US can't let China 'push our companies and our people' around, short seller Carson Block says

American companies need to take a stronger stand against the demands of the Chinese government and protect their principles, not profit, short seller Carson Block told CNBC on Friday.

"We need to stop letting the Chinese government push our companies and our people around," the founder and CIO of Muddy Waters Research said on "Power Lunch."

Block's appearance on CNBC came one day after he published a fiery op-ed in the Financial Times, arguing that the NBA and other American companies need to "locate their spines quickly."

If that doesn't happen, Block wrote, "we will find that the west's four decades of engagement with China have provided an autocratic despot with the understanding and resources to make the world less free."

The financial relationship the NBA and other American businesses have forged with China has been under the microscope for the last month, after Houston Rockets GM Daryl Morey's tweet in support of Hong Kong protesters ignited a fierce backlash from the Chinese government.

In the days that followed, Apple, facing criticism from Beijing, removed from its app store an app that allowed protesters to track police, saying it violated rules because it was used to ambush police. But some viewed it as the latest example of tech companies giving into requests of the Chinese Communist Party.

Block said his criticism comes with two qualifiers. First, he said he's referring to the actions of the government, not the Chinese people as a whole. Second, he said he is not suggesting American companies completely remove themselves from China.

"What I'm arguing for is that they should avoid being so dependent on China that China has this leverage to create this ridiculous situation where the Chinese government is attempting to censor a U.S. citizen in America," he said.

"That is unacceptable, if you let yourself become so leveraged to the China market that you would play along with that."

U.S. airlines and Hollywood also have played along with it, Block contended. He pointed to the decision by some airlines to minimize references to Taiwan, instead listing it as Taipei on their websites as an example.

The Chinese government has long demanded that foreign companies, especially airlines, not refer to Taiwan as its own country. The White House has characterized China's requests as "Orwellian nonsense."

"I definitely get grossed out when I think about these airlines who refuse to call it Taiwan anymore because China told them to," said Block, who also has been critical of the behavior of Chinese aluminum firms.

Block said he is not advocating for American consumers to stop buying products made in China "because this is not a problem with the Chinese people," he said.

"This is a problem with the government and our companies giving it too much slack," he said.

To gain access to the Chinese market, American companies often have to form joint ventures, in which they take minority stake. Critics say this policy can lead to intellectual property theft. China denies this.

The compromise of having to form a joint venture to do business in China isn't inherently bad, Block said.

"But the compromises that they must not make are the compromises that extend beyond the territorial borders of the [People's Republic of China]," Block said.

China's investment in Hollywood illustrates the consequences of doing so, Block said, contending that it's led to some moviemakers being hesitant to portray the country in "anything but the most positive light possible."

"To me, that's a real problem," he said. "When we're getting extraterritorial application of Chinese censorship, that is where companies must draw the line. If that means you don't take the investment in your film production company from China, then don't take that investment. That's principled."

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