As Beijing tightens control, the US and EU should, with vigilance and safeguards, attract China's firms, talent and IP.

With Dan Zehr

In the runup to Xi Jinping's election this week to an unprecedented third term as China's president, Beijing adopted a subtler approach to controlling the political influence of its private-sector entrepreneurs. Previous, heavy handed tactics like business leaders who disappeared for a spell or the shutdown of pending IPOs might have chilled the next generation of innovators. So now, under a program called “mixed ownership reform,” the government can secure more control over companies through “golden shares.” The golden shares are awarded to the government at no cost, and they come with board seats that allow officials to influence company decisions. 

The idea is hardly novel. They already exist in a lot of places, from Lebanon to Indonesia. But with the second-largest GDP in the world, China became by far the largest economy in which golden shares are used, extending that government control to a scale with global impact. Some 37% of Chinese companies now allow for this, including titans with far-reaching global operations like Alibaba, which granted a stake to Beijing’s cyber watchdog agency.

It's not hard to imagine the potential chilling effect this could have on companies selling sensitive technologies, such as communications equipment. But the ripple effects could extend far beyond exports of good and services. Many Chinese entrepreneurs are now moving to Singapore, London, New York and other places with a more transparent rule of law for everyone, including business leaders. 

That's not to suggest there's a mass exodus underway. For what we hear in our work and through our network at geo-tech advisory think tank Cambrian Futures , most entrepreneurs are seeking ways to stay in China and continue to tap into the massive market there (albeit one that's aging rapidly and forecast to shrink to 1.3M by 2050 and to 800M by the end of the century). But with no end of Xi's heavy handed policies in sight for more and more of them the calculus of rooting their businesses elsewhere will only get more obvious. Given the option to restructure their business to suit Beijing, allow party influence over its direction, or move and become more globally native, more and more of these entrepreneurs understandably will be considering the latter.

For those of us outside China, we would get more access to highly driven, well-trained and often well-capitalized Chinese talent, ideas and global diaspora networks. As China has moved up in the world of innovation, it has become a tremendous fount of ingenuity in science, technology and entrepreneurship. Already China is leading the world in number of articles and patents issued in cutting edge areas like Artificial Intelligence, tho admittedly not all of them are internationally defensible. But with help from western patent attorneys that could be changed in the interest of both those inventors and western economies.

Some skepticism will—and should—remain, of course, whether it's via channeled official mechanisms like the Committee on Foreign Investment in the United States (CFIUS) or corporate vigilance about China's state-led industrial espionage. But we would do well to remember that there are plenty of entrepreneurs in China who simply want to sell their wares and operate their businesses freely and transparently. And With some constructive vigilance, we might capitalize on Beijing's crackdowns, whether they be heavy handed or subtle, and welcome the Chinese businesses and innovators who consider moving to the US or Europe, incorporating here, investing here, hiring people here and, even taking citizenship here. After thorough vetting, we could even require and offer that permanent two-way commitment. We can't be naive, but we can leverage our market transparency, rule of law, economic and financial infrastructure to attract the best in the world. This is exactly what China did when it repatriated the "sea turtle" tech-preneurs with attractive packages when China was still friendly to them. Why not take a page out of its book and reverse this now? We have always done this with the best and brightest from all over the world, including former enemy nations. It is our strength that we know how to cut the right deals with the people who got the right stuff. That is as American as Apple Pie. And we need to do so with hard-nosed strategic resolve and without prejudice.