Thinking the Unthinkable: Are American Organizations in China Ready for a Serious Crisis?

Since the 2016 General Election, American relations with the People’s Republic of China (PRC) have followed a rollercoaster-like trajectory. Days before his inauguration, President Trump briefly reversed decades of predictable American conduct in a telephone conversation with Taiwan President Tsai Ing-wen and hinted a departure from the “one China policy,” (CNA.com.tw, December 3, 2016; Reuters, January 12). During his confirmation hearings, Secretary of State Rex Tillerson proposed blocking access to China’s artificial islands in the South China Sea and triggered an outraged response from Beijing (C-SPAN, January 11, Global Times, January 13).

Then came the public reversals. With little explanation, Trump endorsed “One China” during his call with Chinese President Xi Jinping in early February (Xinhuanet, February 10). PRC Prime Minister Li Keqiang subsequently expressed optimism about the U.S.-China relationship in the lead up to the Xi-Trump meeting in early April (XinhuaNet and New York Times, March 15). During Secretary of State Tillerson’s visit to Beijing a week later, he adopted Chinese phraseology to describe the bilateral relationship, something that previous U.S. administrations had carefully avoided (Xinhuanet and Washington Post, March 19).

If this was solace for some who seek signs of stability in this important bilateral relationship, the events that followed betrayed potential for future instability . The new American president appears committed to punishing China for its trade surplus, and the U.S. Navy plans to enhance “freedom of navigation operations” near China’s artificial islands in the South China Sea (Navy Times, February 12). Meanwhile, early Chinese objections to American THAAD anti-missile defenses in South Korea became a hotter topic with their rushed deployment in March, and April brought disquiet to Chinese policymakers in the form of the U.S. missile strike against Syria and the deployment of the USS Carl Vinson strike group to Northeast Asia (Hangzhou Military television, July 11; China Daily, March 15; Navy Times, April 9). Trump now views Chinese assistance with North Korea as essential.

As if to underline the potential for instability, a recent speech by the popular military commentator Jin Yinan indicates that Chinese military planners view the Trump presidency as a less than serious threat to their plans for changing the balance of power in the Western Pacific. [1]

This dizzying ride comes at the end of an extended downturn in Sino-American ties and escalating risk to foreign organizations in the PRC (China Brief, October 5, 2012, and May 11). If a serious bilateral crisis develops between China and the U.S. or with a number of other potential antagonists—notably Taiwan, Japan, South Korea, Vietnam, Britain, Australia, and Canada—their nationals in China may become unacceptably vulnerable to expulsion or detention.

This article focuses mainly on foreign businesspeople in China, due to their large number and the legal “duty of care” shouldered by corporate employers (SHRM.org, 2010; InternationalSOS.com, 2016). However, roughly half the foreigners in China are students, who along with tourists, missionaries, employees of non-government organizations (NGOs), and diplomats, would face similar risks based on nationality (Institute of International Education, 2016).

The Chinese Communist Factor in the “Big Emerging Market” [2]

Ninety percent of American businesses recently surveyed still report profitability in China, though 80 percent reported feeling unwelcomed (U.S.-China Business Council 2016 Membership Survey).  Moreover, American business leaders are less optimistic overall, citing animosity of the host government, slower growth, and investment barriers (Bloomberg, April 18). Since companies are in business to make money, most invested in China will likely react to uncertainty by choosing a standard “wait and see” approach in 2017: stay put but slow expansion, control hiring and travel, and reexamine security. These are all familiar steps for business anywhere when risk escalates.

However, unlike most other nations that attract multinational corporate investment and offer a growing consumer market, the PRC is ruled by a huge, 88 million member entity— the Chinese Communist Party (CCP). It has the dominant role in the economy, assists “national champions” to compete against foreign firms with the help of government regulators, wields an intrusive and powerful security apparatus, lavishly funds programs to covertly acquire foreign high technology, is engaged in a widespread purge against corruption within, and has successfully cultivated a widespread popular suspicion of the U.S., Japan and certain other nations. Despite China’s relatively low crime rate, the CCP’s program presents an atypically high-risk profile for resident and visiting foreigners, be they tourists, business people, students, missionaries, diplomats, or others.

