The China diplomacy dilemma

Hi folks, it’s Brad, reporting from Asia. Increasing tensions between China and the West are creating big problems for companies. But first. [View in browser]( [Bloomberg]( Hi folks, it’s Brad, reporting from Asia. Increasing tensions between China and the West are creating big problems for companies. But first... Today’s must-reads: • AI helped Google founders [gain $17 billion last week]( • Amazon workers [unionized at a major warehouse in the UK]( • Lyft said it isn’t actively pursuing a sale but would be [open to offers]( ‘Extra cautious’ Over the past few weeks, I’ve been traveling in Asia, cracking open salt ‘n pepper crab in Singapore, eating roast duck and fried turnip cake in Hong Kong and trying the exotic sushi in Tokyo. Along the way, I talked to as many tech CEOs and investors as possible, and one thing was clear: All are walking a razor’s edge, trying to navigate a new era of economic warfare in the heated competition between the US and China. While I’ve been on the road, the Chinese government has [questioned staff]( at the Shanghai office of the consulting firm Bain & Co., [raided the]( offices of due diligence firm Mintz Group and [interrogated employees and seized computers]( at Capvision Pro Corp., a Shanghai- and New York-based global expert network. State-sponsored broadcasters in China have dubbed this an “anti-espionage campaign” and suggested that Western companies might be ferrying state secrets to foreign governments and their intelligence agencies. In the old days, superpowers simply levied tariffs and coerced allies to achieve their geopolitical ends. But now many countries are waving olive branches, trying to defuse tensions. The Biden administration is seeking a [flurry of meetings and phone calls]( with its Chinese counterparts. Australia is also trying to repair its relationship and [thaw economic ties]( with China. In large part, companies, and not countries, are the focus of China’s campaign to regain leverage over the West. China has “paused its economic coercion of countries and commenced coercion of companies. New tactic, same objective: economic coercion,” Rahm Emanuel, the US ambassador to Japan, told my colleagues and me in an interview. Old tools like trade restrictions and product boycotts didn’t work, Emanuel said. So now China resorts to almost arbitrarily pressuring companies in symbolically important industries, using economic means to achieve longtime political goals such as building domestic technological capabilities or the acceptance of its “one China” principle. In one of the latest illustrations of this, the Chinese government has [initiated a cybersecurity review]( of imports from the Boise, Idaho-based memory chip maker Micron Technology Inc. to ensure the “integrity of the information infrastructure supply chain.” The US is putting pressure on companies, too. President Joe Biden plans to sign an executive order that would limit investments by US companies in key parts of the Chinese economy, including tech. The policy is known as “[reverse CFIUS](” — because the Committee on Foreign Investment in the US reviews the national security implications of foreign investments and acquisitions of American businesses. I spoke to several venture capitalists about the situation they suddenly find themselves in, most of whom did not want to be named describing such a sensitive issue. All were gloomy about the evolving risks of doing business in China. One VC marveled at how shareholders in Western technology companies with the largest revenues in the country have yet to accept the new reality. Shareholders do not seem particularly troubled at Apple  Inc. (which gets 19% of revenue from China while its stock is up 33% this year), Micron (10% revenue, up 22%), Broadcom Inc. (35% revenue, up 13%) or Qualcomm (64% revenue, down 6%). They’re either overconfident that China can’t block such popular products and important supply chain components or simply naïve about worsening prospects for American tech companies in China, this VC said. The investors all pine for a return to the era of globalization from a decade ago. Failing that, they really just want clarity on where everyone stands. “Nowadays with all these geopolitical risks, we will be extra cautious,” another VC said in an interview. “We just hope there are clear rules and procedures to follow if we do invest in sensitive sectors. If there are, we will follow them.” —[Brad Stone](mailto:bstone12@bloomberg.net) The big story Twitter’s new CEO Linda Yaccarino is a well-connected media executive whose deep ties to Madison Avenue could [help lure advertisers back to the platform]( at a critical time. Yaccarino joined Comcast’s NBCUniversal in 2011 after nearly two decades at Turner, home of cable channels like TNT and TBS. Get fully charged SoftBank is pitching a $10 billion IPO of [the chip designer Arm](. Kenya’s largest company is looking to raise as much as $150 million of debt [to refinance loans](. THG shares plunged after the UK online retailer ended talks with Apollo Global in the latest failed takeover attempt. Tesla recalled virtually every car [it has sold in China]( due to safety risks. Chinese smartphone maker Oppo exited the [chip design business](. More from Bloomberg Get Bloomberg Tech newsletters in your inbox: - [Cyber Bulletin]( for coverage of the shadow world of hackers and cyber-espionage - [Game On]( for reporting on the video game business - [Power On]( for Apple scoops, consumer tech news and more - [Screentime]( for a front-row seat to the collision of Hollywood and Silicon Valley - [Soundbite]( for reporting on podcasting, the music industry and audio trends - [Hyperdrive]( for expert insight into the future of cars Follow Us Like getting this newsletter? 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