Introduction

China’s corporate titans have launched an unprecedented challenge to U.S. businesses by contesting new markets and sectors.  Despite an intensifying American political consensus in opposition to Beijing as a menacing geopolitical rival, the access of China-based firms to American and other western economies continues to grow in key areas:

• E-commerce powerhouse Alibaba this year announced the launch of 3,000 chartered international cargo flights, a number that approaches Amazon Air’s current scale of operations;¹
• Shein, the fast-fashion company valued at $15 billion, is rapidly growing its U.S. footprint;² and
• Tencent’s TiMi Studio Group, with offices in Los Angeles, is rumored to have generated $10 billion in revenue during 2020.³

Developments in multiple sectors long dominated by American companies – including cloud, logistics, retail, and entertainment – foreshadow an invigorated campaign by China’s largest firms to contest the economic dimension of the Great Power competition.

Unresolved Economic Dependence

Policy makers in Washington, D.C. have been keen to counter military threats presented by China, but significantly less action has been taken to counter the economic challenge posed by our geopolitical rival.  While proposals to address bilateral investment and activity in sensitive sectors abound, meaningful action, particularly in addressing decoupling or economic reliance on China, has stalled.  Despite all the rhetoric, America’s political leadership has failed to consider seriously, let alone implement constraints on, the economic relationship with China.  For example, according to a Baron database of more than 2,000 entries, only about one percent of Washington, D.C.-based policy coverage of China since the beginning of 2020 focuses on economic decoupling.⁴

This contrast – intensifying military competition and neglected economic competition – reflects years of effort by U.S. policy and business elites to segregate these facets of the U.S.-China relationship.  Political leaders have sought to maintain U.S. military dominance in the Indo-Pacific without jeopardizing commercial activity.  Conversely, business leaders have sought to leverage China’s manufacturing capabilities while distancing themselves from political and military tensions between the two countries.  As a result, China’s corporate giants have emerged as an increasingly acute competitive threat.

Cloud

Cloud computing has emerged as the near-term focus of U.S.-China tech competition.  A high-margin sector, cloud has the potential to fund the entry of China’s leading companies into strategically significant sectors, such as logistics.  For example, Alibaba’s cloud business earned $9 billion in 2021, enjoying 50 percent year-over-year growth for FY 2021.⁵

Despite the company’s recent problems with Beijing, Alibaba ranks first in the global Infrastructure-as-a-Service market in China and the Asia-Pacific region, and third globally.⁶  As the U.S. market has proven more elusive, China-based cloud providers have targeted Europe: Tencent Cloud is hiring in Germany, France, and Italy.⁷  Large and fast-growing economies, such as Indonesia, have become key battlegrounds for cloud development and market growth, with both China-based and American firms building new data centers.⁸  China has not ignored the U.S. market completely.  Tencent Cloud also is recruiting cloud architects, business development managers, and sales managers in California.⁹  Alibaba’s dramatically increased internal lobbying spending in Washington, D.C. – an increase of 300 percent between 2016 and 2020 – similarly reflects expanded ambitions in the United States.¹⁰

Logistics

China’s logistics companies appear intent on mounting a major challenge to U.S. market leaders. Cainiao, Alibaba’s logistics division, declared a goal of “deliver[ing] in China within 24 hours and across the globe within 72 hours.”¹¹  Recently, China-based logistics companies secured direct access to U.S. airports: SF Holding received approval in December 2019 for flights to the United States, with the company indicating intent to open routes to John F. Kennedy International Airport; in April 2020, the company added a Los Angeles flight, according to Department of Transportation applications.¹²  While the flight to Los Angeles was only approved through March 2021, SF Holding in February 2021 acquired a controlling stake in Hong Kong-listed Kerry Logistics to support its international expansion.¹³

JD Logistics, a spinoff of JD.com, is poised to be China’s first “e-commerce player with its own air cargo fleet.”¹⁴  In addition, JD.com has forged partnerships to supplement its own aviation capabilities.  In September 2020, JD.com concluded a deal with China-based Henan Civil Aviation Development and Investment Company to “expand the intercontinental air cargo network in Europe and America” as part of the Air Silk Road, augmenting the Belt and Road Initiative.¹⁵  Significantly, while the Air Silk Road currently focuses on Europe, JD.com’s announcement included the Americas.  The company also holds a position in Cargolux Airlines International, which has dubbed itself “Europe’s carrier for China.”¹⁶  Cargolux supplements JD.com’s existing U.S. routes on the East and West coasts, as well as in Texas and the Ohio Valley.¹⁷  JD Retail chief executive Lijun Xin explained that the company would “increase investment in countries that conform to JD’s strategies, no matter if it is on warehousing, logistics, or supply chain.”¹⁸

