The Moral Cost of Doing Business in China

Troublesome findings in a new report from the Victims of Communism Memorial Foundation.

By Megan Keller Feb. 2, 2022 6:38 pm ET

American and other Western companies have long been eager to do business in China, and that made sense when the country was opening to the world and reforming its economy. But operating in China has become more problematic as President Xi Jinping has tightened his political grip on the country and reversed market reforms.

The risks are increasingly moral as well as financial. That’s clear from a new report by the Victims of Communism Memorial Foundation and the consulting firm Horizon Advisory. The report finds that doing business in China has implicated U.S. and multinational corporations in the Communist Party’s human-rights abuses, the surveillance of Chinese people, and Beijing’s military buildup.

The report seeks to grade several companies on their business in China in a uniform way. “This research does not assume that doing business in China is inherently wrong,” the authors write. But support “for Beijing’s military modernization, surveillance state, and human rights abuses is,” and “corporate leaders must recognize as much.”

The U.S. government says the Communist Party is committing genocide against Uyghurs, particularly in Xinjiang province. An advisory last summer from the State, Treasury and several other departments warned that “given the severity and extent of these abuses, businesses and individuals that do not exit supply chains, ventures, and/or investments connected to Xinjiang could run a high risk of violating U.S. law.”

The report finds that Dell has an office in Urumqi, Xinjiang’s capital. Dell recently advertised a retail account manager job opening in Urumqi, promising that the successful applicant would join a “diverse and inclusive team” and “make a profound social impact.” Dell spokeswoman Carly Tatum said in an emailed statement that “the office is in the process of being closed due to low utilization,” and “we are constantly reviewing and adjusting our global footprint.”

General Electric has a joint venture, HDGE, with China Huadian, a state-owned enterprise. Last year China Huadian signed a strategic cooperation agreement with the Xinjiang government, according to the Chinese-language Polaris Solar Photovoltaic Network News.

GE declined to comment about China Huadian’s business dealings. It noted that China Huadian isn’t on the Commerce Department’s entity list, which restricts access to U.S. exports; the Treasury Department’s sanctions list; or Defense Department lists of Chinese military companies. GE says the work it does with China Huadian doesn’t involve controlled technologies.

The Journal reported in 2019 that Chinese surveillance systems used Intel chips. The Victims of Communism and Horizon report’s authors examined Chinese procurement records and found that public-security bureaus in Xinjiang bought Intel hard disks in 2020 and Intel servers in 2021, although “Intel might not know about or be able to control those uses.” Some Intel products are sold by middleman vendors.

Intel spokesman William Moss said in an email that Intel complies with U.S. export restrictions, and “our contracts require our global customers to comply with US export laws and regulations as well.” He added that “Intel’s Global Human Rights Principles formalize our commitment to respecting human rights and embody common principles laid out in multiple frameworks, including the UN Guiding Principles on Business and Human Rights.”

Under that policy, Intel says that if it becomes aware that a business partner may be using its products in connection with human-rights abuses, “we will restrict or cease business with the third party until and unless we have high confidence that Intel’s products are not being used to violate human rights.” Mr. Moss added that “we are committed to maintaining and improving systems and processes to avoid complicity in human rights violations relating to our operations, supply chain, and products.”

Microsoft also appears to have troublesome ties to China’s police and surveillance state. Haiyi Software—a company that provides surveillance-related products such as a “social face and vehicle verification platform” to public-security bureaus across China—lists Microsoft as a “partner” on its website. So does Beijing Zhongke Fuxing Information Technology, which lists among its “success cases” work with several detention centers, including in Xinjiang. By deadline, Microsoft did not provide comment in response to our inquiries about its ties to either company.

The report also raises alarms about how American and multinational companies’ partnerships may help the Chinese government gain access to sensitive technologies, including those with military applications.

Under a national strategic plan called Made in China 2025, Beijing seeks to acquire foreign technology. Dell’s China-based subsidiary co-authored a 2018 report on digital industrialization with the State Council, China’s top administrative authority. It explicitly mentioned the development of “emerging technologies such as cloud computing, big data and artificial intelligence”—all areas that have military applications in addition to civilian ones, the Victims of Communism and Horizon report’s authors note. Huang Chenhong, president of Dell Technologies Greater China, said the company “is committed to becoming the most trusted partner of the Chinese government and enterprises in the process of digital transformation.”

Dell spokeswoman Emily Laderman said in an emailed statement: “Dell Technologies works with governments around the world on digital transformation. The report included recommendations of how to make China’s economy work more efficiently through technology.”

In 2018 Microsoft announced a strategic partnership with Shenzhen-based Dajiang Innovations (better known as DJI) “to bring advanced AI and machine learning capabilities to DJI drones.” The news release also noted that DJI had chosen Microsoft Azure as “its preferred cloud-computing partner” and would use its “AI and machine learning capabilities to help turn vast quantities of aerial imagery and video data into actionable insights for thousands of businesses across the globe.” The Pentagon said last summer that “systems produced by” DJI “pose potential threats to national security.” In response to our inquiries, Microsoft did not provide comment on its business dealings with DJI or whether the relationship is ongoing.

Microsoft has also entered into partnerships with Huawei, even after a 2012 House Intelligence Committee report raised significant national-security concerns and said it had received information that the Chinese company “may be violating United States laws.” The U.S. imposed comprehensive sanctions on Huawei in 2019. Microsoft has a license from the Commerce Department to provide Windows and Office to Huawei, a company spokesperson said.

“Microsoft is committed to full compliance with U.S. laws including U.S. export controls, trade sanctions and regulations,” the company said in an emailed statement. “We also value our partnership with the U.S. Department of Defense and take seriously the need to protect U.S. national security interests.” It added that “we have in place a robust set of policies to safeguard against the misuse of our technology, and a clear code of conduct in support of human rights, labor, health and safety, and business ethics across our global operations” and that it regularly reviews its operations.

These are only a few of the troublesome findings in the Victims of Communism and Horizon’s comprehensive report. The authors conclude that American corporations “have in many cases traded support for Beijing’s military modernization, surveillance state, and human rights violations in exchange for access to China’s market.” But “in an environment where the private sector is the leading global source of innovation, capital, and influence, the stakes of this Faustian bargain are enormous.”