In April, when Howard Schultz returned to Starbucks for his third and—the company swore—final stint as CEO, the company looked as if it needed coffee. The pandemic had done a number on sales. Shares had stumbled.
One in four baristas was reportedly quitting before even qualifying for the company’s famous benefits. In an industry with notoriously low union representation, Starbucks cafés had steadily begun to unionize, with more than 100 of them asking to hold union elections. In response, Starbucks promised to increase pay raises and improve benefits—for the nonunion employees. A regional office of the National Labor Relations Board accused the company of more than 200 labor violations. Some Wall Street analysts were citing all of the above as reasons to bail.
Schultz had been on the job for a month when he told investors on an earnings call that the coffee juggernaut had reassessed everything that made Starbucks Starbucks. It was prepared to emerge “a truly different kind of company,” according to a concurrent press release, and Schultz reassured investors that Starbucks would, in fact, remain “a growth company.” Just maybe not in the United States.
It’s estimated that a new Starbucks café opens in China every nine hours. There are more Starbucks stores in Shanghai than in any other city in the world. Schultz said in September that China will overtake America as Starbucks’s biggest market by 2025.
The Seattle-based coffee giant has been working quietly toward this goal for almost 30 years. It’s taken the usual steps necessary to operate successfully in China as a foreign enterprise, such as building rapport with Communist Party officials, setting up joint partnerships, and expanding slowly yet strategically. But Starbucks has gone much further in many ways than other U.S. companies have, even Tesla and Apple, whose CEOs have made headline-grabbing agreements with President Xi Jinping’s ruling party. (In December 2021, eight days after President Joe Biden signed the Uyghur Forced Labor Prevention Act, Tesla opened a new dealership in Urumqi, the capital city of the Xinjiang region, where the U.S. held that China was carrying out forced labor and genocide.)
Unlike companies that are merely building factories, hiring workers, and developing markets in the country, Starbucks is helping to cultivate the land itself—one of the few regions where it does so. It began testing beans and working with farmers in China’s coffee region of Yunnan in 2007. Since then, it has developed its own domestic supply chain and trained more than 30,000 farmers. It’s common for larger foreign entities to engage in charity and volunteer projects that include donating to Chinese nonprofits, but Starbucks’s support for Chinese initiatives goes well beyond the norm. The company is building rural infrastructure directly and operating its own foundation in the country. Early on, Schultz acknowledged that Starbucks had to “establish very strong relationships with government officials” to secure leases for cafés; corporate profits are also essentially now being used to help achieve Xi’s national goal of “common prosperity” in China.
Today, President Xi and his Communist Party are consolidating power in the country. In October, his reign was extended for a third five-year term, making him the most powerful leader since Chairman Mao. The country has expanded its crackdowns on supposed dissidents to include tech entrepreneurs, journalists, athletes, and cultural icons. The extent of the government’s repression of minorities in Xinjiang is becoming impossible to ignore, with a recent UN report calling the imprisonment and torture of the Uyghur people “serious human rights violations.” Meanwhile, China’s economy has slowed, its consumers are not spending, and draconian lockdowns persist. Looming over all this is the possibility that China may attempt to “reunify its empire” by invading Taiwan.
Starbucks, which declined to make any of its executives available for an interview for this article, is clearly aware of the challenges it faces in a country it has been focusing on for decades. The company’s 2021 annual report acknowledged that “due to the significance of our China market for our profit and growth, we are exposed to risks,” most notably escalating U.S.-China tensions, potential boycotts, anti-Americanism, zero-COVID policies, the real estate crisis, out-of-control supply chain costs, Beijing’s “responses to climate change,” and regulatory surprises, including food-safety inspections. Pandemic-related lockdowns caused Starbucks’s same-store sales in China to sink 23% year over year during the second quarter of 2022, forcing the company to suspend the whole year’s outlook. The following quarter, same-store sales were down a whopping 44%. China likely accounted for as much as 10% of Starbucks’s value before zero-COVID policies were enacted, says Wedbush analyst Nick Setyan, but he now estimates that the figure is closer to 5%. Starbucks’s price-to-earnings ratio overall is less than that of McDonald’s, and half of Chipotle’s.
