Make China pay for its quiet support of Putin's war

China?is tacitly?backing?Putin’s aggression against Ukraine.?The Biden administration should combat this by imposing economic costs on China?through the corporate Environmental, Social and Governance?disclosure?requirements?that are already in place.

?Xi?Jinping?and?Vladimir?Putin met in?February at the?Beijing Olympics, their?thirty-eighth?visit in the nine years since Xi took power.?In a 5,000-word statement?on?February?4, Xi and Putin?proclaimed?their friendship with?“no limits” and “no forbidden areas of cooperation.”?Just weeks before the invasion, China?signed agreements?to buy from Russia energy and agricultural products worth?over $200 billion.

Despite early reports that Xi was displeased with Putin’s decision to invade, China has since refused to condemn Russia at the UN and elsewhere — and has prohibited criticism of Russia in the Chinese media and on its heavily censored internet. This close partnership also had a military aspect: Russia felt comfortable enough to move two-thirds of the troops it normally kept on the Chinese border to the Ukrainian front.

China cannot be shamed into abandoning its support for Russia’s brutal aggression. We know this as the US and the Free World have?publicly?condemned the genocide in?Xinjiang,?but China has not relented.

Yet?China is vulnerable to economic pressure.?The Chinese people accept the dictatorship of the Communist Party in the expectation that?their?standard of living?will continue to increase.

But?China’s economic news has not been great recently. Its?growth?is pegged at?just 5.5 percent?this year, about half of what it has been?since 1978. Even this may prove optimistic.?The steady decrease in the working age population since 2011?is continuing, which will further?dampen growth.?Xi’s?imposition?of?greater?Chinese Communist Party?control?in?the economy?has?increased uncertainty about many of?China’s?most dynamic?companies.?In the short term,?rising coronavirus cases?and the CCP’s “zero Covid” approach to lockdowns could further hinder the Chinese economy.

Financial news?has?not been great either.?The Securities and Exchange Commissions?has?increased financial disclosure requirements for Chinese companies which will result in?many?delistings.?The Nasdaq Golden Dragon China Index, which tracks American depository receipts of Chinese firms?is now down about 75 percent from its peak?in 2020.

China needs?exports to fuel its?economic growth. One third of?its?exports are to the US and the EU and it?has stock listings worth trillions of dollars on the stock exchanges of the free world.

Because of this dependence on economic relations with the free world, China can be held to account using ESG standards.

?It is generally accepted in the US and?the?West?that companies must be mindful of environmental, social and governance criteria, especially regarding pollution, rule of law and financial audits.

About 80 percent of major global companies have ESG disclosures in their financial statements.?In the European Union?it?is a legal requirement.?In the US it is the result of regulation by the?SEC, peer pressure and activism?by?large index funds.?The premise of ESG disclosure is?that companies?that?violate ESG rules?are riskier and?that?investors?must?be informed of these risks.

?Chinese firms are already major violators of ESG criteria, especially through pollution, infringements on?workers’?rights and their?complicity?in acts of repression?by government authorities.

The Biden administration’s SEC should ask?Chinese companies to disclose their compliance with ESG criteria?—?and consider?involvement with Russian companies?as an ESG?risk.

Part of this Russian?risk is economic and financial.?A growing list of Russian companies are affected directly or indirectly?by?sanctions?imposed?by the US and the rest of the world, and by international boycotts.

But there?are?also legal and reputational risks.?Given the animosity towards Russia among western consumers, US investors?may become less likely to do?business with?Chinese firms that maintain?Russian ties.

Chinese companies that want to?do business in the Free World,?have?their?securities traded on its?exchanges or obtain loans from?its?banks should disclose if they do business with Russian corporations.?Informed by these disclosures, investors?and consumers?will know?which?firms to invest in?and which?to boycott.

Dan?Negrea?is a senior fellow at the Atlantic Council’s Scowcroft Center for Strategy and Security. Between 2018 and 2021, he served at the Department of State in the Secretary’s Policy Planning Office and as the special representative for commercial and business affairs.?