Agreed. Decoupling has also happened here in Korea a little bit earlier than the rest of the world after China's relation for the THAAD missile defense system where they all of a sudden banned just about everything Korean with complete opacity. The Korean government was fairly meek about the whole thing (because China is totally unpredictable) but quietly just started moving production out of China and investment has completely dried up. In 2019 Samsung completely moved out: https://www.gsmarena.com/samsung_closes_its_last_smartphone_factory_in_china-news-39442.php
And so on and so forth. And that was under President Moon whose party is the more pro-Chinese of the two. (Not exceptionally pro-Chinese because nobody in Korea is, but their party will err on the side of worsening relations with Japan while playing nice with China and riffing with them on things like the Fukushima water release plan)
What would be nice would be for the West’s billionaires to understand that it is the political-economic system built by the west that allowed them to live the lives of luxury they lead and to show a little bit of gratitude and some bloody patriotism, I really don’t think it’s too much to ask
So when the Chinese Govt asks the NBA or EPL to silence its players or block out images to protect their delicate sensibilities or they will stop the NBA and EPL from being shown in China they should tell Xi and the Wolf Warriors that we live in a free country and will do no such thing and then let them explain to their millions of sports fans why they can’t watch these sports anymore
When China asks Disney to change scripts to be shown in China they should tell them ‘No way’ and let the CCP explain to its ppl why they can’t watch Marvel movies anymore
Manufacturers are another issue but should recognise the ‘corruption’ campaigns are a danger to them and start moving to other SE Asian nations
But the cultural stuff is the powerful stuff, if Blue Jeans and Rock n Roll helped bring down the Iron Curtain and free millions from dictatorship then maybe Lebron James and Spider-Man can do the same for the Bamboo curtain and free the billion Chinese ppl from their autocratic rulers
But that would require some patriotism from ppl who have more reason to be patriotic than most, the people who have benefited most from the system that the west built but prepared to do the least to defend it
very well written but i strongly feel it will be proxy- trade- technology war and not full fledged war by china -anywhere specially after seeing what is happening bet Russia and Ukraine..
Pretty predictable anti-China writing as the US government pay check is coming to Noah this month. China is the biggest business partner with many countries. With a population of 1.3B people and a huge consumer market, it's probably easier to decouple from the US than to China. Even Taiwan is doing more business with China than to the US if we exclude the weapon sales.
I have laowai friends who had to take their kids out of Chinese primary school becauss they came home talking about "Japanese devils." At one point bus stops carried adverts saying "be careful of your foreign friends, they could be spies." It's a system built on hate, so opposite to what we are building over this side of the world.
I don't know, Noah. FDI is down to 1%? What if it is done via RMB funds or loans/bonds? Meanwhile, China's economy grew massively so it makes sense that it fell as a proportion of GDP, right?
FDI is only relevant insofar as companies want to build factories in China. However, they mostly work with suppliers. They don't need to build factories. Does it really make sense to look at FDI?
Secondly, you assume that company executives will be worried about either violating sanctions during war or else being cut off from their China operations. However, you pointed out in an earlier post that sanctioning China would be too difficult for the world.
Also, the CCP is a very pro-business (as long as they sing the same tune) organisation. Wouldn't it be in their best interest to ensure business is not disrupted? Won't they have a war economy already in the work that's cordoned off from the civilian ecosystem? Whether foreign executives continue to work with the Chinese supply chain would then be an ethical decision. Meanwhile, McDonald's will continue to sell McSpicy burgers to Chinese consumers. A number of companies will head for the exit but it will be the ones that aren't doing that well in China anyway. The capital controls and export controls will be ratcheted up, of course, but nationalisation and asset seizure.. I don't think they're as jingoistic and xenophobic as you think.
The executive of a U.S. company considering whether to put your factories and offices in China (or keep them in China) is not really paying attention to such reports. They live within an echo chamber. Their outlook is short-termist because they intend to jump ship anyway after a couple of years.
Meanwhile, the war on Ukraine has shown that the majority of the world is apathetic. The conscientous ones here in Hong Kong & China will pack up our bags and leave but I do feel you're too optimistic on the decoupling thesis.
