Decoupling is the last thing on the minds of business leaders
IF YOU WANT To understand how Asia’s view of the world order has changed, consider the remarks of Lee Hsien Loong, Prime Minister of Singapore. When asked recently if China is on the rise and the United States is on the decline, he responded in a nuanced manner: “If you are looking at the long term, you really have to bet America is going. will recover from everything she does. Across the region, businesses and politicians are adjusting to a new geopolitical reality, as was evident at the Bloomberg New Economy Forum in Singapore last week.
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Designed to be more useful than Davos, less utopian than COP26 and less forested than the Boao China Forum, the summit brings together some of the personalities who have built Sino-U.S. Ties over the past decades, as well as bosses and investors responsible for more than $ 20 billion in market value. Amidst hygienically controlled flesh pressing and incessant nasal swabbing, you might get a feel for the tensions between the world’s two largest economies. It was clear that the calls to divide them into two camps are totally unrealistic.
Asia is important because of its size, with 36% of the world’s population GDP, 31% of its market capitalization and 11% of the turnover of S&P 500 companies. The region is expected to grow faster than the rest of the world. This is also where the struggle between America and China is openly played out, with the two systems competing side by side. China dominates trade. Of the top 20 Asian economies, 15 have China as their main goods trading partner. Yet most countries rely on America as well. In many cases, this is their defense partner, and the dollar is the currency in which most Asian trade and capital flows take place (unlike Europe, which has the euro).
Balancing the region has become more difficult as America and China have turned in on themselves, in part in response to the perceived shortcomings of free-wheeling global capitalism. A widely held view is that the US system of government has been permanently altered by cronyism and populism. As a result, his promises are taken less seriously. Gina Raimondo, the secretary of commerce, said America will launch a new Asian economic “framework” in 2022 (she has not joined CPTPP, a regional free trade agreement). His proposal was greeted only politely, given the protectionism of the Biden administration and the risk of Donald Trump winning the election in 2024.
China has also become unpredictable. Most executives and officials are optimistic about the crisis at Evergrande, a real estate company. They believe that Chinese technocrats are in control and can avoid a systemic financial crisis. Many sympathize with China’s antitrust crackdown on big tech. But there is deep unease over Xi Jinping’s totalitarian impulses and his broader assault on business. While previously well-connected foreigners would have been reassured by Chinese economic reformers in private meetings, now they have to make do with staid video calls monitored by the Communist Party. The links are fraying even within companies. One of the founders of an Asian business with a Chinese parent company has not met the owners for two years. Few people expect China to reopen its borders before the Party Congress at the end of 2022, and even then only if the people have received better vaccines.
One response to estrangement is separation. The Trumpian right and the progressive left of the United States would like their country to be more self-sufficient, while Mr. Xi’s “dual circulation” campaign aims to produce more goods at home. There are signs on the ground that Asia’s investment models are changing and becoming less focused on Greater China. India’s largest company, Tata Group, is investing in the production of electric vehicles and home batteries. November 9 TSMC, the world’s largest semiconductor company, has announced that it will build a new plant in Japan in cooperation with Sony. Most banks are reluctant to expand in turbulent Hong Kong.
But the big picture is still one of intense interdependence. China holds 75% of the world’s battery manufacturing capacity. Even after his new investments, TSMC will have more than 80% of its factory in Taiwan, which China claims as its territory. The impossibility of decoupling between Asia and China is highlighted by a tech boss who estimates that 80% of goods sold on Southeast Asia’s booming e-commerce platforms come from China. Middle Kingdom. If multinational companies were to spend as they do today, it would take 16 years for them to replace the accumulated stock of cross-border investments in Asia. Even if they could, few companies want to leave the Chinese economy.
As you might expect, most companies want to be geopolitical hybrids that hedge their bets. Singapore companies are leading the way. DBS The bank has a third of its deposits in dollars and is expanding into India and China. Temasek and GIC, two sovereign wealth funds, have about a third of their combined assets in America and a fifth in China. SGX, the stock exchange, is integrated into Western markets but achieves about a fifth of its activity with Chinese investors. American and Chinese companies are adopting Singaporean dexterity. TikTok, an application belonging to ByteDance, a Chinese firm, has an army of staff in Singapore: the idea is to show that it is independent from the Chinese state. Jamie Dimon, boss of JPMorgan Chase, just visited Hong Kong and said he was “not influenced by geopolitical winds”: the bank has increased its exposure to greater China by 9% since 2019, to 26.5 billions of dollars. On November 24, he apologized for joking that the bank would outlive the Chinese Communist Party.
If the worst relationship between China and America in decades hasn’t caused decoupling in Asia, what could? The showdown could escalate further, but both sides seem keen to avoid that for now. Wang Qishan, Chinese Vice President, said that “isolation leads to delay.” Regulatory and technological changes could eventually end US dominance in finance and drag Asia more firmly into China’s orbit. One boss believes that the opening of China’s capital markets will ultimately have as many consequences for finance as its membership of the World Trade Organization in 2001 was for trade. But for now, investors and businesses, along with Singapore’s prime ministers, face years of caution straddling the divide.■
Learn more about Schumpeter, our global trade columnist:
Walmart is getting back on its feet (November 20, 2021)
Supermajors have an LNG problem (November 6, 2021)
The Three Unknowns of the Modern Advertising Age (Oct 30, 2021)
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This article appeared in the Business section of the print edition under the headline “En flesh et en os”