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Financial News

Oct 14, 2019

All About the NBA’s China Dilemma

By Team Stash

Backlash over a tweet highlights political freedom issues for businesses.

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The National Basketball Association (NBA) found itself in deep hot water with China last week, when Daryl Morey, the general manager of the basketball team the Houston Rockets, tweeted: “Fight for freedom, stand with Hong Kong.”

The tweet was reportedly meant to show support for protesters in Hong Kong, where hundreds of thousands of people have demonstrated for weeks against mainland China, asking for greater access to democracy and political representation.

Instead, it has caused an ongoing backlash in China, where some of the nation’s biggest businesses have reportedly withdrawn their sponsorship of the NBA over the controversy.

The NBA’s commissioner has defended Morey’s right to freedom of expression, but the NBA also issued an apology to China, which itself is the subject of controversy. Some critics have said it shows the NBA appears to be more concerned with its profitable relationship in China than the political freedoms of the country’s citizens.

Companies often need to walk a fine line when it comes to politics, and business relationships with China can be complex. China is one of the largest economies in the world, but it also has an authoritarian government, and numerous other U.S. companies have reportedly walked back political statements challenging China in recent months, or bowed to government censorship in other ways, to continue doing business there.

Here’s an explainer:

China and the NBA

The NBA is a huge moneymaker, with annual revenue of about $8 billion, according to Forbes. However, China accounts for nearly 10% of the NBA’s total revenue, an amount that’s expected to increase to 20% in the next decade according to reports. China is also the basketball league’s largest market outside of the U.S.

China, which has a population of 1.4  billion, has the second-largest economy in the world after the U.S., valued at about $14 trillion. And it’s an important market for U.S. businesses of all kinds.

While China’s economy has operated with free-market principles for decades, the country’s government is communist and authoritarian. Although its businesses have tended to operate freely for decades, they have come under growing government supervision and control, according to experts. Increasingly, U.S. businesses have encountered free-speech issues operating there.

In reaction to the Morey’s tweet, the NBA’s Chinese sponsors have reportedly pulled their support for the league, including media conglomerate Tencent, which claims to have 500 million customers to whom it live streams NBA games, as well as China Central Television, smartphone maker Vivo, numerous large Chinese retailers, and a Nissan partnership in China.

Additionally, the Chinese Basketball Association reportedly severed all ties with the NBA.

Not just the NBA

  • Facing media criticism in China, Apple reportedly recently disabled an app that helped Hong Kong demonstrators track the whereabouts of police.
  • Search engine company Google, which has been banned from operating in China for years, has been working on a censored version of its search engine to operate there, according to reports.
  • Gaming company Activision Blizzard suspended a Hearthstone champion who voiced support for Hong Kong demonstrators and revoked a $10,000 prize he’d earned playing the game.
  • American Airlines, Delta Air Lines, and United Airlines no longer refer to Taiwan as a separate country on their booking websites. Taiwan has asserted its independence from China since the 1940s.
  • Marriott fired an employee in Omaha, Nebraska in 2018 for liking a Tweet that commended the hotel chain for listing Tibet as an independent country. China claims that Tibet is under its sovereignty, and Marriott later apologized to China and changed the listing status of Tibet, according to the Washington Post. (China had allegedly threatened to shut down Marriott’s website in China.)
  • In order to tap the huge Chinese market, various film studios in Hollywood have adapted scripts so they pass scrutiny with Chinese censors.

More about Hong Kong

Hong Kong reverted back to Chinese rule in 1997, after nearly 100 years as a colony of Great Britain. Protestors there have demonstrated for greater freedom from mainland China, and have gone as far as to shut down the airport on the island, which is one of the busiest in the world. The protests began this summer over a law that would allow mainland China to extradite Hong Kong citizens, meaning they could be sent there to stand trial.

The trade war with China

The U.S. and China are also engaged in a trade war, and rhetoric between the two countries has gotten heated.

  • Trade talks between China and the U.S. have repeatedly broken down, which has caused some market turmoil in the U.S.
  • The Trump administration has threatened tariffs on $550 billion of Chinese imports.
  • In response, China has called for a halt to purchases of American agricultural products.
  • Over the summer, China let the value of its currency, called the yuan,  fall. Very generally, China pegs its currency to the dollar. So that means every yuan exchanged equals a fixed amount of dollars, and that fluctuates with the value of the dollar. By letting its currency devalue, or fall below its current value, China made its own goods and services cheaper in export markets.

Comic relief

The cartoon South Park, often raunchy and controversial, has also ventured into the fracas. A recent episode criticized censorship in China. China then banned the cartoon from its airwaves. Last week cartoon creators Trey Parker and Matt Stone tweeted in response:

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