Both Alibaba/Cainiao and JD.com are building critical logistics infrastructure in California’s Inland Empire.  In 2018, Cainiao hired personnel at Alibaba’s Los Angeles office to, among other responsibilities, oversee Cainiao’s North and South American network deployment and optimize logistical solutions from mainland China to the United States.¹⁹  An Alibaba job posting for an Operations Manager for the Americas stated a preference for Spanish or Portuguese fluency, signaling the likely use of South America as a key entry point to North America.²⁰  Separately, JD Logistics has an office in City of Industry, California.²¹

Collectively, these efforts reflect decisions by China-based companies to prioritize the logistics sector.  As explained in 2016 by Alibaba founder Jack Ma: “You can talk about the miracle of e-commerce in China or in the world, but the logistics industry is where China’s real great miracle has been over the past decade.”²²

Retail

Following cloud and logistics, retail represents the next logical business frontier for China to conquer.  Shein, the Nanjing-headquartered online retailer, surpassed Amazon in May 2021 for number-one new downloads on iOS and Android in the United States.²³  Shein also is building out its “Home” business, with roughly 50,000 products listed.²⁴  The company’s success has been achieved despite its two-week shipping times to the United States.²⁵  To address this shortcoming, Shein appears to have launched efforts to build out capabilities in the United States.

In October 2021, Shein hired a Los Angeles-based Talent Acquisition Manager, who has worked in fashion recruitment since 2002.²⁶  Shein Distribution Corporation, which distributes Shein’s products in the United States, is hiring lawyers.²⁷  Two on-site positions in the Ohio Valley – the heart of non-maritime U.S. logistics – recently were posted with descriptions focusing on work with warehouse and distribution general managers.²⁸  Shein’s China-based job listings reveal the importance to the company of worldwide distribution and supply chains: out of 851 job postings, 29 relate to logistics, 95 to clothing supply chain management, and 155 to worldwide operations (as of October 2021).²⁹

Entertainment

Video games most directly link China’s companies to the American mass market.  Internationally, China-based Tencent is in a close race with Sony for most gaming revenue.³⁰  Tencent aspires to have as many users overseas as in mainland China.³¹  During the past decade, Tencent has acquired stakes in major U.S. video-game producers, such as Activision Blizzard (five percent stake as of 2016), Epic Games (40 percent stake in 2012), and Riot Games (majority stake in 2011, then fully owned in 2015).³²  Tencent’s subsidiary Lightspeed & Quantum Studios listed 24 job postings on LinkedIn for LightSpeed Studios in California, a developer of AAA games, as of November.³³  Tencent’s TiMi Studio Group, which has offices in Los Angeles, is rumored to have generated $10 billion in revenue during 2020.³⁴  China’s efforts in this sector align with consumer preferences in the United States, where two-thirds of adults play video games weekly.³⁵  As the Chinese government limits video game usage domestically, China-based companies likely will respond by expanding their international presence.  The global nature of the industry suggests there is significant potential for China-based companies to secure and build on market leadership positions to encompass the United States.

Implications

The risks of constraining China’s U.S. market access – particularly with looming inflation, protracted labor shortages, and persistent supply chain dependence – reinforce America’s political status quo.  Despite increased rhetoric about a “new Cold War” with China, U.S.-Soviet relations do not offer an instructive precedent: during the early 1940s, the Soviet Union accounted for 0.2 percent of U.S. exports and less than three percent of U.S. imports.³⁶  Today, China receives almost nine percent of U.S. exports and supplies nearly 19 percent of imports, ranking as “the United States’s largest supplier of goods imports.”³⁷

Among even the most anti-China politicians, action has not matched rhetoric.  In 2020, then-President Donald J. Trump, when asked in an interview if he would decouple from China, said, “If they don’t treat us right, I would certainly do that.”³⁸  The Trump Administration’s unsuccessful efforts to block WeChat or TikTok augur poorly, however, for broader efforts to constrain commercial activity in non-tech areas less directly connected to national security.

