Why Washington should dump McKinsey

In response to the senators’ criticisms, McKinsey attempted a Clintonian dodge. “[T]he Urban China Initiative,” read an official statement, “is not McKinsey, and it did not perform work on McKinsey’s behalf” — using the technical meaning of the word “behalf” to distract from the two organisations’ deep connection. As Rubio and Hawley go on to highlight, McKinsey co-founded the Urban China Initiative with Columbia and Tsinghua Universities, and the think tank was based at the same address as McKinsey’s Beijing office. McKinsey’s top China hand, Lola Woetzel, wrote the foreword to the report — acknowledging the role her company played in the research — and then hand-delivered it to China’s second-highest-ranking official at the time, Premier Li Keqiang.

As the Financial Times and New York Times reported, the Urban China Initiative is only one product of a fruitful decades-long collaboration between McKinsey and the CCP. In 2019, the company’s China website touted a series of Chinese government projects: “McKinsey’s impact in China goes well beyond our work in the corporate sector. In the past decade alone, we’ve served over 20 different central, provincial and municipal government agencies on a wide range of economic planning, urban redevelopment and social sector issues.”

Over the 2010s, McKinsey was also retained by 22 of China’s 100 largest state-owned enterprises (SOEs). One of these companies aided the Chinese government in the construction of an archipelago of artificial islands in the South China Sea — a vital tool in China’s quest for naval domination in Asia. On the topic of Chinese military aggression, it should not escape our notice that even McKinsey’s current “Greater China” website, sanitised in response to recent scrutiny, includes the firm’s Taiwan office. While diplomatic realities have forced the US government into its farcical “One China Policy” that refuses to acknowledge Taiwan as an independent nation, McKinsey is under no obligation to make the same declaration. It is one indication among many that American international businesses fear offending the Chinese government more than their own.

“American international businesses fear offending the government of China far more than that of their home country.”

In part, this is because democracies tend to be more sympathetic than autocracies to the idea that businesses must sometimes make decisions that don’t benefit “the home team”. But it also evinces a deeper truth: that given the blurry distinction between Chinese government authority and all Chinese businesses (not just officially state-owned ones), it is difficult for a consulting company to trust that if they run afoul of the CCP, any of their Chinese business will be left unscathed. As Curtis Milhaupt and Wentong Zheng have convincingly argued in the Georgetown Law Journal, China is “a state in which no firm — irrespective of ownership — is truly autonomous from the government”.

Admittedly, it is virtually impossible in a globalised world to ensure that no American resources — economic, human, or intellectual — are harnessed for the benefit of our geopolitical adversaries. We are a democracy after all, and projecting a totally unified front to the world isn’t one of democracy’s strong suits. But that doesn’t mean that there isn’t any low-hanging fruit for us to address — management consulting being within particularly easy reach.

As US-China geopolitical competition has heated up, a group of legislators has begun to take notice. In May, the Senate Homeland Security and Government Affairs Committee passed the Time to Choose Act of 2024 by a 10-1 bipartisan vote, referring the bill to the broader Senate. The Act, which calls out both McKinsey and Deloitte by name, would prevent the US government from doing business with consulting firms that also work for the governments of China, Russia, identified state sponsors of terrorism, or SOEs in those countries, among certain other entities.

It’s a good start, but far from a complete solution. It fails to account for the fact that outside the West, the boundary between public and private is often murky, if not downright illusory. In China, for example, the government has the right to requisition data or information from any company or citizen in the name of national security. For that reason, no law that targets only governments and SOEs can ever be entirely airtight when it comes to keeping valuable American data or ideas out of the hands of our adversaries. For that reason, the law should be passed as written, but only if bolstered by two other initiatives.