It is difficult for governments and businesses to come to terms with this. They have spent years, if not decades, building their Chinese strategies and getting used to the idea that the Chinese market and power, warts and everything else are the future and unstoppable.
It is true that high levels of integration are difficult to distinguish, but this thinking may be just as wrong as what diverted our politicians in the 1990s and 2000. And this is before we consider the significance and consequences of the two biggest recent upheavals – its policy of zero Covid and the Russian invasion of Ukraine.
China is the largest or almost the largest trading partner for about 120 countries on all continents. It is the hub of global supply chains, transporting vast quantities of copper, iron ore, oil and other raw materials from Perth to Peru, and has acted as a magnet for foreign manufacturing, financial and other service companies captured by the Chinese market size, or engaged in it as the ideal place for production or assembly of production, technological and financial products. He is certainly a technological leader in many, but by no means in all branches of science and engineering.
The world’s dependence on China is legendary. The production of many lower-value goods, such as toys and textiles, has moved to Vietnam and Bangladesh, but China still supplies the West with clothing, footwear, sports equipment, cooking and household appliances and furniture.
We also rely on China for some so-called rare earth elements, minerals used in mobile phones and for electric vehicles, batteries, solar equipment, smartphones, tablets, TVs, computers and other office equipment.
As our experience with Covid has shown, China also supplies large quantities of pharmaceutical and medical equipment, antibiotics and prescription drugs.
US-China relations are one of the most complex and interdependent in the world. The value of their commitment is over 2 trillion dollars. Bilateral trade in goods and services amounts to just over $ 700 billion a year. Shares of US investment in China are just under $ 150 billion, while Chinese investment in the United States is about $ 60 billion.
The Chinese government holds more than $ 1 trillion in US financial assets in its foreign exchange reserves of more than $ 3 trillion or more, as some assets are held in offshore financial centers or outsourced to private foreign managers.
Bank loans have financed the China Belt, once, representing the bulk of about $ 1 trillion in loans and projects accumulated since 2013. and Health Silk Roads, where it wants to be the main venue for public health goods and services and communications and technological equipment and standards.
Of course, dependence is a two-way street, and China’s dependence on the rest of the world is just as high. It needs $ 1.5 trillion in annual bilateral trade with the United States and Europe each year. It needs foreign companies in China that supply high-tech goods and expertise, aerospace equipment and parts, as well as extensive know-how.
She wants foreign financial companies to provide experience in wealth management and investment banking. It remains heavily dependent on imported technologies, especially microchips, for which it spends more than crude oil. With a closed financial sector, capital controls and a managed currency, China still needs open global capital markets and to invest the proceeds of its trade surpluses that it seems destined to sustain.
Separation is not so difficult to do
You may be forgiven for thinking that so much dependence working in both directions would be difficult to dispel, and it is. Still, it would be a mistake to think that high levels of integration cannot be undone by politics, as our predecessors actually learned at great cost after 1914. Today, the political drive to secede or fall away has become much stronger.
Business continues to thrive in China – at least until recently – and is adapting to the idiosyncrasies of the Chinese Communist Party, even as China’s Xi has become more authoritarian and controlling.
But from around 2020, Beijing’s policies have a much bigger advantage – not only in support of already established state-owned enterprises and government involvement in the economy, but also in measures designed to bring private companies and entrepreneurs to fifth place.
The financial and regulatory penalty of technology giant Alibaba and a storm of regulations affecting data, finance and technology platforms have worsened industrial sentiment as the government pressured private companies to bring their activities into line with the party’s social and political goals and objectives.
Corporate worries and business insecurity have become more apparent following the crackdown on Hong Kong in 2019 and the deterioration of relations since the outbreak of the Covid pandemic in 2020, as well as revelations about the closure of Uighur Muslims in Xinjiang province – where Chinese even provoked allegations of genocide.
The focus for 2018 on trade tariffs has been replaced by an extensive network of export controls, greater control over foreign investment, restrictions on who local companies can do business with, and ultimately sanctions for those who violate the regime.
Some have been used for Hong Kong, Xinjiang and national security reasons, but China has also continued to punish sovereign states and companies whose policies it disagrees with.
These actions and developments have already begun to compromise companies, increasingly drawn into awkward precedents, where they must choose whose rules and laws to ignore and which to follow.
China’s support for the Russian invasion of Ukraine, and more recently the consequences of quarantine and the blocking of its zero Covid policy, have brought these problems and concerns to a new, higher level.
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