Many policy proposals carefully avoid limiting general commercial activity.  For example, Senator Tom Cotton’s (R-AR) February 2021 report, “Beat China: Targeted Decoupling and the Economic Long War,” states, “The economy is the primary theater of our conflict with China.”³⁹  Yet, the report recommends “a strategy of targeted decoupling from China, matched with policies to mitigate the economic costs of this decoupling.”⁴⁰  Senator Cotton constrained this already tailored approach for manufacturing, calling on policy to “restore secure, scalable, domestic productive capacity in areas critical to national security” [emphasis added].⁴¹

Outlook

In the absence of a transformative event that redefines the bilateral relationship, Washington, D.C. appears unwilling to counter Beijing economically.  As a result, American companies likely will suffer not only the disadvantage of limited access to China’s market, but also increased challenges internationally, and even in the United States, from China-based competitors. U.S. business leaders should prepare for a new era of heightened Sino-American commercial competition.

Endnotes

1 Approximation based on Baron’s analysis of Amazon Air flight records and fleet expansion. The flights are through Alibaba’s logistics arm Cainiao. See: “Cainiao Plans to Launch over 3,000 Chartered Flights to Safeguard Cross-Border Logistics,” Post & Parcel, April 6, 2021, https://postandparcel.info/136720/news/e-commerce/cainiao-plans-to-launch-over-3000-chartered-flights-to-safeguard-cross-border-logistics.

2 Jamie Wilde, “Shein is the Fastest-Growing E-commerce Company You’ve Maybe Never Heard Of,” Morning Brew, August 6, 2021, https://www.morningbrew.com/daily/stories/2021/08/06/shein-fastestgrowing-ecommerce-company-youve-maybe-never-heard; and Erica Chan, LinkedIn, https://www.linkedin.com/in/erica-chan-8952193.

3 Pei Li and Tony Munroe, “Exclusive: Tencent’s Timi Gaming Studio Generated $10 Billion in 2020, Sources Say,” Reuters, April 2, 2021, https://www.reuters.com/article/us-tencent-videogames-exclusive/exclusive-tencents-timi-gaming-studio-generated-10-billion-in-2020-sources-say-idUSKBN2BP0FG.

4 Baron compiled events, press releases, and reports from across U.S. federal government agencies involved in the development and/or implementation of China policy, as well as from more than 30 leading think tanks.

5 Alibaba Tech, “Alibaba Cloud Saw a YoY Revenue Growth of 50 Percent to RMB 60.12 Billion in Fiscal Year 2021,” Medium, May 14, 2021, https://alibabatech.medium.com/alibaba-cloud-saw-a-yoy-revenue-growth-of-50-to-rmb-60-12-billion-in-fiscal-year-2021-ca9e2cba69b0.

6 Press release, “Alibaba Group Ranked Third in the Global IaaS Market and First in Asia Pacific for Three Consecutive Years,” Alibaba Cloud, April 22, 2021, https://en.prnasia.com/releases/apac/alibaba-group-ranked-third-in-the-global-iaas-market-and-first-in-asia-pacific-1-for-three-consecutive-years-315945.shtml.

7 Daphne Zhang, “China’s Alibaba Takes on Amazon in European Cloud,” The Wall Street Journal, December 4, 2018, https://www.wsj.com/articles/chinas-alibaba-takes-on-amazon-in-european-cloud-1543924801; and “Current Job Openings,” Tencent, accessed November 5, 2021, http://web.archive.org/web/20211105134722/https://boards.greenhouse.io/tencent.

8 “Tencent Cloud Steps Up Commitment in Indonesia Following Launch of First [sic],” Tencent, September 6, 2021, https://intl.cloud.tencent.com/dynamic/news-details/100174; and Wang Boyuan, “Alibaba and Tencent are in a Public Cloud Battle in Southeast Asia,” PingWest, April 26, 2021, https://en.pingwest.com/a/8544.

9 Job posting, “Sr. Engineer/Infrastructure Architect – Cloud Infrastructure,” Tencent, https://boards.greenhouse.io/tencent/jobs/5605778002 (removed); Job posting, “Senior Business Development Manager,” Tencent, http://web.archive.org/web/20211105150426/https://boards.greenhouse.io/tencent/jobs/5615483002; and Job posting, “Senior Strategic Sales Manager,” Tencent, http://web.archive.org/web/20211105150523/https://boards.greenhouse.io/tencent/jobs/5447337002.