American people and assets in the China may be more in at risk this year than at any time since 1989 (China Brief, May 11, 2016). Official and popular suspicion of foreigners is also reflected in China’s continuing anti-spy campaign that urges citizens to report suspected espionage activity in exchange for large potential rewards (Beijing Ribao and BBC, April 10; Chinese State Security video via SCMP, April 12). Though these and other signs of a declining U.S.-China relationship are easy to observe in the headlines, some American organizations with exposure there remain less than prepared for a real crisis and may overestimate the ability of the U.S. Government to assist them in an emergency.

Lack of Preparedness

Major demonstrations and anti-foreign violence are assumed risks in international business, but the history of the People’s Republic since 1949 carries many examples of mass action being purposely driven or encouraged by the central government. Demonstrations and mob violence, not to mention arbitrary detention, remain part of the CCP’s toolbox. If foreigners became endangered in a deteriorating scenario and their home country agencies were called upon to assist a mass evacuation of stranded citizens, such a mission would likely prove impossible without generous, and rapid, host government (read CCP and military) cooperation.

Interviews with security experts with extensive China experience and broad knowledge of industry trends indicate that some foreign firms in China have extensive plans in place to remove their non-Chinese employees and dependents in an emergency. The most prepared have a clear and rehearsed emergency evacuation plan, briefings to employees, and seats reserved in advance, via “evacuation insurance,” on chartered aircraft.

However, these same experts say that many or most firms do not go beyond an ad hoc, incident-by-incident approach and eschew detailed preparations. In the words of one well-informed security executive, if a mass evacuation were needed, foreign companies mostly intend “to throw money at it” without much pre-planning. A contributing factor to this problem, according to a professor of business strategy at IESE, is the widespread inability of modern business leaders to understand signs of geopolitical risk (IESE, [accessed April 20]; Stratfor, April 14).

The numbers of foreigners in China make this low level of readiness a serious issue. The last time a major evacuation occurred was after the June Fourth 1989 Tian’anmen Incident, when there were probably less than 100,000 foreigners living in the PRC. But their numbers increased at more than three percent per annum in the intervening 24 years. Official statistics show that there were 848,500 foreigners resident in China in 2013, and approximately 12 percent, or 101,000, were Americans, with over 127,000 Japanese in 2009 (Guangming Daily, April 8, 2015; China Daily, March 9, 2015; Japanese Ministry of Foreign Affairs, 2009). Should a situation of high risk to foreign residents arise today, hundreds of thousands might try to depart China all at once, clogging ordinary means of transport. Larry Wortzel of the U.S.-China Commission, who was a key figure in the evacuation in 1989, noted that the operations by the American and Japanese embassies to remove a few thousand citizens from Beijing and nearby Tianjin were only possible with the assistance of the People’s Liberation Army (PLA) and the Ministry of Public Security (MPS). He noted that “without their cooperation, it would have been the Boxer Rebellion all over again.”[3]

“Riding out” a political crisis or widespread civil disturbance is by far the easiest and least expensive business contingency plan, as long as the CCP and its subordinate government remain committed to protecting foreign businesses on their soil. But history shows circumstances under which this situation might quickly change.

Hostage Taking and Expulsions: Part of the Chinese Playbook

Taking hostages is a fixture in Chinese history and modern practice. It was a formal part of Chinese statecraft until the 17th Century, including taking “external hostages” to control barbarian states during ordinary times, and during hostilities to facilitate negotiations for armistice or surrender. [4]

In modern times, extrajudicial hostage taking over business disputes, often condoned by local authorities, has become common. A few of many examples: American senior executives confined for days to weeks in separate incidents during 2007 and 2013 in Beijing, when Chinese staff feared layoffs; the bankrupt consumer products company whose Chinese suppliers stormed their representative office and took American employees hostage for about a week (Wall Street Journal, June 26, 2013) [5] Hostage taking is even a strategy of choice in a Chinese business publication: if a debt becomes uncollectable, enlist the help of the local Public Security Bureau to temporarily hold the debtor (China Law Blog, May 2016).

