Is US Decoupling From China?

Police officers patrol at a container port in Qingdao, Shandong Province, China, on Feb. 19, 2020. Chinatopix via AP

News Analysis

The pandemic and supply chain disruptions have exposed how dependent countries are on China as the world’s top manufacturing hub, and since last year, there has been a lot of debate about decoupling from China to reduce reliance on a single country.

But is decoupling really happening?

So far, data suggest that countries and companies continue to invest big in China. Foreign direct investment (FDI) into the country surged 19.6 percent in the first nine months of 2021 over 2020, according to China’s Ministry of Commerce. Investments from Southeast Asia as well as China’s Belt and Road Initiative (BRI) countries contributed most to the FDI flow.

Meanwhile, U.S.–China trade is booming. Through the first nine months of 2021, goods imported from China jumped 19 percent and trade deficit widened 15 percent compared to the same period in 2020.

Yet one by one, foreign technology firms are pulling out of China. Yahoo Inc. is the latest U.S. company that has suspended its service due to an “increasingly challenging business and legal environment.”

Yahoo’s announcement came after Microsoft stated in October that it would shutter its professional networking platform LinkedIn in China. LinkedIn earlier came under fire for censoring American journalists, international scholars, and human rights activists on its China app.

Twitter and Facebook were banned from the country more than a decade ago and Google exited in 2010.

“China today is far more selective about what it wants in terms of global capital and global investment,” said Dexter Roberts, senior fellow at Atlantic Council.

Speaking at this year’s China Forum, hosted by the Victims of Communism Memorial Foundation, Roberts noted that after China’s accession to the World Trade Organization (WTO) in 2001, the communist regime welcomed foreign investment with open arms to help grow its domestic industries.

But now, China doesn’t need Western know-how and capital to the degree it once did, he said.

So China is decoupling well before any other country. And this is because of the regime’s “dual circulation” strategy, a long-standing ambition to make China self-sufficient while making other countries more dependent on the Chinese market.

China is forcing out foreign companies in the information and communication technology space “where they have viable domestic competitors,” according to Stephen Ezell, vice president at the U.S. think tank Information Technology and Innovation Foundation.

“But where they’re still trying to catch up, in areas such as semiconductors and semiconductor manufacturing equipment, they still welcome foreign investment,” he said.

While some American technology superstars don’t feel welcome in China anymore, U.S. semiconductor companies are still expanding in the country. China’s reliance on U.S. supply of semiconductor goods increased significantly in the past five years.

Nearly 73 percent of chip production in China comes from non-Chinese companies operating in the country. China relies heavily on the technologies of foreign companies as they’re more advanced compared to Chinese chipmakers.

China also welcomes with open arms U.S. big banks and investment funds. Wall Street firms have been steadily increasing their footprint in China since Beijing agreed to open its markets to U.S. financial institutions in 2020.

BlackRock, for example, became the first global asset manager licensed to start a wholly owned onshore mutual fund business in China this year. And Goldman Sachs has recently won approval to take full ownership of its securities business in the country.

Meanwhile, a national push to strengthen U.S. supply chains in manufacturing is slowly bearing fruit. Nonprofit Reshoring Initiative estimated that by the end of 2021, reshoring and direct investment activities will bring more than 220,000 jobs back to the United States, the highest yearly number recorded to date.

Many factories have been replacing imports of industrial goods with U.S.-made products.

Nicole Wolter, president and CEO of Illinois-based HM Manufacturing, has been a beneficiary of the recent reshoring trend. She sees a strong demand for her company’s products—power transmission components—as more customers try to bring their orders back to the United States.

In an interview with NTD Business, Wolter said that her firm saw an increase of 50 to 75 percent in demand thanks to ongoing reshoring initiatives. Like many U.S. manufacturers, however, she suffers from acute shortages of labor and raw materials.

“A lot of the reshoring initiatives have been fantastic. But right now, we’re working a lot of hours just to try to keep up,” she said.