Yet Starbucks is barreling forward. To replace Schultz as CEO in early 2023, Starbucks tapped Laxman Narasimhan, a multinational corporation veteran with experience in China. Over the next three years, the company plans to invest $220 million in the Chinese market, increase its store count from 6,000 to 9,000, grow the workforce from more than 60,000 people to nearly 100,000, and quadruple its operating income in China.
Belinda Wong, chairwoman of Starbucks China, announced in September at the company’s biennial Investor Day that its new Coffee Innovation Park will open outside Shanghai by next summer. One of Starbucks’s most gargantuan projects to date, it includes the company’s seventh roasting facility; currently, there are five in the U.S. and one in Europe. This roughly $150 million complex will make Starbucks China’s only coffee retailer that controls its value chain outright, from bean to cup. “We are super proud of the unique coffee ecosystem that we’re building in China,” Wong said at the Seattle headquarters meeting, adding that, in the past year, Starbucks “pioneer[ed]another disruptive unprecedented benefit” for its Chinese workers: It offered each employee two months’ salary as a bonus, beyond the one-month bonus Chinese workers commonly receive at year’s end. As she spoke, hundreds of American Starbucks baristas and supporters gathered outside to protest what they said were the company’s attempts to engage in union-busting tactics.
The company has not been coy about its China ambitions. During Starbucks’s earnings call in May, Schultz told analysts, “Make no mistake, our aspirations around China have never been greater.” Wong was even invited on the call to present her remarks before the CFO offered hers. And yet, the analysts in attendance just weren’t hearing it. During the Q and A period at the end, they were fixated on things like U.S. customer experience and inflation. No one seemed to notice that there was one word that Schultz kept repeating, nearly twice as often as digital, inflation, delivery, or even coffee itself: China.
Starbucks’s first café in China, inside a gigantic mall on the ground floor of the China World Trade Center, opened in 1999, essentially hawking capitalist coffee wrapped in a red bow. It sold local baked goods and was partially owned by the state-run Beijing Capital Agribusiness & Food Group. Starbucks breached the walls of the Forbidden City nearly two years later, offering decaf lattes and banana walnut muffins as the 600-year-old palace’s rare non-Chinese vendor. By 2005, the government allowed Starbucks to open a store on the Great Wall. NPR asked Schultz at the time, “How do you do business in a Communist dictatorship without losing your soul?” He responded that the Communists actually wanted Starbucks to succeed because Starbucks proved it could “be very respectful of the heritage and the tradition of how that country was built.”
No matter how much respect the company paid, however, it wasn’t guaranteed a smooth ride. A China Central Television anchor’s 2007 petition to evict the Forbidden City Starbucks café garnered half a million clicks on Weibo within days. Soon, a coffee shop managed by the Palace Museum took Starbucks’s place, adding a selection of “traditional beverages.” Starbucks quietly announced its eviction by saying: “We respect what they are doing.” (A couple of years later, Starbucks unceremoniously closed its Great Wall location, too.)
The whiplash is just part of doing business with Beijing. “What China giveth, it can taketh,” says Dan Harris, a lawyer whose firm, Harris Bricken, has counseled U.S. companies on business in China for nearly two decades. (Harris advised Fast Company’s parent company, Mansueto Ventures, on a matter several years ago.)
Beijing can leverage this capriciousness to its advantage, says Isaac Stone Fish, CEO of consulting firm Strategy Risks and author of America Second: How America’s Elites Are Making China Stronger. “To keep companies guessing, it sometimes punishes companies that haven’t broken any apparent rules,” he says. “This unevenness is not a bug—it’s a feature.”