As illustrated in the comparisons below, private disputes are different than a state-sponsored detention, but the lesson to absorb is that use of detained people as pawns is more acceptable in China than elsewhere, which raises the risk to resident foreigners of all stripes. If the current leadership wished to make a list of precedents for holding foreigners without conventional criminal charges, it might look like this:

By coincidence, the ordeal of the Garretts began two months after the Canadian government accused China in July 2014 of state-sponsored spying against the National Research Council in Ottawa (Xinhua, January 28, 2016; CBC News, July 29, 2014). Espionage charges were laid followed by deportation, possibly a signal example that the CCP is willing to use detentions and expulsions in a random way to pressure a foreign government. More recently, the dispute with South Korea over the THAAD deployment triggered the unexpected expulsion of an uncertain number of South Korean missionaries. Despite the declining number of Western and Korean missionaries after three years of CCP pressure, possibly thousands remain in China, subject to sudden official hostility (Christianity Today, March 8, 2017; Toronto Globe and Mail, August 25, 2014; billionbibles.org).

The 2001 EP-3 incident likely provides the most hints of how the CCP leadership would consider using Americans in China should a bilateral conflict suddenly arise. Chinese military leaders talked about preparing to fight the U.S., internal security bodies wanted to put the Americans on trial, and others who worked the bilateral relationship wanted to release the crew gradually or right away, and keep the aircraft. One Chinese advisor noted that “The internal negotiations were much more difficult than the negotiations with the US.” CCP General Secretary Jiang Zemin allowed the crew to depart China after 11 days, and their aircraft was disassembled and shipped back to the U.S. as freight. [6]

If tensions with the U.S. should escalate today, a similar internal debate should be expected—but this time the decider is Xi Jinping, a “hard authoritarian” who at least aspires to firmer control compared to recent CCP leaders. [7] Xi has taken an increasingly unforgiving stance against the American presence in Asia and may consider himself more secure in authority than did Jiang (China Brief, October 4, 2016). Strong though he may be, Xi’s choices in a crisis may be constrained by an accompanying rise in popular anger against foreigners. Moreover, the large number of Chinese immigrants in the U.S. also poses a problem in controlling a bilateral crisis.

Popular Anger, East and West

Anti-American and anti-Japanese demonstrations in China after various incidents in 1999, 2005 and 2012 show the potential for sudden hostility against foreigners, stemming in part from the idea that China suffered a “Century of Humiliation” (百年国耻, Bainian guochi) at the hands of the West and Japan, ending in 1949. [8] Recognizing the historical validity of this idea and the deep impression it has made on the sensibilities of hundreds of millions of Chinese allows clearer understanding of the vulnerability foreign organizations and people in China, even in the best of times.

There are over two million Chinese immigrants in the U.S. including at least 238,500 Chinese students (Migration Policy Institute, January 28, 2015; Institute of International Education, 2015). Given the unusual levels of hostility exhibited by some Americans during the 2016 election, it is reasonable to anticipate some anti-Chinese violence in America if U.S.-China tensions rise past a certain point. This alone might prompt Beijing to retaliate against Americans in China. Indeed, some policymakers in Beijing may already take a dark view of the risk to Chinese on U.S. soil, if one considers the Chinese Exclusion Act of 1882; the American internment of persons of Japanese ancestry during World War II; the growing numbers of Chinese immigrants in the US, and the isolation of small pockets of Chinese students in some college communities.

Getting Mad, Getting Even

Reciprocity may be the most important element in understanding risk. If the U.S. side does something that offends the PRC, they might consider the impact of further escalation on Chinese in the U.S., but more likely respond in a way that meets the offense head on and sidesteps telegraphing weakness to avoid enraging Chinese “netizens” and others. For example, presidential tweets which Chinese leaders find insulting, have thus far been met with mere editorials or statements by the Chinese Foreign Ministry. Trump’s third set of comments in mid-January on the One China policy were met with progressively stronger language (China Daily, January 15). But what about more concrete actions, such as hindering China’s access to its artificial islands in the South China Sea, or U.S. military actions against North Korea without Chinese agreement?

Given the number of Americans in China and the presence of significant investment assets, Xi Jinping would have a menu of options. At the lowest level, shipments to and from foreign organizations could be delayed or impounded, and visas could be denied or canceled. A further escalation might include closing the many American-run “international” schools and NGO operations around the country, shuttering restaurants and grocery stores specializing in Western food, and harassing Americans trying to enter U.S. diplomatic posts.

