Eurasia Press & News
Since American media first used the term “decoupling” to describe the trend of U.S.-China relations in 2019, “decoupling with China” has become a shadowy and uncertain line in the development of the world’s political and economic fields. It has spread from the U.S. to multiple countries and regions, including the European Union, the United Kingdom, Japan, South Korea, and Australia. ANBOUND’s macro research team has conducted continuous tracking and research on the process of China’s decoupling from the world, mainly the Western world, and found that this decoupling is a complex systemic change. In terms of its development, it can be divided into three aspects: government decoupling, corporate decoupling, and market decoupling. If the world and China experience large-scale, systematic, and in-depth decoupling in these three aspects, China will be truly isolated from the world economy, a worst-case scenario that China must avoid at all costs.
The first aspect is government decoupling, which mainly refers to the decoupling promoted by the U.S. government and institutions such as Congress at the political level. The U.S. government and politicians often acted together with their allies to expand government decoupling to allied countries, which eventually became the practice of these countries as well.
From the Trump administration to the Biden administration, although there have been shifts in various fields due to the change in the U.S. government, the American strategy of containing China has remained, and the direction of restructuring economic and trade relations with China has not changed either. However, unlike Trump’s simple use of tariff threats, the Biden administration is reshaping the economic and trade environment around China through systematic and multilateral encirclement. On the one hand, the Biden administration has maintained the tariffs on China left by the Trump era without upgrading or canceling them; on the other hand, the U.S. has built regional platforms such as the Indo-Pacific Economic Framework (IPEF) and the EU-U.S. Trade and Technology Council (TTC), with the intention of excluding China.
The outbreak of the Russia-Ukraine conflict and the COVID-19 pandemic has actively or passively exacerbated the estrangement and differences between China and the West on different levels, and has prompted U.S. allies like some European countries, Australia, Japan, and South Korea to be more proactive in participating in the adjustment of relations with China than in the past. For example, under the leadership of the United States, the United States, Japan, and South Korea have established an alliance with Taiwan, aimed at excluding Mainland China from the global semiconductor supply chain. On this basis, in May 2022, the IPEF was launched to restructure a U.S.-led supply chain in the Asia-Pacific region and form a partially de-Sinicized supply chain.
As a long-standing traditional ally of the U.S., European nations have been swept up in the wave of decoupling from China. However, unlike the U.S., Europe has shown more internal contradictions in its attitude towards China. On the one hand, with the Biden administration’s push to rebuild the trans-Atlantic alliance, cooperation between the EU and the U.S. in the economic field, especially in high-tech, has been further strengthened. Lessons learned from the Russia-Ukraine conflict have led the EU to rethink its dependence on China. As a result, European countries have commenced to adjust their economic and trade ties with the country and attempt to ensure strategic autonomy by decoupling from China in areas such as high technology. For example, in 2021, the EU unilaterally imposed sanctions on Chinese individuals and entities based on the ground of “human rights issues in Xinjiang”. Subsequently, the European Parliament directly canceled the meeting of the investment agreement review committee and froze the agenda.
However, on the other hand, some European politicians such as German Chancellor Olaf Scholz, French President Emmanuel Macron, and European Commission President Ursula von der Leyen have expressed their opposition to a complete decoupling from China after successive visits to the country. For instance, Scholz remarked, “I do not really agree with the idea of decoupling internationally”, and that Germany needs to conduct trade with countries including China. Compared with the U.S., Europe’s intentions in its relationship with China are more pragmatic. Although maintaining a close ally relationship with the U.S., the EU does not blindly follow the American approach to China. Nevertheless, there are still many unresolved contradictions between Europe and China at the geopolitical level.