Agree- but it will be a slow de-coupling based more on new investments going elsewhere (much less frequently to China) at the margin rather than pulling up stakes in existing investments and supply chains.
In other words, many US companies and most industries and consumers are going to be highly dependent upon China for years to come and many companies see China as a valuable market for sales (as noted in the piece). It took 25 years of investment to build up these Chinese supply chains and it will take decades to supplant them.
Jon Bateman, Senior Fellow Carnegie, probably the leading US expert on US-China tech decoupling, explains how the official justification for the chips export controls - "inhibit Chinese military modernization" - is basically bullshit, and that it's rather "to embargo China's development".
Thanks for many insightful observations. And yet by an increasing number of measures, China, BRICS+, and the Global South continue to displace Anglo-European economic hegemony regardless of any desperate de-risking and/or decoupling. Including perspectives from the Global South would help this analysis. After all the overall demographics in the long run do not favor the waning influence of the old imperial metropole. De-risking strategies are arguably too little too late. There's a whole new world of economic cooperation and integration taking place. Critical analysis of China that cannot see the forrest from the trees poses a major risk in and of itself.
On a positive note - robots/automation in a new factory cost about the same everywhere around the world and the US is very competitive in terms of land prices, electricity prices (ex California and a few other states) and freight rail system. Labor costs are less of an issue. Labor skills are the issue (as Noah points out) but American companies working with state universities should be able to turn out engineers or manufacturing operations specialists who can help be the glue that holds an automated floor together.
The top schools (MIT, Cal tech, Stanford, Berkeley et al) are always going to have their grads chasing money at startups or the high paying and glamorous tech names. Our second and third tier schools should be able to educate skilled factory floor workers and problem solvers - which may be a 2 or 3 year co-op program rather than a typical 4 year engineering degree. The money these sorts of roles make (even in traditional manufacturing) is already better than what most college grads earn.
We will still need real engineers to design and build- and we may have too many people trying to be those - but operations and trouble shooting and optimization are valuable skills we seem short of. Importing foreigners is not the real answer- just a stop gap and a potentially harmful one. Importing foreigners actually disincents the investment in co-ops and training US companies and universities need to make. Just as a large supply of illegal labor has retarded investment in automation (until recently) by American wineries and ag producers - lagging far behind Australia and Europe.
With the possible exception of India, I agree with your analysis of where companies should be looking to invest. India is moving toward a theocracy, and I see increased strife among its various groups of citizens. I would want to see a move back toward democracy and religious tolerance before investing large sums of money. The friction between Pakistan and India will only worsen as the BJP becomes more bellicose and anti-Muslim rhetoric becomes more outspoken.
Good article. Another factor: Climate change and China's declining population coupled with low fertility rates mean all that capital has fewer consumers. The market for unused existing stuff will compete with new stuff, lowering GDP. I don't see population decline reversing. The physics laws of conservation of mass and energy put limits on growth, true world-wide. Quantity has limits, even as Quality can go up, which results from better information, with no apparent growth limit. People who think we can expand to the stars have no clue about how slow our current rockets are, or the energy needed to get anywhere, even as close as the moon. The speed of light is nearly 27,000 times earth's escape velocity. Space shuttles couldn't even make it past low orbit.
So from the last paragraph I see that for the investment to come back to the US and to create millions of high paying jobs for non University graduates as well as hurt China economically will require the working class ppl who would most benefit from this to stop voting for Republicans
I noticed you shamelessly have no problem with India even as they become more illiberal and autocratic under the BJP as long as they can be used to counter China. Once again proving the concern about 'human rights' is a complete farce and only as long as us hegemony can be maintained. If it's China now, it could be India a few decades from now. Either apply human rights uniformly and not conveniently or else the US will be seen as a laughing stock if it isn't already as the biggest violator of human rights. US is completely silent about Muslims in Kashmit while pretending to care about them in China!