To step up the pressure, the CCP could encourage mass demonstrations, cancel flights leaving for the US, or stop allowing Americans, individually or as a group, to enter airports for international departures. In a further escalation, American residents in a single area (e.g. a medium-sized “tier 2” city like Nanning, Changsha, Lhasa, or Dalian) might be relocated or simply cordoned off by a military unit. Interned Americans might be treated well but denied electronic communications, especially mobile phones, to avoid security compromises and the generation of viral videos, though they could be allowed ordinary postal services with special handling, again to protect Americans against the righteous anger of the populace. In the meantime, if events in the U.S. included attacks on Chinese people, the resulting popular anger in China could further force the hand of the CCP in dealing with foreigners under their control.

Mitigate Risk Now

In light of these developments, a foreign organization’s contingency plans for China should be written in versions that account for two broadly stated scenarios.

First, the “lite” Plan A, when trade disputes or other bilateral irritations mostly affect assets. Both sides would probably be engaged in serious negotiations, exerting pressure but striving to maintain good faith. The host government might escalate restrictions on entry visas and work permits, slow down imports and exports, impose unusually high tariffs, and so on, perhaps even detain a vulnerable person, but avoid widespread harassment of foreign citizens. Profitability would go down and inconvenience would go up as managers and staff struggle with a stream of distracting problems. For example, besides irritants from the host government, dependents might become nervous and decide to leave, even in the middle of a school year.

However, given present circumstances and China’s track record of aggressive measures against foreigners, plus the potential of popular outrage, a more serious Plan B is also called for. It should include a solid evacuation plan, with reserved means of transport and phased departures under defined circumstances. Relying on an ad-hoc, throw-money-at-it-if-we-must approach under these unusual historic conditions assumes a high risk that is no longer acceptable.

Notes

1. Major General Jin Yinan talk, January 2017. Jin is on the faculty of the National Defense University (国防大学, Guofang Daxue) and is the Director of their Strategic Research Institute. His talks have become popular on Chinese television. Jin became known outside China for his videoed briefing describing Chinese caught spying for foreign governments (Sydney Morning Herald, August 30, 2011).
2. A phrase used by the U.S. government during the early Clinton Administration to describe markets for U.S. exports in China, Russia, Brazil and India, and others. Jeffrey E. Garten, The Big Ten: The Big Emerging Markets and How They Will Change Our Lives (New York: Perseus Books, 1997).
3. Larry Wortzel interview, December 2016. In 1900, China had suffered sixty years of humiliating military and diplomatic defeats by the Western powers and Japan, and was in danger of being split into colonies. A mystical and reactionary Chinese movement, virulently anti-foreign and anti-Christian, arose and was nicknamed the “Boxers” by Westerners. They gained the support of the Imperial government and attacked foreign legations in Beijing from June to August 1900. The siege was only lifted when a multinational force invaded from the sea and overcame resistance from the Chinese army and the general population.  See Diana Preston, The Boxer Rebellion (New York: Walker, 2000).
4. Yang, Lien-sheng. “Hostages in Chinese History.” Harvard Journal of Asiatic Studies, vol. 15, no. 3/4, 1952, pp. 507, 509-11, 516, 519-20. jstor.org/stable/2718238.
5. Interview with a corporate security executive from a U.S. technology firm, 2007.
6. Susan L. Shirk, China, Fragile Superpower (Oxford: Oxford University Press, 2007), pp., pp. 236-39. For a discussion of the material compromised during the incident, see The Intercept, April 10.
7. David Shambaugh, China’s Future (Cambridge: Polity Press, 2016). In chapter four, especially pp. 98-100, the author argues that the “soft authoritarians” Jiang Zemin, Zeng Qinghong, and Hu Jintao were displaced after 2009 by “hard authoritarians” surrounding Xi Jinping.
8. Anti-American demonstrations in 1999 after the U.S. bombed the Chinese embassy in Belgrade; anti-Japanese demonstration in 2005 over the content of Japanese school textbooks and the proposal to seat Japan on the UN Security Council, and in 2012 over the East China Sea islands dispute; and anti-American and other demonstrations in 2012 concerning the foreign protests against the passage of the Olympic torch, notably in France and the US; An early use of the term “Century of humiliation” was by Chinese Nationalist leader Chiang Kai-shek in 1946.  Since then it has been regularly employed by the Chinese Communist Party to refer to the 107 years between the end of the First Opium War in 1842 and the communist victory in 1949. Final reversal of the humiliation is linked to the goal of eventually recovering Taiwan to CCP rule. (Xinhua, December 9, 1999; People.com.cn, August 1, 2003)