The U.S. and China are looking for ways to reduce their interdependence—and China scholars on Wednesday warned policy makers that a decoupling of sorts was likely as the two countries reset their relationship.
But a survey out this week of U.S. companies operating in China shows why this may be a hard breakup and one that doesn’t play out as drastically as rhetoric suggests.
The tide is turning globally against China, with some countries going from an agnostic to an antagonistic stance against China as it flexes its power on the global stage and Beijing invests less in using “soft power,” said Kerry Brown, director of the Lau China Institute at King’s College London, at a hearing Wednesday held by the U.S.-China Economic and Security Review Commission to discuss the challenges posed by China. This shift will affect the “global architecture” of decision-making and create a “duality in all areas, from journalism to business,” Brown warned.
Indeed, President Donald Trump on Monday raised the prospects of an economic decoupling, and China’s Xi Jinping has been looking for ways to reduce China’s reliance on the rest of the world. The U.S. and India have threatened bans of Chinese apps while European countries are reassessing the use of Huawei Technologies’ gear.
The U.S. has also slapped technology restrictions on the company and is reportedly considering similar measures against Chinese chip maker Semiconductor Manufacturing International Corp. (SMICY). Also under consideration: a ban on cotton from Xinjiang region of China amid human rights concerns that could create ripples through the textile industry. Xinjiang is a significant source of global cotton supply.
That puts U.S. companies in a complicated position. China is becoming a more important source of profit for U.S. companies, but more than 70% see the U.S.-China tensions posing a challenge over the next three to five years, according to a report out this week from the American Chamber of Commerce in Shanghai that included a survey of 346 of its members in June with PwC.
Almost a third of companies said China was a significant source of profits for their U.S. headquarters, up 9 percentage points from a year-earlier. Within retail and consumer industries, almost 62% cited China as a significant source of profits—up from 27%.
When looking out five years, fewer companies—18.5%—were pessimistic compared with last year—an improvement but still near record high pessimism. Drilling down further though shows that 71% of big companies with global revenue of more than $5 billion were optimistic.
And while both the Trump administration and his presidential contender Joe Biden have been considering ways to boost U.S. company investment at home and entice supply chains to move away from China, the reality on the ground shows fewer shifts. The survey found 92% of companies committed to staying put in China—with many of the rest having global revenue of less than $50 million, according to the report.
Despite bipartisan support to move more supply chains closer to home, few companies are on board: More than three-quarters reported no changes to their strategy. Of more than 200 companies with manufacturing in China, less than 4% were moving some production out of China to the U.S.
That said, more than a quarter planned to cut investment in China, up from 8% last year—though Covid-related fallout was listed as the top reason for those cuts rather than uncertainty around U.S.-China relations, which was cited a year-earlier. But the share of companies keeping investment as-is was slightly higher than a year ago, at 45%.
Though some of U.S. companies’ longstanding complaints persist—with more than two-thirds of services companies saying Chinese government policy is biased toward local companies—fewer U.S. companies reported difficulty in obtaining required licenses, and more than half now say that the regulatory environment is transparent, up almost 10 percentage points from last year.
Indeed, China has been opening up its financial sector to U.S. companies. BlackRock, for example, got approval recently to start a mutual fund business in China.
The financial sector may be the place for the U.S. to gain leverage. “China needs to get access to global financial markets to keep going so think that is one point to pay particular attention to,” Anthony Saich, director of the Ash Center for Democratic Governance and Innovation at Harvard University, said at the hearing.
The takeaway for investors: Dumping anything related to China is probably not the way to go. Some companies will be caught in the crossfire but many others will continue to plug along and some may even benefit.
Write to Reshma Kapadia at reshma.kapadia@barrons.com
September 10, 2020 at 05:00PM
https://www.barrons.com/articles/breaking-up-with-china-is-hard-to-do-heres-why-51599732000
Breaking Up With China Is Hard to Do. Here’s Why. - Barron's
https://news.google.com/search?q=hard&hl=en-US&gl=US&ceid=US:en
No comments:
Post a Comment