The second aspect is the decoupling of businesses, which refers to the reduction or interruption of economic and trade exchanges with China due to government restrictions and sanctions. For example, recently, Standard & Poor’s Global Ratings, after tracking the global layout trends of multinational companies such as TSMC and Samsung, pointed out that based on the current trend, by 2025, Mainland China’s share in global laptop production will decrease by at least 10-20 percentage points from over 80% in 2021, and the share of mobile phone production will be reduced by 15 percentage points. Analysts point out that this shift undoubtedly comes with a high cost for the companies themselves. However, against the backdrop of U.S. restrictions on multinational companies’ ability to expand investment in China, such costs are inevitable.
The deterioration of the geopolitical environment to a certain extent will impact global companies’ attitudes towards China. Despite China’s vast market space, which still holds considerable appeal to multinational corporations, the pressure imposed by foreign policies is also increasing. For instance, the U.S. government provides substantial subsidies to high-tech companies investing in the U.S., such as semiconductor and new energy enterprises, through acts like the CHIPS and Science Act and the Inflation Reduction Act. Meanwhile, Europe and the U.S. are implementing strict tariff barriers or access restrictions on goods from China, forcing more companies to relocate their supply chains out of China. The outbreak of the COVID-19 pandemic has had a certain impact on global supply chains, prompting companies to rethink the drawbacks of excessive reliance on China in their supply chains. The eruption of the Russia-Ukraine war has shown companies the devastating impact of geopolitical events on transnational business activities. Against this backdrop, as companies reassess the deteriorating relationship between China and the West, it becomes natural for them to be concerned about facing similar risks in China.
The third aspect is market decoupling. This refers to the voluntary reduction of purchases from China or the scaling back of production cooperation with China by market-oriented entities, mainly due to concerns over violating sanctions and restrictions imposed by the U.S. and its allies. As a result, the international market actively reduces its connections with Chinese companies and markets. This also represents the deepest level of global disengagement from China and poses the greatest economic threat to it.
Recently, Michael Dell, the founder of Dell Technologies, publicly acknowledged for the first time that the company has become less reliant on China due to customer demands. He pointed out that Dell’s customers are requesting the company to diversify its component sourcing to reduce dependence on China. The main reason behind this is the increasing tension in U.S.-China geopolitical relations, and the previous COVID-19 pandemic has also exposed the risks of disruption in the production of components such as semiconductors. Additionally, Taiwan-based company Wistron recently announced its plan to end operations at its factory in Taizhou, China. The announcement indicated that while this decision is related to the factory’s consecutive years of losses, it is also linked to the global economic and trade situation as well as changes in customer demand. Furthermore, concerns among global customers are escalating in the fiercely competitive semiconductor sector of the U.S.-China rivalry. In late 2022, media reports stated that American semiconductor customers were refusing products from China. They demanded that even products designed by domestic semiconductor factories in South Korea should provide “proof of origin” that is not manufactured by Chinese subcontractors.
As it stands, the global process of decoupling from China is gradually showing a trend where demand-side and downstream market forces are pressuring upstream production. Driven by geopolitical factors and the wave of supply chain restructuring, the international market is consciously avoiding China. This bottom-up decoupling behavior undoubtedly poses a greater threat to China than the “de-Sinification” process driven by the U.S. government and politicians. According to researchers at ANBOUND, once such a trend from end customers or the market becomes prevalent, the systematic avoidance of China in the global market will become solidified. If the demands for decoupling from both the production side and the demand side resonate and reinforce each other, it is likely to create an impactful cycle. In this scenario, the pace of global companies advancing the decoupling from China will undoubtedly accelerate. With reduced resistance from the industry, the ability of the EU and the U.S. to decouple from China at the governmental level is likely to be greatly strengthened. Therefore, from China’s perspective, the growing trend of decoupling in the international market is undoubtedly a matter worthy of high vigilance.
Final analysis conclusion:
From governments to businesses, and to markets, decoupling between the world and China is taking place at multiple levels. If China experiences large-scale, systematic, and profound decoupling across all these three levels, it will truly create a separation between China and the global economic system. China should strive to avoid this worst-case scenario from occurring.