In the late 2000s, the local Chinese government was looking to boost coffee farming in Yunnan, projecting a fivefold increase in production (to more than 200,000 tons a year) and a tenfold leap in this then-obscure commodity’s value (reaching $1.5 billion). Although Nestlé had arrived in the late ’80s and built a factory to process imported beans for instant coffee (before helping the Communist Party grow higher-quality arabica), Starbucks promised to put Yunnan coffee on the map.
How The East Was Won: The Coffee Giant Has Been Building On A Relationship With China For Almost 30 Years
By 2010, Starbucks had struck a milestone deal with the government to start what would be its first company-run farm, in Pu’er, Yunnan, which Starbucks says never opened. “Starbucks, for the first time in our 40-year history, is going to start growing coffee,” Schultz boasted during a trip to Beijing that November. “We’ve discovered a part of the area there that can produce the world’s best coffee,” he said. “In three to four years, we will bring coffee from Yunnan to the world.”
Starbucks operates a network of what it calls farmer support centers—cutting-edge agronomy labs plus shiny corporate offices—in such top coffee-producing countries as Colombia, Brazil, and Ethiopia. It built its sixth center near Pu’er, alongside an enormous coffee mill able to process 45 million pounds of green coffee beans per year. New bean varietals were researched, state-of-the-art irrigation systems were installed on lots, and the center’s agronomists would travel hours each day to farms to teach the locals, for free, how to use effective growing techniques.
Starbucks began partnering in 2018 with charities and local party officials to expand its Yunnan Coffee Project into an initiative that aimed to improve the standard of living for 50,000 local farmers and their families by 2023. It has since built a reservoir, donated degumming machines to help growers work faster, and distributed fertilizers and drying racks. It has invested upwards of $20 million for various social impact programs, along with more than $3 million toward women’s development and rural education programs. This has included initiatives such as organizing weeklong, agriculture-themed summer camps for young children in collaboration with the Yunnan government and establishing book corners in primary schools. (Titles include Today I Am the Flag Raiser and Little Soldier Zhang Ga.)
To stave off potential competitors, such as the delivery-focused Luckin Coffee, Starbucks—benefitting from a local policy change allowing foreign companies to own retail properties outright—bought out its Chinese joint venture partners in 2017. (The $1.3 billion deal remains the company’s biggest ever, a move accompanied by selling its part ownership of the operations in Taiwan.) The next year, Starbucks announced that it was rolling out nationwide delivery in partnership with Chinese tech giant Alibaba.
The move has tethered Starbucks tightly to Alibaba Group, a company that has, among other things, built software that could potentially be used as a tool for identifying Uyghurs and other ethnic minorities; created a smash-hit Chinese propaganda app that cybersecurity experts later believed could double as a spy tool, granting the Communist Party backdoor cellphone access to Alibaba’s entire database of 100 million users; and recently started getting probed by the Biden administration as a possible national security risk.
Starbucks has had to outsource almost all of its digital services in China. For instance, internet behemoth Tencent facilitates mobile transactions across all Chinese Starbucks cafés via WeChat, an all-in-one Chinese mega app that dominates instant messaging, QR and electric payments, and gaming. WeChat is also, according to officials and security experts in the West, a powerful tool of Communist propaganda, a means for authorities to surveil, intimidate, and amplify misinformation. It was cited as a national security concern by the Trump administration, which attempted to ban new downloads and transactions in the U.S. In February, the White House added the e-commerce ecosystem of WeChat, along with the similar AliExpress from Alibaba, to its Notorious Markets for Counterfeiting and Piracy list. Of course, WeChat also provides a convenient way to purchase Frappuccinos.
