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US to suffer more if it decouples with China

The United States' stigmatization of and hostile actions toward China have, among other things, raised concerns that China might be isolated from the global supply chain and its economy decoupled from that of the US, especially in high-tech and trade.

After the US president threatened on May 14 to cut off all relations with Beijing "to save $500 billion", the US Department of Commerce on May 19 issued new rules to choke off Huawei's access to semiconductor chips, banning chipmakers, mostly in the Republic of Korea and Taiwan, from using US machines and software to manufacture semiconductors for Huawei. One day later, the White House issued a report, "US Strategic Approach to China", and the Senate adopted a bill, "U.S. Senate Foreign Company Accountability Act". On May 22, the US Commerce Department added another 33 Chinese companies and research institutions to its "Entity List".

In a report, "Breaking the China Supply Chain: How the 'Five Eyes Can Decouple from Strategic Dependency", Henry Jackson Society of the United Kingdom echoed the call of White House economic adviser Larry Kudlow, who had earlier proposed to "reshore"－that is, bring back－US businesses from China.

Yet the actual foreign investment in China is increasing. The Chinese Ministry of Commerce has said foreign direct investment in April hit 70.36 billion yuan ($9.86 billion), up 11.8 percent year-on-year. This shows foreign investors are not leaving China. And a recent American Chamber of Commerce in China survey shows that more than 70 percent of its members have no plans to leave China and instead 40 percent plan to increase their investment.

Exxon-Mobil opened its $10 billion ethylene project in Huizhou, Guangdong province, on April 22. On May 19, Honeywell said it would establish its new emerging economy headquarter in Wuhan. The next day, The Wall Street Journal reported that "Neither COVID-19 nor trade tension could stop American business moving into China". Popeyes opened its first shop in China on May 16 and plans to open 1,500 outlets in the country. Wal-Mart announced it would go ahead with its 2019 plan to add 500 new outlets in China. And Tesla is expanding its Shanghai factory at an amazing speed.

Also, a survey by JETRO Shanghai shows that 90 percent of the Japanese businesses in East China have no plans to leave China; instead they plan to increase investment.

GM sold 3.09 million vehicles in China in 2019, which accounted for 40 percent of its total global sales. But if GM moves its factories from China back to the US, it may not find such a huge market. Apple enjoyed a hefty profit of 24.2 percent in the last quarter of 2019, largely due to the performances of its iPhone6(accounting for 60.9 percent of total sales). If Apple leaves China, its cost will increase by 37 percent, according to a Goldman Sachs survey. Apple will also lose a large market share and could face a survival crisis.

The World Bank's "2020 World Development Report: GVC, Trade for Development" says that 50 percent of the current world trade is related to global value chain (GVC), with East Asia/Pacific, Europe/Central Asia and North America as the three centers deeply intertwined.

And a World Trade Organization report shows that in 1995, the US, Germany and Japan served as the trade centers in their respective regions. In 2017, however, China replaced Japan as the regional trade center in Asia, with both the US and Germany having a higher dependency rate on China. The US high-tech ban on China targets 5G technology, cyber communications, semiconductor chips and artificial intelligence, in a bid to prevent China from challenging the US' dominant role in world trade. Such measures, though they will cause difficulties for Huawei and other Chinese companies in the short term, will result in just the opposite in the long run. Huawei has already made alternative arrangements, for example with its own Huawei Mobile Service, and China's investment of $1.4 trillion by 2025 to become self-sufficient in the high-tech sector could shift the global balance in high-tech. That was the prime reason they had 48 percent of the world market share. Half of the semiconductor demand is for smartphones, PCs and consumer electronics, all with a very short life cycle.

If the US economy is totally decoupled with China, the US semiconductor industry's global market share will fall by 18-30 percent, and its revenue by 37 percent. As a result, the ROK or China will outstrip the US in terms of world market share, and the US will lose the global leadership.

http://www.chinadaily.com.cn/a/202006/03/WS5ed6dcd1a310a8b24115a5f9.html