For what profit is it to a man if he gains the whole world, and loses his own soul? Or what will a man give in exchange for his soul? Matthew 16:26
Why do so many multinational corporations seem so eager and willing to do business with the Chinese Communist Party ruling China? Is it simply the natural workings of free markets? Is it an affinity of the boards of those corporations with the Marxist ideology of the Chinese Communist Party? Is it a determination to engage China in trade to free its peoples from the yoke of that Marxist ideology? Or is it something completely different? Can there be any doubt that the Chinese Communist Party still reveres Karl Marx?
Chinese Communist Party celebrates 200th year anniversary of Marx’s birth
A Little History
As ironic as it may seem, Marxist regimes have often sought to do business with large multinational corporations. As an example, Benjamin Gitlow was a member of various socialist organizations in the United States in the early 1900’s. Gitlow was aligned with the Left Wing Section of the Socialist Party that would eventually morphe into the Communist Party of America and the Communist Labor Party of America, and eventually became a prominent leader in the Communist Party of America, even serving as the Party’s vice presidential candidate in 1924 and 1928 under the banner of the Workers Party of America.
Gitlow eventually left the Communist Party USA, in large part because of the control exerted over the party by Russian chauvinists, and become a noted anti-communist with the publication of his autobiographical work, “I Confess: The Truth About American Communism” in 1940. In “I Confess,” Gitlow recounts how at the very early stages of the Soviet’s efforts to engage with the United States, in early 1919, a man by the name of C.A.K. “Ludwig” Martens was sent to the United States to set up an office in the New York City as the representative of the Soviet government to the Left Wing Section of the Socialist Party. Gitlow writes the following regarding Martens’ mission.
Martens was a quiet, mild-tempered man. He did not look like a Russian. Fair of complexion, with blond hair and mustache, he looked more like a middle class German business man than what went for the accepted description of a Bolshevik. He was indeed of German descent and an engineer by profession….He was at a loss as to how to conduct the affairs of his bureau and ended by following two distinct courses. One course sought to placate American business men by attempting to convince them that it would be profitable for them to do business with Russia. The other course was to cooperate very closely with the Left Wing in carrying on Soviet Government Communist Propaganda. I conferred with him often on Left Wing matters and received from him from time to time financial help for our organization and its press.
The two pronged strategy outlined above, is basically the same two pronged strategy used by the Chinese Communist Party today in dealing with the United States and throughout the world. The first prong is to convince businesses in the United States and around the world that there is a lot of money to be made doing business with China. The second prong is to propagandize the “working classes” of the world about the virtues of the Communist system of governance and/or the relative failings of their own systems. This essay will be focused on the first prong of that two pronged strategy.
Why Sell Goods and Services in China
The Chinese Communist Party has two main enticements to lure large businesses to China. The first enticement is that China, with its 1.4 billion people, is a great place to sell your goods and services, and the second enticement is that those 1.4 billion people are available to produce your goods and services.
Many would perhaps be surprised to realize that on a per capita basis China is in fact a relatively poor country. Based on purchasing power parity, which takes into account the country’s gross domestic product and cost of living, on a per capita basis China is at about 98% of the world average. With the caveat that comparing reported numbers between countries is always fraught with uncertainty, China’s numbers are better than Brazil (91%) and the Dominican Republic (94%), but worse than Iraq (99%) and Botswana (100%). A few other notable countries are Vietnam (40%), India (42%) Mexico (109%), Russia (151%), South Korea and Israel (both 227%), Japan (246%), Germany (307%), Saudi Arabia (315%) the United States (350%), and Ireland (449%). The very top of the list is dominated by city states (Macao, Luxembourg, Singapore) and small oil rich countries (Qatar, Brunei).
So if on a per capita basis China is poorer than Mexico, why are the sellers of goods and services so interested in accessing the Chinese market? The answer is simple, the sheer numbers when the purchasing power of 1.4 billion people is aggregated. In addition, even if on a per capita basis China is relatively poor, the top 10% of Chinese consumers would have a purchasing power far exceeding the average and amount to 140 million people, more than the 128 million total in Mexico. And even the relatively poor, in China as in much of the rest of the world, need to purchase basic necessities and will occasionally go see a movie or spend money on some other non-essential good or service, even if less frequently than others.
One of clearest indications of why China’s market is so lucrative despite China’s relative per capita poverty is that China’s market for luxury goods in 2019 was second only to the United States, surpassing Japan and Italy and twice that of South Korea and Germany. This comports with a report from the International Monetary Fund that China has one of the most unequal income distributions in the world.
Again, even if the country itself is relatively poor, China’s 1.4 billion people is a powerful magnet for sellers.
Why Use Chinese Workers?
Even acknowledging the difficulty in making value judgments about the relative merits of Chinese workers versus the relative merits of workers from other countries, the Chinese work force has a lot of desirable qualities, in addition to the fact that it is a huge labor pool.
The population of China, although diverse in some respects, is relatively homogenous in that over 90% of the population of 1.4 billion is Han Chinese. This relative homogenity is attractive to foreign businesses in that the business does not need to adapt to as diverse and varied of an ethnic and cultural background as in other countries or regions, including the issue of multiple languages. Consider that the European Union, with a population of only 450 million, has 24 official languages and three official procedural languages, English, German, and French. Germany has the largest population in the European Union at 82.5 million but only represents about 18% of the total European Union population.