In stark contrast to Starbucks, many Western companies, caught amid increasing geopolitical tensions, have begun pulling up stakes. LinkedIn shut down the Chinese version of its site in October 2021. Yahoo followed, citing an “increasingly challenging” business environment. Apple, Microsoft, and Google are scrambling to unwind some of their manufacturing in China. (Google is now fabricating parts of smartphones in Vietnam, and Apple moved some iPad production there as well, while Amazon is making Fire TVs in India.) Meanwhile, Airbnb shuttered its listings service in the country in May, and the parent company of Jeep pulled out in July, on account of “more and more political interference.” Old Navy and Urban Outfitters stopped online sales of their clothes. When the nonpartisan U.S.-China Business Council surveyed members in June—117 multinational companies, some of which have operated in China for more than 20 years—it found that optimism about doing business in China had reached a record low.
U.S. officials have begun urging caution, citing in increasingly dire terms the risks China poses to national security and privacy. Secretary of State Antony Blinken called China the “most serious long-term” threat to world order in May, and FBI director Christopher Wray told NBC News in February that no country presents a “more severe threat to our innovation, our ideas, and our economic security” than China.
Even privately, U.S. officials have thrown cold water on the idea of corporate growth in the country. At the U.S.-China Business Council’s annual D.C. gala last December, Jose Fernandez, the State Department’s under secretary for economic growth, energy, and the environment, told member companies that “U.S.-China commerce” brought “risks that our companies should not ignore.” To many in attendance, the message was clear: Don’t come crying to us if anything happens. You’re on your own.
China had just discovered the notion of corporate social responsibility shortly before the Great Sichuan Earthquake hit in 2008, causing $150 billion in damage and leaving millions homeless. The government had recently amended a law requiring all companies to “bear social responsibilities,” and ever since, the Communist Party has wielded it as a tool, most recently to aid President Xi’s “common prosperity” drive to lift rural China out of poverty. Local corporations can sometimes take their displays of largesse to extremes (Tencent pledged about $15 billion in 2021 for rural development, medical assistance, and education programs). Foreign companies aren’t necessarily immune: Irate at what it perceived as stinginess on Apple’s part, Chinese authorities reportedly squeezed Apple, leading CEO Tim Cook in 2016 to pledge an estimated $275 billion over at least five years.
Many foreign companies choose to make splashy gifts to influential Chinese nonprofits. For example, Google has worked with the Chunshan Education Foundation, the NBA with Yao Ming’s foundation, and Amazon with the YouChange China Social Entrepreneur Foundation. The China Foundation for Poverty Alleviation, a so-called GONGO—or government-organized nongovernmental organization—a select breed of NGOs commonly found in repressive regimes, says that 15% of last year’s donations came from companies based abroad, including Apple, Samsung, Visa, and also Starbucks. Starbucks says it has donated to several more of these, including China Women’s Development Foundation and the Soong Ching Ling Foundation—one of China’s earliest charities, whose mission revolves around educating children, promoting international peace, and advancing “reunification of the motherland,” a euphemism for ending Taiwan’s de facto independence.
It’s underappreciated, Isaac Stone Fish has argued, how much the Chinese government “convinces, cajoles, and cudgels” American companies to advance Chinese propaganda. In August, after a Snickers promotion implied that Taiwan was an independent country, Mars Wrigley issued a public apology, saying that it “respects China’s national sovereignty and territorial integrity.” Many brands have prostrated themselves in a similar fashion. Critics say the issue is when this behavior passes from pro forma box checking—perhaps what Schultz intended by saying Starbucks was “very respectful of the heritage and tradition” in China—into active dissemination of propaganda.
In 2020, Starbucks established its very own charity in the country, the Beijing Starbucks Foundation. Four years earlier, Beijing announced it would clamp down on international NGOs, subjecting 7,000 of them to, among other things, police oversight. Some chose to leave the country, including an office of the American Bar Association. The setup of Starbucks’s foundation represents an unusual arrangement for a foreign entity because it was registered as a local nonprofit with the Beijing Municipal Civil Affairs Bureau. While Western nonprofits tend to work toward poverty alleviation, education, and crisis relief, the Beijing Starbucks Foundation adds on a goal shared by many local nonprofits: dangjian, Chinese for “party building.”
