Navigating the current and potential effects of this rapidly evolving reality is both complicated and distressing for European companies, particularly as they seek to expand their contribution and exposure to China’s post-COVID growth story. The current impact of decoupling on European companies Any further market opening and deeper ‘coupling’ with China will therefore be conditional upon whether doing so supports these two goals. As the December 2020 Central Economic Work Conference summaries noted, China’s top two priorities for 2021 are: 1) to build scientific and technological strength, with a call for a “new type of whole-of-nation system” 3 and 2) developing greater autonomy and control in industrial supply-chains. Unfortunately, China’s response to this ‘crisis of interdependence’ seems to be a redoubling of its drive to build self-reliance, and European companies in China report that this drive is different and more radical than in the past. But the massive shift in public opinion towards China, as well as a growing bipartisan consensus in Washington to consider China a strategic competitor on a divergent trajectory, means things are unlikely to result in ‘globalisation renewed’. A Biden Administration will likely be less caustic and create fewer disruptions within the global economic order. The future of globalisation with China is at stake The Trump Administration may have provided the spark, but the powder keg China had created was bound to ignite eventually. It is this blend of China’s conditional coupling, a vast state-aid apparatus and protectionism extended to national champions, and Beijing’s new-found self-confidence in its non-convergence with Organisation for Economic Co-operation and Development (OECD) norms and principles that is driving the current ‘crisis of interdependence’ with China. The now infamous China Manufacturing 2025 (CM2025) initiative, which aims to substitute global competitors in ten strategic technologies, was just the most visible expression of a deeply engrained and extensive support system that protects China’s rising stars. Through market access and other barriers, China has long managed its interdependence with the world economy in a highly strategic and limited manner: selective coupling where it needed foreign technology or competition-such as in high-speed rail and the financial sector respectively-and remaining uncoupled in sectors reserved for China’s, often state-owned, national champions.įor more than 15 years, China’s leaders have also advanced extensive industrial policies in an attempt to develop self-reliance in critical technologies and seek dominance in high-value-added industries. In reality, however, decoupling is a much longer-term trend that stretches back to the earliest days of China’s opening up and reform. To casual observers, such examples are part of a recent story that began in 2018, when the Trump Administration imposed the first round of tariffs on Chinese imports to the US.

1 As a result, manufacturers are shuttering much of their production until the shortage is corrected, which is expected to take up to nine months.

Pandemic-related fluctuations in supply and demand have led to a shortage of certain semiconductors required for electronic control units (ECUs), which collectively form the ‘computer’ of a vehicle. Meanwhile, China-based automotive manufacturers have been getting a taste of what disruptions to critical inputs like semiconductors can result in.

China released measures to expand its national security review process for foreign investment.Įven the news that the European Union (EU)-China Comprehensive Agreement on Investment (CAI) had been concluded at the political level was met with significant scepticism across Europe, with many expressing doubts over the possibility of arriving at a fairer, more reciprocal EU-China economic relationship.Disputes between China and Australia led to a ban on Australian coal imports that has resulted in rolling power outages across various parts of China.The outgoing Trump Administration took another, maybe final, swipe at a major Chinese technology company: Semiconductor Manufacturing International Corporation (SMIC), China’s most advanced semiconductor firm, was blacklisted by the United States (US), effectively making them a ‘company non grata’ for global investors.

While the roll-out of vaccinations has created something of a silver lining, the closing weeks of 2020 saw an acceleration of decoupling trends, pulling major economies further apart and disrupting commercial flows and other exchanges: The global COVID-19 pandemic turned 2020 into a year of uncertainty, individual suffering, economic disruption and heightened geopolitical tensions.

Staff of disintegration macro