siding with the Chinese Communist Party and silencing free speech, the NBA is acting like a wholly owned subsidiary of the authoritarian regime,” Mr. Pence said in a major foreign policy speech Thursday.

The backlash could put new focus on the ideological currents beneath America’s economic and technological rivalry with China. On the right, former chief White House strategist Steve Bannon, for one, has welcomed the sudden attention on China. He advocates a complete decoupling from China. Ms. Warren has put forward a trade policy with such high human rights and environmental standards that trade experts say it would amount to a decoupling from China.

The Trump administration, by contrast, is working on a trade agreement that would reform certain Chinese practices so the world’s No. 1 and 2 economies would remain intertwined. 

In his speech, Mr. Pence made clear the U.S. did not seek a decoupling.

All this leaves U.S. multinationals walking a tightrope, trying to preserve their business in China while not offending American politicians or consumers. The NBA, too, after apologizing to China, did affirm the Rockets official’s right to express his opinion. The outlook for its business in China, estimated at between $4 billion and $5 billion a year, remains unclear as China’s state-run broadcaster did not air the league’s first games of the season this week, but the NBA’s Chinese internet partner did livestream the opening game between the Lakers and Clippers in Los Angeles. 

“Companies are thinking very hard about how they are going to mitigate that risk,” says Andrew Polk, a founding partner of Trivium China, a strategic advisory firm based in Beijing. “But for most of them, it’s not an option not to be in China. The growth of the global economy is happening in Asia and it’s centered in China. And if you want to be a company that’s growing, you’ve got to find a way to tap into that demand. It is that simple.”

In a talk last week Facebook CEO Mark Zuckerberg cast his company as one that sought access to China hoping “we might help create a more open society.” But the narrative was telling. Facebook now has “more freedom to speak out and stand up for the values we believe in,” he said, after being rejected in those efforts. 

Decoupling? Not if you’re Apple.

The poster child for this quandary is Apple. More than 90% of its manufacturing and 20% of its sales come from China. Even if Apple wanted to leave, it would take three years to move 10% of its manufacturing production in the best-case scenario, says Dan Ives, an analyst at Wedbush Securities. 

And China is not eager to see Western companies leave. At times of peak iPhone production, such as now, Apple employs some 1.4 million Chinese.

“Ultimately, from a technology and from an ecosystem perspective, [China and the U.S.] rely on each other: One’s the heart, one’s the lungs,” Mr. Ives says. “As much as they’re in an old Western standoff, they both know what’s at stake.”

In the long run, the most likely way forward is a U.S.-China trade agreement that would be more broadly focused than what the Trump administration is negotiating, says Edward Alden, a senior fellow at the Council on Foreign Relations in Washington. “What the United States is going to have to grapple with is the middle ground: Is there a way to do business with China without threatening your national security and undermining your core values?”

And the prospect of decoupling?

“There is a better chance of me playing in the NBA than that happening,” says Mr. Ives of Wedbush. “And I’m 5’8”.”