The foundation’s activities over the past year include donating $700,000 to flood relief and $900,000 to women entrepreneurs working to preserve rural cultural heritage, a mission that groups like the Australian Strategic Policy Institute’s Xinjiang Data Project have criticized as promoting Chinese nationalism. The foundation also announced on its website that it had organized “monthly red-themed activities,” participated in reading sessions, and vowed to “inherit the red spirit” and perform duties to “realize the Chinese Dream!” The staff studied the Long March—a military campaign marking Mao’s rise to power that lately has been used by President Xi as a rallying cry for the trade war with America. In April, the foundation’s deputy secretary general, who also serves as secretary of the local party branch, organized a red-tourism trip to the National Museum of China, which is next to Tiananmen Square and is the birthplace of Xi’s 2012 “Chinese Dream” speech, best known for its phrase “the great rejuvenation of the Chinese nation.” The slogan appears in many official statements, as well as multiple times across the Starbucks Foundation’s website. It is used to justify Chinese nationalism, forced assimilation of ethnic minorities, and the control of Xinjiang. The foundation’s party-building efforts were praised as exemplary in December 2021 by the Communist Party’s Beijing chamber of commerce.
In September, after Fast Company began reporting this story, the Starbucks Foundation site was redesigned. The stand-alone page for dangjian, or “party building,” disappeared, and a new one popped up called shequ jianshe, or “community building.” Weeks later, this section was also removed, and a new one appeared, this time publicizing the foundation’s aid to people with disabilities.
The phrase “party building” rarely appears on the websites of major foreign nonprofits, nor is it featured prominently on the sites of the local nonprofits that collaborate with other large American brands, including Apple, Google, Nike, and Amazon. Daniel Koss, a China scholar at Harvard University, says that Starbucks’s usage of the phrase is noteworthy. In a recent paper, he highlighted a 2015 Communist Party strategy document called “Opinion on strengthening party building in the private sector and NGOs” that argued for using technology to do party building online “to strengthen the Party organs’ openness, agility, and effectiveness.” But Koss explains that organizations aren’t obligated to mention party building on their sites in an overt manner, adding that “it is surprising that the Beijing Starbucks Foundation has taken such an open approach.”
Last February, Starbucks Foundation staff attended a party-themed screening of The Battle at Lake Changjin II, a sequel to the 2021 film about the Korean War that was the most expensive movie ever produced in China. The movies, both commissioned by an office within the Central Propaganda Department, were decried in the West as “anti-U.S. propaganda” intended to stoke jingoism. At least one Chinese gadfly was arrested for criticizing the first film on social media. “We are deeply moved” by “the high fighting spirit and steel will of the Chinese soldiers,” the Starbucks Foundation posted on its site after the event. “Just as General Secretary Xi said: Carry on and promote the great ‘Resist U.S. Aggression and Aid Korea’ spirit in the new age, and strive to achieve the great rejuvenation of the Chinese nation!”
Ask professionals who’ve tried, and they’ll say Chinese specialty coffee is hard to sell in the West. That may explain why Starbucks hasn’t yet made serious plans to distribute its China-grown coffee abroad, despite its declaration, 12 years ago, that it was investing millions in rural Yunnan to introduce its coffee “to the world.”
Hugh Morretta, quality manager at Peet’s Coffee, is among the few who have managed to import Yunnan beans to America. He did it in 2018, as La Colombe’s head workshop roaster, through a partnership with another Western company based in Yunnan province, Yunnan Coffee Traders. “Didn’t go over that well,” Morretta says of that single-origin variety, which retailed in a box adorned with a traditional Chinese pagoda. It lasted for only two seasons. “But if you are Starbucks, and you already have retail stores in China, then I suppose it could help you penetrate [that]market.”
