De-risking hinders global economic integration By Wu Zhicheng | China Daily | Updated: 2023-11-06
CAI MENG/CHINA DAILY
Of late, the term "de-risking" has gained currency in the West, replacing "decoupling" to become the new buzzword among certain politicians while discussing China.
The concept of "de-risking" not only involves reducing dependence on China in supply and value chains but also encompasses the idea of getting rid of all China-related "threats."
This has evolved into a tool that the United States has used to exert pressure and implement trade protectionism as well as counter China in political ideology.
Prohibiting trade
"De-risking" by the US initially manifests in limiting China's capabilities in strategic sectors relating to national security. Several US officials, including National Security Advisor Jake Sullivan, have emphasized that "de-risking" in economic and trade relations with China means that the US possesses a resilient and efficient supply chain while also ensuring that it does not become susceptible to coercion from any foreign power.
In practice, the US imposes economic controls in the name of "de-risking" and prohibits trade in certain sectors and goods, including restricting specific industries or products from Chinese capital investments, reducing the transfer of military and advanced technologies to China, and slowing down the pace of China's industrial upgrades.
"De-risking" primarily focuses on the high-tech sector, especially semiconductors, to prevent China from surpassing its Western counterparts in technological development.
Recent US sanctions against Chinese companies like Huawei and ZTE are good examples. By imposing strict limitations in key areas, the US aims to eliminate the risk of China overtaking it as a strategic competitor.
On the one hand, the US aims to deal with its overreliance and supply chain vulnerability in areas including energy, medical equipment, semiconductors, and critical mineral resources in order to boost its domestic industrial development. On the other hand, it also ramps up efforts to advance restrictions on China's access to cutting-edge technologies and establish a strong technological blockade in core areas like chipmaking.
Another major point of "de-risking" lies in the protection of raw materials and the reshaping of related supply chains. Since China supplies key raw materials — such as rare earths and their related products, new energy and lithium battery materials, and primary materials for the pharmaceutical and chemical industries — to Western nations, the US is attempting to reduce imports of these critical raw materials and related products from China under the guise of "de-risking".
"De-risking" is also evident in limiting China's global market influence and reducing reliance on the Chinese market.
Due to the US' de-risking move, some US investors believe extensive investments in China, particularly in manufacturing, have increased potential risks. As a result, there is a push for more cautious investments in China and diversification of investments, including shifting some investments out of the world's second-largest economy to reduce dependence on its market.
Furthermore, US sanctions related to China are also on the rise, on the excuse of military and human rights issues, with a particular emphasis on key high-tech fields like aerospace, advanced computing, quantum technology and biotechnology.
Ever-expanding scope
The US approach to "de-risking "has transitioned from economic and financial domains to the political and diplomatic discourse. It has shifted from being non-State-centered to being State-centered, from trade practices to strategic policy actions. The shift from a strategy of "decoupling" to "de-risking" suggests that the US government is adopting a more pragmatic and subtle approach, while its strategic goals remain unchanged.
The scope of restrictive measures is continually expanding. Export controls are becoming a key means by which the US inhibits China's technological advancement.
In August, the administration of US President Joe Biden authorized the Treasury Department to review specific US investments in China for "national security" reasons, which is a concrete example of overly securitizing technological issues and using "de-risking" as a pretext to enact a de facto technological "decoupling". This further deteriorates the economic and trade investment environment between the two countries, jeopardizing the security and stability of global industrial and supply chains.
The investment review mechanism will keep imposing additional restrictions on US investments in China, causing further unnecessary barriers for US companies and capital to participate in and benefit from the development of China's high-tech industries.
The level of restrictions on China is also seen to deepen. When the Biden administration vigorously advocates "decoupling" in trade, high-tech, supply chains, and other areas, bilateral direct investments are significantly affected, damaging the interests of both sides
Since July, the US has initiated multiple investigations into domestic venture capital firms involved in China-bound high-tech investments. This clear trend toward "decoupling" in financial and investment ties with China demonstrates the world's No 1 hegemony is becoming a hindrance to global economic integration.
Under the scope of "de-risking," cooperation containment has also been expanded, with an increasing number of claims questioning China's "nonmarket practices."
The US and the European Union are nearing completion of negotiations on the so-called Global Arrangement on Sustainable Steel and Aluminum, which will impose new tariffs on steel and aluminum imports from countries and regions, including China, due to their benefiting from "nonmarket practices".Additionally, they are also assessing the impact of China's "nonmarket "subsidies in various areas, such as medical equipment, semiconductors and electric vehicles, and putting them into consideration when reviewing and extending Section 301 tariff exclusions on China.
Moreover, the US has shown a growing tendency to polarize the world in the name of different values. US President Biden emphasizes the need for the so-called "democratic countries" to counter the threats posed by different ideologies on a global scale, and prevent technological powerhouses like China from gaining access to advanced technologies, accelerating political polarization. In fact, the US is also promoting "friend-shoring", partnering with its Western political and economic allies to offer competitive alternatives to China and undermining the Asian Infrastructure Investment Bank and the Belt and Road Initiative, which have significantly benefited many developing countries.
Baneful influence
First and foremost, "de-risking "requires ever-expanding competition with China, deteriorating its external development environment. By leveraging a series of politics - and ideology-related issues, the US gets to reinforce its alliances and partnerships and exert pressure on China. The competition between the two sides is evident across national security, values, trade, and technology domains.
The US has consistently sought to build a consensus on countering China through various small multilateral mechanisms like the US-Japan-India-Australia, US-Japan-Australia, and US-Japan-India groupings, causing turbulence in China's neighboring regions, eroding its strategic trust with neighboring countries, and raising the political and strategic costs for its Asian competitor in engaging in regional affairs and global governance.
In addition, the "de-risking" policy directly impacts bilateral trade, disrupts normal investment relations between China and the US, and jeopardizes the security of global industrial and supply chains. These actions have severe adverse effects on businesses, economic relationships, and the overall bilateral relationship between the two countries.
It also hinders China's development in the global industrial and value chains.
When the US and its allies impose strict technological restrictions on China and monopolize the setting of standards in emerging and critical technologies, they often use Western values as a lever. These measures not only obstruct China's access to the technology, equipment, talent, and financing required for high-tech products but also constrain the space for survival for Chinese technology companies. Furthermore, driven by Western-dominated values and standards, they could even lead to a larger gap in the cooperation between high-end technology groups and midrange - and lower-end companies.
Finally, "de-risking" disrupts the ecosystem and innovation capabilities of China's technological development. Due to the stringent export controls and limitations on China-bound investments, some foreign companies may reduce their cooperation with Chinese companies or even avoid investing in China, which may diminish China's production, export and investment levels before affecting the overall development of the technological industry.
The article is an English translation of an excerpt from the writer's speech at a recent China Macroeconomy Forum event.
The writer is deputy director of the Institute of International Strategy at the Party School of the Central Committee of the CPC (National Academy of Governance).
The views do not necessarily reflect those of China Daily.
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