10 Lobbying disclosures, Alibaba, United States Senate, accessed November 2021, https://lda.senate.gov/filings/public/filing/search.

11 Cainiao Network, Twitter, https://twitter.com/officialcainiao.

12 Docket, “SF Airlines Company Limited – Exemption – People’s Republic of China – United States,” U.S. Department of Transportation, December 10, 2019, https://www.regulations.gov/docket/DOT-OST-2019-0076/document.

13 “Office of International Aviation (X-40) Foreign and U.S. Air Carrier Licensing Divisions,” U.S. Department of Transportation, October 14, 2020, https://www.regulations.gov/document/DOT-OST-2017-0044-0811; and “SF Express Acquires 51.8% Stake in Kerry Logistics for Global Expansion,” Technode, September 30, 2021, https://technode.com/2021/09/30/sf-express-acquires-51-8-stake-in-kerry-logistics-for-global-expansion.

14 Minghe Hu, “Richard Liu’s JD.com to Become China’s First E-Commerce Company with its Own Airline,” South China Morning Post, August 5, 2021, https://www.scmp.com/tech/big-tech/article/3143763/richard-lius-jdcom-become-chinas-first-e-commerce-company-its-own.

15 Martin Li, “JD Joins Hands with Henan Air Cargo Company to Expand Intercontinental Network,” JD.com Corporate Blog, September 8, 2020, https://jdcorporateblog.com/jd-joins-hands-with-henan-air-cargo-company-to-expand-intercontinental-network.

16 “Cargolux: Europe’s Carrier for China,” Cargolux, https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwjiwNH97fjvAhWQFVkFHfE6DygQ-FjAAegQIBRAD&url=http%3A%2F%2Fwww.cargolux.com%2Fmedia-library%2Ffiles%2Fchina&usg=AOvVaw3YN3V-2g_bSNK0joaeLbgw (pdf).

17 Flight records indicate that Cargolux Airlines has flights from Zhengzhou, China (CGO) and Hong Kong (HKG) to Anchorage (ANC) before continuing on to cities in the U.S. mainland, such as Los Angeles (LAX), Chicago (ORD), New York (JFK), Dallas-Fort Worth (DFW), and Rickenbacker International Airport (LCK). The Rickenbacker International Airport (LCK) route is unique in that, compared to the other airports, Columbus, Ohio is not a major population or customer center. The likely purpose of this route is to pass cargo onto other middle-mile shippers to service the middle of the country more effectively. See: “Henan Aviation Investment Leasing (HNCA) Fleet Details and History,” Planespotters.net, https://www.planespotters.net/airline/Henan-Aviation-Investment-Leasing-HNCA; and Martin Li, ibid.

18 Arjun Kharpal, “JD.com plans to boost overseas investment as China’s e-commerce giants look to challenge Amazon,” CNBC, November 10, 2021, https://www.cnbc.com/2021/11/11/china-jdcom-plans-to-boost-investment-overseas-in-challenge-to-amazon.html.

19 Rohan a’Beckett, LinkedIn, https://www.linkedin.com/in/rohan-a-beckett-b7988723; Chris Deng, LinkedIn, https://www.linkedin.com/in/chris-deng-4663a520; and Kevin Han, LinkedIn, https://www.linkedin.com/in/kevin-han-240ba42b.

20 Alibaba recently sought both an Overseas Supply Chain Operations Specialist for Imports and a Country Operations Manager for the Americas in Los Angeles (both postings since removed). Both of the positions would be responsible for handling imports, such as covering customs clearance and last-mile distribution services.

21 JD Logistics, accessed November 5, 2021, https://jd-logistics-service.business.site.

22 C. Custer, “Jack Ma Predicts the Future of Logistics,” Tech in Asia, June 13, 2016, https://www.techinasia.com/jack-ma-chinas-real-miracle-logistics-ecommerce.

23 Rita Liao, “Shein Overtakes Amazon as Top Shopping App on U.S. App Stores,” Tech Crunch, May 18, 2021, https://techcrunch.com/2021/05/18/shein-overtakes-amazon.