In 2009, Starbucks used Yunnan coffee to launch the first special line from China, called South of the Clouds (roughly the English translation of Yunnan). But a lack of quality and quantity caused South of the Clouds to become a blend, and it was only offered in China, Singapore, and Malaysia. Starbucks debuted its first single-origin coffee made with Yunnan beans in 2017; Yunnan coffee has never been widely available in Starbucks’s Western markets.
Since its founding, Starbucks has been vocal about its ethical, sustainable sourcing. The company spent years working with independent organizations, such as Fairtrade, which used auditors to certify that its coffees were ethically and sustainably grown around the world. But it has largely phased out those partnerships in an effort to streamline the process under one roof—its own—thereby eliminating independent audits. Its in-house certification program, CAFE (Coffee and Farmer Equity) Practices, established in 2004, grades growers on more than 200 criteria in categories from quality to economic transparency, sustainability, and social responsibility.
Farmworker advocates have long criticized CAFE Practices’ lack of transparency. The program was formed through an alliance with Conservation International, a nonprofit that’s helped corporations like Walmart and Procter & Gamble reduce their environmental impact. Conservation International publishes CAFE Practices’ sole audit, an impact assessment released once every five years. CAFE Practices’ most recent report is from 2018. (The audit’s verification process is carried out by a separate third party, SCS Global Services. SCS referred all certification process inquiries to Starbucks. Starbucks directed queries to Conservation International, which didn’t respond to Fast Company’s questions.)
Genevieve LeBaron, an international labor expert and director of Simon Fraser University School of Public Policy in Vancouver who advises the UN and the British government on global supply chains, says that many respected third-party certifiers have struggled to operate in China due to factors including the pandemic. Others have been booted from the country. In August 2021, Beijing shuttered the offices of the local chapter of Verité, an auditor that’s consulted with Disney and Apple. In June, the European Union Chamber of Commerce complained that companies were exiting China because “they were unable to carry out third-party audits,” warning that “more will follow unless this is addressed.”
“The virtue of foreign investment is it can raise the standards because it brings better practices to the new country,” says Yixian Sun, a professor of international development at the University of Bath and author of Certifying China. “But that can go the opposite direction too,” he says. Starbucks’s 2018 report “isn’t comprehensive enough. You don’t know how stringent their standards are, or how well they’re implemented.”
China has been cited as having one of the world’s worst rates of forced labor, and the U.S. Department of Labor classifies coffee among the commodities at highest risk for child labor internationally. No research suggests Yunnan is plagued by either problem. But the province is remote, shares a border with three countries, has China’s greatest concentration of ethnic minority groups, and is reliant on migrant workers.
Because farm jobs are seasonal, Yunnan has a labor-transfer program that’s colossal in scope. The government says it relocated millions of workers—one-third of the province’s entire population—in the first four months of 2022 to urban areas for work, a more than 50% increase over last year. Beijing asserts that these workers are receiving valuable job training and increasing their incomes, but “raising incomes” and “vocational training” is the same language that it uses to describe what Uyghurs receive through Xinjiang’s version of this transfer program, known as Xinjiang Aid. The latter program may constitute crimes against humanity, according to the UN. (Starbucks did not respond to questions about whether it has ever investigated the Yunnan labor-transfer program’s conditions.)
Many companies, including Nike, Apple, and H&M, have condemned Uyghur forced labor and denied any sourcing ties with Xinjiang. Starbucks—which in 2017 famously announced plans to hire, globally, 10,000 refugees displaced by persecution, war, and discrimination—has never explicitly condemned the abuses.
In March 2021, a week before the West enacted sanctions on China and the U.S. issued a joint statement with the U.K. and Canada condemning Xinjiang’s human rights violations, a temporary Starbucks “experience store” opened in the Xinjiang capital of Urumqi, handing out 30,000 free cups of coffee and selling branded mugs, teas, and other merchandise to celebrate a new mall’s grand opening. Starbucks says that this event was not affiliated with or authorized by the company and is a case of trademark infringement for which the company is taking legal action. Still, influencers raved about their first Starbucks visit on Douyin, the Chinese version of TikTok. “After waiting painfully for all these years,” a popular food vlogger said, “I hope Daddy Starbucks never leaves!”