As noted above, on a per capita basis China is relatively poor which means that labor can be attained relatively cheaply, and is highly motived due to their relative poverty. A country’s relatively low per capita income typically translates into relatively low labor costs for businesses. Goes without saying that relatively cheap labor is a postive enticement for many businesses.
Family Life
Due to China’s one child policy, Chinese workers are not as a group as encumbered as workers in other less developed countries by the obligation to tend to children, although this is often offset by the obligation to tend to parents and grandparents. I use the word encumbered because for some employers obligations to tend to and spend time with children detracts from the workers loyalty and dedication to their work. Of course, this does not apply to all employers, but it certainly applies to some. Add to that the repression of religion in China, another distraction from work for many employers, and Chinese workers are more free and motivated to concentrate on their work, not their families.
Unions
The Chinese Communist Party only allows one labor organization to exist for China’s 1.4 billion people, the All-China Federation of Trade Unions. Workers in China are not now nor have they been in the past free to organize as they have in the United States, Germany, Japan, or other of China’s competitors. This certainly does not mean that there is not labor strife in China, but businesses know that they will not have to deal with strong, independent labor unions in China. As elsewhere, many businesses doing business in China find a weak and ineffective labor movement as a positive enticement.
Pollution
Since the opening of China’s economy since the late 1970’s, economic growth has almost always taken precedent over environmental issues and the health of the Chinese people. This is evidenced by lax enforcement of regulations and a degraded environment, a particular problem being air pollution.
In a New York Times article entitled “Four Years After Declaring War on Pollution, China Is Winning,” the Times quoted Chinese premier, Li Keqiang, in a statement from March of 2014 that, “We will resolutely declare war against pollution as we declared war against poverty.” The article stated that the premier’s “statement broke from the country’s longstanding policy of putting economic growth over environment, and many wondered whether China would really follow through.”
After heaping praise on China for their progress on curbing air pollution from 2014 to 2018, the year the article was published, and the improvements in life expectancy that should follow, the article stated the following:
Of course, air pollution levels still exceed China’s own standards and far surpass World Health Organization recommendations for what is considered safe. Bringing all of China into compliance with its own standards would increase average life expectancies by an additional 1.7 years (as measured in the areas where data is available). Complying with the stricter World Health Organization standards instead would yield 4.1 years.
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[The Chinese] approach…has come with some real costs — as the many people left without heat this winter could attest. Yet further improvements will also be much costlier than necessary if they too are pursued by fiat, particularly with many of the easier fixes having already been made.
Lax enforcement of environmental regulations is a positive enticement for many businesses, in China as elsewhere.
The CCP’s Monopolies on Power
Merriam-Webster defines a free market as “an economic market or system in which prices are based on competition among private businesses and not controlled by a government.” Cambridge English dictionary defines free market as “an economic system with only a small amount of government control, in which prices and earnings are decided by the level of demand for, and production of good and services.” Arriving at an exact consensus definition of a free market economic system would be impossible but a general definition should include competition between producers with minimal governmental control.
The opposite of a free market is when a producers have a monopoly. Merriam-Webster defines a monopoly as “exclusive ownership through legal privilege, command of supply, or concerted action.” Cambridge English dictionary defines monopoly as “an organization of group that has complete control of something, especially and area of business, so that other have no share .” As with defining a free market, arriving at a consensus for a monopoly is likely impossible, but an essential element is exclusive control and a lack of competition. In practice, complete control is always an illusion but overbearing influence approaching the illusion of control is certainly possible.
Producers like when they can approach being a monopoly. Competition is a cost for producers and all producers like to minimize their costs. Investors look for businesses that approach being monopolies to invest in. A producer which most nearly approaches being a monopoly is typically more profitable than its peers.
One of the world’s most successful investors, Warren Buffet, is famous for his moat principle of investing. He describes the moat principle in part in the following:
What we’re trying to find is a business that, for one reason or another — it can be because it’s the low-cost producer in some area, it can be because it has a natural franchise because of surface capabilities, it could be because of its position in the consumers’ mind, it can be because of a technological advantage, or any kind of reason at all, that it has this moat around it.
To have a moat around a producer is essentially to have the producer approach being a monopoly by another name. No producer can have a perfect moat, even Constantinople fell eventually, but a deep and wide moat, keeping out the competition, certainly can be a competitive advantage. The Chinese Communist Party is China’s gatekeeper. The Party says who gets in China to do business, and who does not. The Party says who gets to partner with a Chinese firm and who does not. If the Party thinks you or your company or some minor player in your organization some how offended the Party, then your company will be punished. Having the Party’s guarantee for your moat is a powerful positive incentive, until the Party decides to breach the moat itself, or through you in it.
Buffet himself is quoted in a 2018 article in Bllomberg, Why Warren Buffet is Right About China, lavishing praise on China:
What they’ve done in the last 50 – 60 years is a total economic miracle…I never would’ve thought it could have happened. But the truth is they’re as smart as we are, they work as hard as we are, and they can have growth in the economy from a lower base that will exceed ours percentage-wise for a long time. They’re destined for a fine economic future, just like we are.
One man’s opinion on why our large corporations love doing business in China, and with the Chinese Communist Party.