24 “Shein – Home,” https://us.shein.com/home; and Matthew Silberman, “Fast-Fashion Seller Shein Wants to Dominate More than Clothes,” SupChina, November 9, 2021, https://supchina.com/2021/11/09/fast-fashion-seller-shein-wants-to-dominate-more-than-clothes.

25 “Shein – Shipping Info,” https://us.shein.com/Shipping-Info-a-280.html. Some users, however, claim receipt in seven to nine days. See: Matthew Silberman, ibid.

26 Erica Chan, LinkedIn, https://www.linkedin.com/in/erica-chan-8952193.

27 Shein Distribution Corporation, “Corporate Attorney,” LinkedIn, https://www.linkedin.com/jobs/search/?f_C=74571418&geoId=92000000.

28 Shein Distribution Corporation, “Human Resources Manager,” LinkedIn https://www.linkedin.com/jobs/search/?currentJobId=2781536076&f_C=74571418&geoId=92000000. (Administrative Assistant job posting since removed).

29 SHEIN 招聘, accessed October 19, 2021, https://talent.sheincorp.cn/#/JobList?jobtype=.

30 “Top 10 Biggest Video Game Companies in the World,” All Top Everything, 2021, https://www.alltopeverything.com/top-10-biggest-video-game-companies; “2020 Annual Report,” Tencent, https://static.www.tencent.com/uploads/2021/04/08/960eae1f18dd716fd3a7d704e123d7a5.pdf; and “Form 20-F,” Sony Corporation, 2020, https://www.sony.com/en/SonyInfo/IR/library/FY2020_20F_PDF.pdf.

31 Yunfan Chu, “Changes for Tencent Games: Globalization, Platforms, and AAA,” Gaming Research Society, November 26, 2019, https://mp.weixin.qq.com/s/2aFkpWBeRuzZsaCTknKfCA (translated).

32 “BRIEF-Tencent Holdings Reports 5.023 Pct Passive Stake in Activision Blizzard,” Reuters, June 23, 2016, https://www.reuters.com/article/idUSFWN19F01H; and Greg Roumeliotis and Echo Wang, “EXCLUSIVE China’s Tencent in Talks with U.S. to Keep Gaming Investments – Sources,” Reuters, May 5, 2021, https://www.reuters.com/technology/exclusive-chinas-tencent-talks-with-us-keep-gaming-investments-sources-2021-05-05.

33 “Jobs – Tencent,” LinkedIn, accessed November 5, 2021, https://www.linkedin.com/jobs/search/?f_C=68011547%2C18286943&geoId=103644278&keywords=lightspeed&location=United%20States; and “The Right Team is the Heart and Mind of an AAA Game,” Tencent, January 21, 2021, https://www.tencent.com/en-us/articles/2201110.html.

34 Pei Li and Tony Munroe, ibid.

35 “2021 Essential Facts about the Video Game Industry,” Entertainment Software Association, 2021, https://www.theesa.com/resource/2021-essential-facts-about-the-video-game-industry.

36 “American-Soviet Trade,” CQ Researcher, September 2, 1959, https://library.cqpress.com/cqresearcher/document.php?id=cqresrre1959090200; National Bureau of Economic Research, “Total Imports for United States [M07028USM144NNBR],” retrieved from FRED, Federal Reserve Bank of St. Louis, accessed December 2021, https://fred.stlouisfed.org/series/M07028USM144NNBR; and National Bureau of Economic Research, “Total Exports for United States [M07023USM144NNBR],” retrieved from FRED, Federal Reserve Bank of St. Louis, accessed December 2021, https://fred.stlouisfed.org/series/M07023USM144NNBR.

37 “U.S.-China Trade Facts,” Office of the United States Trade Representative, 2020, https://ustr.gov/countries-regions/china-mongolia-taiwan/peoples-republic-china.

38 Yael Halon, “Trump: If Biden is Elected, ‘China Will Own Our Country’,” Fox News, August 23, 2020, https://www.foxnews.com/media/trump-biden-china-decouple-trade-deal.

39 Report, “Beat China: Targeted Decoupling and the Economic Long War,” Senator Tom Cotton, February 2021, https://www.cotton.senate.gov/imo/media/doc/210216_1700_China%20Report_FINAL.pdf.

40 Ibid.

41 Ibid.