From The Publisher: Examine China's Motives

September 1, 2005
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I am apprehensive about doing business in China. Long-time readers of this column know that while I maintain an attitude of "making things where it most makes sense," I have warned against wholesale moving business operations to China and selling product with no regard for that product's end use.

Chinese companies have a notorious record of abusing intellectual property rights and have forged products originally owned by companies like New Balance, Yamaha and others. The Chinese government has a spotty record enforcing the laws against such theft.

However, beyond the threat to business security at doing business with and in China, there also are national security risks. The recent bid by CNOOC Ltd. to purchase Unocal Corp., the ninth largest oil company in the United States, was one such risk. CNOOC is 70% owned by the Chinese government, and so their bid was not, as Foreign Ministry spokesman Liu Jianchao claims, "normal commercial activity between enterprises." It had strategic implications.

The U.S. House of Representatives urged the Bush Administration to veto the deal because they believed the sale would give the Chinese government control over strategic geographic areas that would threaten U.S. security interests. The deal did not go through, with U.S. government intervention being unnecessary. Those opposing the sale were not paranoid. In 2001, China Defense Minister Chi Haotian told Hong Kong's Cheng Ming newspaper, "War with the USA is inevitable. We cannot avoid it. Chinese armed forces must control the initiative in this war."

Former President Bill Clinton allowed the sale of machine tools to China in 1994 from McDonnell Douglas that were used for building U.S. military aircraft. In 2001, the Bush Administration imposed a $2.1 million fine on McDonnell Douglas, ending a six-year investigation, after it was found those tools, originally sold for "manufacturing" purposes, wound up in a Chinese military jet fighter plant. Those jets could be used against U.S. armed forces at some point. How? The Chinese government has increased its missile count and military buildup against Taiwan-a country with whom we have a treaty to protect against invasion by China.

Before selling a seemingly innocent machine tool or gage, think of how it might be used. Many out-of-business machine shops have sold their precision machining and measurement tools to Chinese manufacturers. No one knows how that equipment might be used, despite buyer assertions.

Ensuring how a Chinese company might use machine and measurement tools may seem like someone else's responsibility. "The business of business is business," said Milton Friedman, a Nobel Prize winning economist, in 1970. He's partly right. Friedman's absolute ends when business sells products and services that threaten U.S. safety and security. U.S. businessmen have a responsibility to be vigilant about how and where their products are used when sold to China. It's part of the responsibility that comes with being a U.S. citizen.

Next month, I'll address the moral, social and ethical implications of how many "Made in China" products are manufactured.

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