International Watch | China’s Economy Is Steadily Improving, US’ Decoupling Is Wishful Thinking

China will make greater efforts to attract and utilize foreign investment, expand market access and increase the opening up of the modern service industry. So said Premier Li Keqiang* in his Report on the Work of the Government on March 5. The government would implement national treatment for wholly foreign-owned enterprises and rise to the task of serving them well; it would promote the construction of foreign-funded landmark projects and, he stressed, China’s open market would “definitely provide companies from all around the world that are developing in China with more opportunities.” This has further strengthened global confidence in China’s opening up.

U.S. authorities have insisted on adopting a policy of “decoupling” from China: Its trade war measures against China from four years ago have yet to be lifted, and now the U.S. has ratcheted up its decoupling from Chinese technology, the better to build a supply chain of semiconductors with which to isolate China. But what is the American decoupling policy’s effect on China?

On March 2, International Trade Negotiator and Deputy Minister of Commerce Wang Shouwen said that, for the past two years, China-U.S. economic and trade relations had been affected not just by the pandemic but also by certain unilateral protectionist measures the U.S. has taken. In spite of this, the volume of trade between China and the U.S. attained a record high, reaching over $750 billion last year, according to Chinese statistics. In addition, over the past three years, the share of American agricultural products exported to China has continued to increase, reaching nearly one-fifth of its total exports last year and making China the largest export market for American agricultural goods. Annually, the U.S. generates $15 billion from the intellectual property services it exports to China.

Political Hijacking of ‘Decoupling’ in No One’s Interest

As can be seen, the economic and trade relations between the two countries are highly complementary and resilient, which also means that the American decoupling policy with respect to trade with China is failing. Of course, the U.S.’ abuse of national security or its ongoing inclusion of Chinese enterprises on its Entity List due to geopolitical and economic factors is not merely a violation of World Trade Organization principles. It has also held back the trading potential between China and the U.S., which is of benefit neither to itself nor anyone else.

In the U.S.’ assessment, its supply chain reshoring policy on China has not worked either. According to a report by Washington-based think tank, the Brookings Institution, the 25% tariff the U.S. imposed on Chinese goods four years ago has resulted in only a small decline in Chinese imports of telecommunications equipment and semiconductors, whereas imports in other areas such as computers and agricultural equipment have seen substantial growth.

This shows that for the U.S. to decouple from China is easier said than done, and the main reasons for this are the irrational anti-Chinese sentiment fueled by the fierce struggle between its political parties and the decoupling policy toward China that was formulated in violation of market and trade regulations, making it difficult for it to take effect on the ground. Coupled with American bureaucracy, inefficient governance and high labor costs, its companies have also been hampered in reshoring to the U.S. Even though the U.S. has been able to force semiconductor giants such as Samsung and TSMC to set up factories there through political pressure and supply chain power, it cannot compete with China in terms of land supply, tax incentives and labor costs. Naturally, the U.S. could also choose Asian countries such as India or the Southeast Asian nations as alternative supply chain destinations to China, but in terms of logistics, human capital, expertise and intellectual property protections, these countries do not offer what China does.

Therefore, the U.S.’ decoupling from trade with China may be rated an utter failure, and decoupling from China in terms of technology is a lose-lose situation. Objectively speaking, in the field of semiconductors, the U.S. possesses advantages that China struggles to match, particularly with respect to core intellectual property rights. Furthermore, the U.S. has used its technological edge to form global trade barriers prohibiting exports to China, for example by denying China access to state-of-the-art photolithography and chip hardware facilities. In this way, the choke hold the U.S. is exerting has led to a situation in which, for China, the chips are down — both literally and figuratively. By preventing Chinese imports, however, the U.S. has not only lost its technology market to China; it has also caused the profits of many Western semiconductor equipment manufacturers to take a hit. With technology losing its market and capital losing its profits, the competitiveness of supply and industry chains such as these cannot be sustainably developed. Crucially, the hijacking by politics of scientific and technological decoupling runs counter to universal values — and to the values that the U.S. and the West promote — highlighting their hypocrisy and confusion in both word and deed.

Nor will technological monopoly and supply chain unilateralism last long. In the case of the U.S.’ decoupling from China, for example, the latter is already focused on tackling the issue, and it is only a matter of time before the U.S. and the West’s choke hold is broken and the pain of China’s chip shortage is overcome. Moreover, once China has its own emerging industrial chain with independent intellectual property rights, it will be able to form China-led supply chains as a matter of course. With China’s strength as the world’s No. 1 trader in goods, the U.S. and the West’s technological decoupling from Chinese technology and isolation of its supply chain will turn into a self-imposed isolation for the U.S.

US Companies Increasing Investment in China’s Economic Recovery

Along with the American decoupling from and supply-chain isolation of China, it is just as difficult to break the deep, “responsible stakeholder” relationship that has developed between the U.S. and China. In particular, American multinationals doing business in China are reluctant to leave what is a large and mature market. According to a recent report from the American Chamber of Commerce in South China, 68% of American companies will continue to expand into the Chinese market. Intel’s China strategy has been upgraded to version 2.0; McDonald’s plans to open 900 more units in China this year and Starbucks will open 3,000 units here by 2025 … The three-year pandemic has passed, and the U.S.’ economic recovery is languishing in uncertainty while the Chinese economy is experiencing a new lease on life.

Consumption, the main driver of the epidemic, is making a comeback, with some indicators of spending over the Chinese New Year already exceeding those during the same period in 2019. One after the other, many places around the world are forming “rush order” groups, and the foreign trade situation is as can be expected. In February, China’s Purchasing Managers’ Index stood at 52.6%, up 2.5 percentage points from the previous month, while the manufacturing boom continued apace and the real economy remained on a solid footing. Major institutions around the world view China’s economy favorably, and it is to achieve growth on the order of 5% for 2023.

The Two Sessions have revealed to investors worldwide that China has achieved medium-to-high-speed growth and is making strides toward high-quality development. It has made ever-greater efforts to attract and utilize foreign investment and has steadily expanded its institutional opening up. All countries will benefit from the systemic dividend of China’s high-level opening up, as the process of Chinese-style modernization will provide foreign capital with greater opportunities. This further illustrates how the American policy of decoupling from China is a laughable exercise in futility. Recently, multinationals such as ExxonMobil, McDonald’s, Starbucks and Budweiser Brewing Company APAC have all publicly stated that they plan to continue to expand their business operations in China. As American investors are saying, China remains the hotspot for corporate investment.

The author is a visiting research fellow at the Renmin University of China’s Chongyang Institute for Financial Studies.

*Editor’s Note: Li Keqiang was Premier of the People’s Republic of China until March 11, 2023, having been replaced by Li Qiang.

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About Matthew McKay 110 Articles
Matthew is a British citizen who grew up and is based in Switzerland. He received his honors degree in Chinese Studies from the University of Oxford and, after 15 years in the private sector, went on to earn an MA in Chinese Languages, Literature and Civilization from the University of Geneva. He is a member of the Chartered Institute of Linguists and an associate of both the UK's Institute of Translation and Interpreting and the Swiss Association of Translation, Terminology and Interpreting. Apart from Switzerland, he has lived in the UK, Taiwan and Germany, and his translation specialties include arts & culture, international cooperation, and neurodivergence.

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