Maybe it was just my espresso high (which would be ironic in this case), but I found the following headline carried by Xinhua on Thursday to be highly amusing: “Chairman Xi Jinping replied to Howard Schultz, Honorary Chairman of the Board of Directors of Starbucks.”
The letter from Xi to Schultz was posted by Xinhua, situated beneath the standard header image which features a smiling, waving Xi set against a pristine blue sky.
According to Xinhua’s characterization, Schultz sent Xi a letter to “congratulate China on the completion of a well-off society.” Schultz was also keen to “express his respect for the Chinese people and Chinese culture.”
Xi’s ask of Schultz is “simple.” He just wants Starbucks to repair Sino-US relations and avert a catastrophic clash of civilizations that could ultimately mean the end of civilization, broadly construed.
I’m just kidding. Sort of. As Bloomberg noted, “Chinese leaders have often tried to utilize ties with US business leaders to improve US-China relations, and have repeatedly stressed the role of commerce as a stabilizer in bilateral ties.”
Over the course of his presidency, Donald Trump installed all manner of speed bumps along that particular avenue to diplomacy, making it extremely difficult for corporate America to mediate disputes.
Trump has, of course, targeted a laundry list of Chinese companies, including one of the nation’s corporate crown jewels, Huawei. Beijing repeatedly threatened to roll out a list of what China called “unreliable entities” in retaliation. While that list surely exists, it was never really utilized to maximum effect, where that just means corporate America’s worst fears around their operations in China were never completely realized.
That’s not to say there were no tense moments. There were. FedEx, for example, found itself in a truly absurd dispute with Beijing in 2019, and there were several similar incidents which suggested US companies could become collateral damage in the trade war.
In this context, it’s notable that the Treasury Department ultimately had to intercede to block the Pentagon from banning American investments in Alibaba and Tencent, which themselves wandered into Trump’s crosshairs this year.
The US was on the verge of adding Alibaba, Baidu, and Tencent to the Defense Department’s list of companies charged with aiding and abetting the PLA, but the ubiquitous people familiar with the matter told The Wall Street Journal that after a “weekslong battle that pit Treasury officials, who feared widespread selloffs and economic fallout, against State Department and Pentagon officials seeking a tougher line against Beijing… Steven Mnuchin prevailed.”
Shares of both surged in Hong Kong Thursday.
The reprieve was a welcome development for Chinese tech, which has enough problems at home, where Xi embarked on an aggressive anti-monopoly push in November, at least partially motivated by Jack Ma’s extremely ill-advised decision to criticize regulators in October.
Earlier this month, Trump signed an executive order targeting payments networks run by Ma’s Ant Group and Tencent, while the NYSE struggled to decide whether to delist Chinese telcos.
Had Trump decided to ban US investments in Alibaba and Tencent, the consequences could have been dire. “Imposing a ban on the pair would have marked the most dramatic escalation yet by the outgoing administration, given the sheer size of the two firms and the difficulty unwinding positions,” Bloomberg wrote Thursday. “At more than $1 trillion, their combined market value is nearly twice the size of Spain’s stock market, while the firms together account for about a 10th of the weighting for MSCI Inc.’s emerging markets benchmark.”
Barring a reversal under the Biden administration, US investors and pension funds will still have to unwind holdings of companies on Trump’s “military” list by November 11. It’s just that the list won’t include the tech giants.
Maybe Starbucks can help.
“Xi emphasized that… China has embarked on a new journey of building a modern socialist country in an all-round way, which will provide a broader space for companies from all over the world, including Starbucks and other American companies,” Xinhua went on to gush, Thursday. “It is hoped that Starbucks will make active efforts to promote Sino-US economic and trade cooperation.”
Yes, “it is hoped.”
In another 6 days the Biden administration will have to start unravelling Trumps China policy and easing the angst heard round the world. It’ll be interesting to see how that goes.