In early 2021, President Xi Jinping sent Howard Schultz a letter encouraging him and Starbucks to “continue to play an active role” in promoting China trade amid the intensifying tariff war between the U.S. and China. News that Xi had created a direct communication line with a foreign business leader was a shock to the West, particularly because the scoop came from Chinese state media, which made this more akin to an official press statement than a news story.
China business consultant Stone Fish warned at the time that Schultz, who has long cast himself as a centrist unifier, was “wading into dangerous territory,” that this was an authoritarian strongman asking an American business leader for help with Washington, a move with “serious strategic, legal, and ethical implications.”
Wall Street has often looked approvingly at Schultz-related moments like this in the past, viewing them as some sort of 4D chess move on Schultz’s part. Billionaire investor Bill Ackman announced that he had acquired a 1.1% stake in Starbucks in 2018 after the company predicted it would triple Chinese revenue. Ackman said that Schultz’s Oval Office aspirations were like an insurance policy: “The last thing the Chinese would do is go after the next American president’s company.”
The day after he announced, in January 2019, that he was “seriously thinking of running for president” as an independent in the 2020 election, Schultz released his latest book, a quasi campaign manifesto called From the Ground Up: A Journey to Reimagine the Promise of America. In the foreword, he writes: “These pages are less about Starbucks and my childhood than about the place in which we were both born: the United States of America.” He goes on to warn readers that America’s very existence is being threatened in some corners, to the point where “the continuation of American democracy is not a foregone conclusion.”
The Price Of Doing Business: While Starbucks expands quietly in China, these big U.S. brands have stirred controversy for their concessions to the government.
1/5 Apple, 2016: The Information reported that CEO Tim Cook forged a deal for Apple to invest $275 billion in China over at least five years, including a pledge to train workers, use more Chinese-made parts, and develop new R&D facilities. Apple also put $1 billion into local startup Didi. [Illustration: John Patrick Thomas]
That message would likely be unpalatable to China. From the Ground Up was released there the following year sans the subtitle. A new foreword was written. Gone are all references to U.S. democracy and Schultz’s prior feelings that “the Starbucks journey reflects aspects of the American journey.”
To mark its centennial last year, the Communist Party released tributes to foreign figures who “helped the world better understand” the party, from Henry Kissinger to Communist poet Pablo Neruda to South African president Nelson Mandela. There was one modern-day business leader among them: Schultz. The written tribute quoted a never-revealed letter that Schultz apparently sent Xi in 2020 reiterating how impressed he was by Xi’s speech at a gala dinner Starbucks had held in Xi’s honor in Seattle five years earlier. (Xi sat at the CEO’s table and made the sole policy speech of his multiday trip; it was his first state visit to America.) “I still recall the uplifting words you shared that day,” Schultz supposedly wrote. “The yearning for a better life that is part of the Chinese Dream reminds me of the American Dream.”
A few years earlier, after Schultz left the CEO job in 2017 and became executive chairman, one of his first engagements was a speech at Tsinghua University, Xi’s alma mater, where he said, “We are operating Starbucks in China not as an American company—we are actually operating here as a Chinese company.” Starbucks was months away from buying out its partners in China. He also announced that Starbucks was going to offer health insurance to Chinese employees’ parents under the age of 75, a milestone “as significant . . . as anything we’ve done in the history of Starbucks over the last 47 years,” he said.