Agreed. Decoupling has also happened here in Korea a little bit earlier than the rest of the world after China's relation for the THAAD missile defense system where they all of a sudden banned just about everything Korean with complete opacity. The Korean government was fairly meek about the whole thing (because China is totally unpredictable) but quietly just started moving production out of China and investment has completely dried up. In 2019 Samsung completely moved out: https://www.gsmarena.com/samsung_closes_its_last_smartphone_factory_in_china-news-39442.php
Lotte moved out by 2022: https://www.koreatimes.co.kr/www/tech/2022/05/419_329617.html
And so on and so forth. And that was under President Moon whose party is the more pro-Chinese of the two. (Not exceptionally pro-Chinese because nobody in Korea is, but their party will err on the side of worsening relations with Japan while playing nice with China and riffing with them on things like the Fukushima water release plan)
What would be nice would be for the West’s billionaires to understand that it is the political-economic system built by the west that allowed them to live the lives of luxury they lead and to show a little bit of gratitude and some bloody patriotism, I really don’t think it’s too much to ask
So when the Chinese Govt asks the NBA or EPL to silence its players or block out images to protect their delicate sensibilities or they will stop the NBA and EPL from being shown in China they should tell Xi and the Wolf Warriors that we live in a free country and will do no such thing and then let them explain to their millions of sports fans why they can’t watch these sports anymore
When China asks Disney to change scripts to be shown in China they should tell them ‘No way’ and let the CCP explain to its ppl why they can’t watch Marvel movies anymore
Manufacturers are another issue but should recognise the ‘corruption’ campaigns are a danger to them and start moving to other SE Asian nations
But the cultural stuff is the powerful stuff, if Blue Jeans and Rock n Roll helped bring down the Iron Curtain and free millions from dictatorship then maybe Lebron James and Spider-Man can do the same for the Bamboo curtain and free the billion Chinese ppl from their autocratic rulers
But that would require some patriotism from ppl who have more reason to be patriotic than most, the people who have benefited most from the system that the west built but prepared to do the least to defend it
Very good analysis!
very well written but i strongly feel it will be proxy- trade- technology war and not full fledged war by china -anywhere specially after seeing what is happening bet Russia and Ukraine..
Pretty predictable anti-China writing as the US government pay check is coming to Noah this month. China is the biggest business partner with many countries. With a population of 1.3B people and a huge consumer market, it's probably easier to decouple from the US than to China. Even Taiwan is doing more business with China than to the US if we exclude the weapon sales.
I have laowai friends who had to take their kids out of Chinese primary school becauss they came home talking about "Japanese devils." At one point bus stops carried adverts saying "be careful of your foreign friends, they could be spies." It's a system built on hate, so opposite to what we are building over this side of the world.
I don't know, Noah. FDI is down to 1%? What if it is done via RMB funds or loans/bonds? Meanwhile, China's economy grew massively so it makes sense that it fell as a proportion of GDP, right?
FDI is only relevant insofar as companies want to build factories in China. However, they mostly work with suppliers. They don't need to build factories. Does it really make sense to look at FDI?
Secondly, you assume that company executives will be worried about either violating sanctions during war or else being cut off from their China operations. However, you pointed out in an earlier post that sanctioning China would be too difficult for the world.
Also, the CCP is a very pro-business (as long as they sing the same tune) organisation. Wouldn't it be in their best interest to ensure business is not disrupted? Won't they have a war economy already in the work that's cordoned off from the civilian ecosystem? Whether foreign executives continue to work with the Chinese supply chain would then be an ethical decision. Meanwhile, McDonald's will continue to sell McSpicy burgers to Chinese consumers. A number of companies will head for the exit but it will be the ones that aren't doing that well in China anyway. The capital controls and export controls will be ratcheted up, of course, but nationalisation and asset seizure.. I don't think they're as jingoistic and xenophobic as you think.
The executive of a U.S. company considering whether to put your factories and offices in China (or keep them in China) is not really paying attention to such reports. They live within an echo chamber. Their outlook is short-termist because they intend to jump ship anyway after a couple of years.
Meanwhile, the war on Ukraine has shown that the majority of the world is apathetic. The conscientous ones here in Hong Kong & China will pack up our bags and leave but I do feel you're too optimistic on the decoupling thesis.
