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Like many American consumer marketing companies seeking growth in global markets, McDonald’s has plenty to lose from a U.S.-China trade war. Unlike others, McDonald’s also has given China’s government a financial interest in its Chinese growth strategy, which might keep it out of the crossfire.

Government-controlled investment firm Citic Capital last year acquired a 52 percent stake in a joint venture that paid $2 billion for McDonald’s company-owned restaurants in China. The deal advanced a broader McDonald’s strategy of transferring nearly all company-owned outlets to franchisees. U.S. private-equity firm Carlyle Group took 28 percent of the new Chinese franchisee, and McDonald’s kept the remaining 20 percent.

Citic’s investment could protect McDonald’s as the Chinese government looks for American companies to punish in a tit-for-tat exchange of trade sanctions. China has vowed to respond in kind if President Donald Trump makes good on his threat to impose tariffs on an additional $200 billion in Chinese imports.

As perhaps the most recognizable symbol of American commerce on the global stage, McDonald’s might make a tempting target for Chinese authorities. But any action that impedes McDonald’s growth in China also would hurt returns on Citic’s investment. And McDonald’s has big growth ambitions in China. The West Loop-based company announced plans last summer to double the pace of new store openings in China to 500 per year, aiming to increase the total number of locations there to 4,500 from 2,500 by 2022. “China will soon become our largest market outside of the United States,” McDonald’s CEO Steve Easterbrook said in a statement announcing the new growth goals.

McDonald’s faces a steep challenge in China, regardless of the geopolitical climate. After leading the charge of Western consumer brands into China decades ago, McDonald’s fell behind rival KFC, which now has twice as many Chinese outlets. More recently, Starbucks has outpaced McDonald’s in China’s largest cities, where increasingly sophisticated consumers are migrating to brands they consider upscale. Easterbrook’s new growth strategy targets smaller Chinese cities in hopes of finding untapped demand for traditional fast-food offerings.

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McDonald’s ability to execute its strategy will depend on the good graces of a Chinese government seeking pressure points in an expanding trade dispute with the U.S. So far, much of the action has involved tariffs, which mostly affect agricultural and industrial goods exporters like Caterpillar and Deere, among others. As a restaurant company with outlets in China, McDonald’s doesn’t export much.

But China has signaled that tariffs aren’t the only weapon at its disposal. Chinese officials have a history of selectively enforcing antitrust and other regulations against foreign companies for political purposes. For example, Chinese supermarkets owned by South Korean conglomerate Lotte Group suddenly faced allegations of fire code violations and other regulatory breaches after South Korea angered China by agreeing to accept a U.S. missile shield. Similarly, Chinese authorities leveled price-fixing allegations against foreign baby-formula makers with plants in China—including North Chicago-based Abbott Laboratories—forcing the companies to cut prices.

Even with Citic’s investment, there’s no guarantee McDonald’s wouldn’t get the same kind of treatment in a prolonged trade war between the U.S. and China. In a country with no real limits on government power, authorities are free to punish McDonald’s if they conclude the benefits would outweigh any resulting investment losses for Citic. Nevertheless, the government’s stake in McDonald’s Chinese expansion at least gives officials incentive to seek other targets first.



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