Each year, Chinese baristas and their families are invited to the China Partner Family Forum, where they’re supposed to offer feedback about how Starbucks is treating its workers. The event was a means for boosting morale that executives in Seattle dreamed up in 2012, partly to fix an employee-retention problem that the company had been having. By 2017, Chinese baristas were also receiving above-market wages; health insurance; stock options; access to the Starbucks Learning Center, a “world-class corporate university” that is an “innovative talent program”; and a monthly housing stipend that covered half of their rent—a perk that may be painful to hear for U.S. baristas who have personally beseeched Schultz to improve their work environment. China has one of the world’s highest levels of income inequality, which Xi’s “common prosperity” campaign seeks to rectify.
Schultz told the Tsinghua audience that offering baristas’ parents healthcare wasn’t a hard decision. He said it was the number-one benefit Chinese workers asked for. He shared that he had cried that very morning at their annual meeting listening to workers discuss their lifelong responsibility to care for their parents—“something that, for the most part, we do not experience in America.” He asked: “How could we be a bystander when we hear their story, and they’re asking us to help them?”
Schultz has said that the political activism he has engaged in to mold Starbucks into a platform for progressive change in the U.S.—from trying to fix America’s race relations to supporting marriage equality to protesting President Trump’s Muslim ban—stops at America’s borders. “We view our social impact and our strategy around that to be unique to the U.S.,” he told The Seattle Times in 2016. Yet charity work that advances Chinese propaganda would, in its own way, appear to be political.
U.S.-China Business Council president Craig Allen notes that a carefully crafted communications strategy is key for leaders of companies that have one foot in America and the other in China. “Every CEO has to think about their fiduciary duty, which is for their company to have access to both the U.S. and Chinese markets,” he says. “Your job is to grow, and you have to do it in both countries.” The trick is that the messaging must hit the right tone. “When you see something you don’t like in your own home, you will address it in a particular way. But when you’re a guest and you see the same thing, you might use a different voice.”
Other analysts, like Carson Block, the founder of the research and investment firm Muddy Waters who’s known for being bearish on China, take a different view. “It’s a problem,” he tells Fast Company, when institutions behave this way. If China does eventually invade Taiwan, Block says, then “having American cultural icons and some of our largest companies incentivized to roll over and lobby the [U.S.] government to just let it go [would hurt]our national security.”
In the meantime, Starbucks finds itself in a precarious position, says Mark Dixon, founder of the Moral Rating Agency, a corporate ethics watchdog that started monitoring Western companies’ activities in Russia after the Ukraine invasion, but whose gaze has rapidly turned toward China. He argues that Starbucks is doubling down at the worst time in two decades. “If Starbucks distances itself from the Chinese regime now,” he says, “it may undermine its lucrative position in the country and end up with fewer customers in China, on which its share price hinges. If it doesn’t pull back, it may undermine its brand globally and end up with fewer customers in the West.”
Last December, Starbucks released its first social impact report in China. It mentions logging more than 1.3 million hours of community service, and investing $18 million in social welfare programs since 2006—and it reads like a wish list of reforms for the ruling party: revitalizing the rural countryside while striving to put farmers’ coffees on the world stage, creating new opportunities for rural women, and establishing the Yunnan reading program, which will set up 1,600 book corners in 375 rural schools for nearly 125,000 students by 2024. “Do the right thing, help each other succeed,” Belinda Wong wrote.
A week later, Starbucks faced a state media pile-on. Reports surfaced about stores in the cities of Ningbo and Shenzhen being accused of selling expired food. Another “undercover investigation” claimed cafés in a separate city, Wuxi, had been caught using expired ingredients, earning Starbucks a roughly $200,000 fine. A third investigation found that 18 Starbucks locations in a fourth city, Suzhou, were likewise violating Chinese food-safety codes. It’s not clear whether these charges were coordinated, or what prompted them.
Starbucks dutifully vowed to carry out its own internal inspections, and also retrain the staff at each of its 5,400 cafés in China. “We sincerely apologize to all of Starbucks’s customers,” it wrote in a statement.
“The higher you stand,” warned the People’s Daily, the official mouthpiece of the Communist Party, “the harder you fall.”
ENDS
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This article first appeared https://www.fastcompany.com
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