Good piece!
Agree- but it will be a slow de-coupling based more on new investments going elsewhere (much less frequently to China) at the margin rather than pulling up stakes in existing investments and supply chains.
In other words, many US companies and most industries and consumers are going to be highly dependent upon China for years to come and many companies see China as a valuable market for sales (as noted in the piece). It took 25 years of investment to build up these Chinese supply chains and it will take decades to supplant them.
Jon Bateman, Senior Fellow Carnegie, probably the leading US expert on US-China tech decoupling, explains how the official justification for the chips export controls - "inhibit Chinese military modernization" - is basically bullshit, and that it's rather "to embargo China's development".
https://prada.substack.com/p/china-black-box-an-engineering-data
Thanks for many insightful observations. And yet by an increasing number of measures, China, BRICS+, and the Global South continue to displace Anglo-European economic hegemony regardless of any desperate de-risking and/or decoupling. Including perspectives from the Global South would help this analysis. After all the overall demographics in the long run do not favor the waning influence of the old imperial metropole. De-risking strategies are arguably too little too late. There's a whole new world of economic cooperation and integration taking place. Critical analysis of China that cannot see the forrest from the trees poses a major risk in and of itself.
And great point about our permitting process.
On a positive note - robots/automation in a new factory cost about the same everywhere around the world and the US is very competitive in terms of land prices, electricity prices (ex California and a few other states) and freight rail system. Labor costs are less of an issue. Labor skills are the issue (as Noah points out) but American companies working with state universities should be able to turn out engineers or manufacturing operations specialists who can help be the glue that holds an automated floor together.
The top schools (MIT, Cal tech, Stanford, Berkeley et al) are always going to have their grads chasing money at startups or the high paying and glamorous tech names. Our second and third tier schools should be able to educate skilled factory floor workers and problem solvers - which may be a 2 or 3 year co-op program rather than a typical 4 year engineering degree. The money these sorts of roles make (even in traditional manufacturing) is already better than what most college grads earn.
We will still need real engineers to design and build- and we may have too many people trying to be those - but operations and trouble shooting and optimization are valuable skills we seem short of. Importing foreigners is not the real answer- just a stop gap and a potentially harmful one. Importing foreigners actually disincents the investment in co-ops and training US companies and universities need to make. Just as a large supply of illegal labor has retarded investment in automation (until recently) by American wineries and ag producers - lagging far behind Australia and Europe.
With the possible exception of India, I agree with your analysis of where companies should be looking to invest. India is moving toward a theocracy, and I see increased strife among its various groups of citizens. I would want to see a move back toward democracy and religious tolerance before investing large sums of money. The friction between Pakistan and India will only worsen as the BJP becomes more bellicose and anti-Muslim rhetoric becomes more outspoken.
Good article. Another factor: Climate change and China's declining population coupled with low fertility rates mean all that capital has fewer consumers. The market for unused existing stuff will compete with new stuff, lowering GDP. I don't see population decline reversing. The physics laws of conservation of mass and energy put limits on growth, true world-wide. Quantity has limits, even as Quality can go up, which results from better information, with no apparent growth limit. People who think we can expand to the stars have no clue about how slow our current rockets are, or the energy needed to get anywhere, even as close as the moon. The speed of light is nearly 27,000 times earth's escape velocity. Space shuttles couldn't even make it past low orbit.
So from the last paragraph I see that for the investment to come back to the US and to create millions of high paying jobs for non University graduates as well as hurt China economically will require the working class ppl who would most benefit from this to stop voting for Republicans
The problem with the term “de-risking” is there might be less business risk but the risk of war increases with decoupling.
I noticed you shamelessly have no problem with India even as they become more illiberal and autocratic under the BJP as long as they can be used to counter China. Once again proving the concern about 'human rights' is a complete farce and only as long as us hegemony can be maintained. If it's China now, it could be India a few decades from now. Either apply human rights uniformly and not conveniently or else the US will be seen as a laughing stock if it isn't already as the biggest violator of human rights. US is completely silent about Muslims in Kashmit while pretending to care about them in China!