美中全球议题对话项目

In November, this column argued that, owing to pre-existing structural factors, decoupling already characterizes significant elements of the Sino-American economic relationship, such as in defense and emerging technological sectors. To that end, it asserted that macro-level narratives surrounding “complete decoupling” often miss or over-extrapolate the point – by wrongfully assuming that Sino-American decoupling is a system-wide process which may or may not ensue. In other words, instead of asking whether economic decoupling will start, observers of U.S.-China relations ought to discern where it is likely to stop.

For their part, the panelists of Georgetown University’s recent event, U.S.-China Decoupling: Separating Myth from Reality, underscored that the prevailing narrative of American economic disengagement from China exaggerates the facts. They argued, unanimously, that the data belies the sort of “complete decoupling” which would accompany an economic cold war, and which bilateral tension increasingly suggests. To apply their perspective to an example, the case of Huawei and 5G – while significant – represents a maturation of political limitations to trade and investment which were always likely to persist, rather than a new norm in all aspects of U.S.-China economic relations.

How might this be? To start, Wang Tao of UBS emphasized that, while American tariffs and geopolitical uncertainty have augmented certain firms’ appetite for supply-chain shifts away from China, said businesses only aim to or have moved between 30 and 40% of their production, on average. Citing international opportunities for environmental-, land-, and labor-cost arbitrage relative to China – which predate the trade war and recent deterioration of U.S.-China ties – Wang characterized said shifts as evidence of supply-chain “diversification,” and not bilateral delinking. Given the supply-chain shock initially caused by the coronavirus pandemic, which originated in China, global diversification figures to continue no matter the state of Sino-American friction.

Following up, Dan Wang of Gavekal Dragonomics surveyed market activity to further distinguish said economic diversification from systemic decoupling. In his presentation, Wang highlighted China’s continued competitiveness and market share in global value chains, including in low-end manufacturing, and as complemented by the steadiness of American foreign direct investment in China through 2019. Indeed, American multinational firms recently increased their direct investment in China, from $12.9 billion in 2018 to $14.2 billion in 2019, even as Chinese investment has collapsed in the United States.

With most American tariffs on Chinese products remaining and uncertainty persisting apace, Dan Wang’s observations might surprise. And therein lies the separation between “myth” and “reality” regarding decoupling, which – though lately exacerbated – is nothing new in U.S.-China trade. In fact, as this column anticipated in November, recent action in China’s financial services industry – which was previously decoupled, i.e. largely closed to American involvement – has typified the continued, and sometimes deepening connection between America and China’s respective economies.

Consider a few examples. In March 2020, Goldman Sachs obtained approval to upgrade to 51% majority ownership of its Chinese joint-venture securities firm, while in June, American Express received permission to become the first foreign firm allowed to conduct network-clearing operations in China. Year-to-date growth in transnational flows of portfolio capital has also evinced China’s increasing integration into global financial markets, with foreign ownership of Chinese stocks and bonds reaching $594 billion by the end of Q1 2020. To the extent that American firms can grow their market share in the financial services space after China’s two-plus decades of WTO violations and intransigent protectionism, here is some welcome news.

None of this is to say that all sectors of Sino-American economic interaction share the rosy story of the investment banks. Yet, decoupling continues to have its limits, even in an era of heightened bilateral tensions, entity lists, and investment restrictions. As with previous instantiations of decoupling, where sectors of the American and Chinese economy remained largely separated, fruitful exchange can still commence.

Therefore, American firms and investors should know that much of the Chinese economy and supply chain remains open for business, albeit with frustrating caveats and carveouts. Disabused of the chimera of a fully open Chinese market, but cognizant of the difference between decoupling’s myths and reality, however, American entities ought to diversify, and not disengage. And, indeed, the data shows that this is what they have been doing.

In conclusion, the evidence does not yet suggest that America and China have fallen into an economic cold war. Nor are their economies trending toward “complete decoupling,” despite appearances. Put another way, while the couple may feel estranged, they are hardly close to saying goodbye.