Abuse of power weakening US hegemony

By closing its market to Chinese companies, Washington is keeping out new technologies and suppressing innovation

The recent moves by the US administration against TikTok, WeChat and Huawei have attracted great attention. On the pretext that they are national security threats, the US government is trying to force Chinese tech companies out of the US market and also persuading its allies to follow suit so as to achieve a technological decoupling with China.

The US administration is employing different policies for decoupling from China in different fields. However, it has not issued or threatened to introduce policies to shut down the channel of mutually investing and financing, mainly because finance and foreign direct investment cover a wide range of industries and are of great benefit to the two countries. Indeed, instead of decoupling, both sides are becoming increasingly interconnected in these fields.

Also, although the United States has attacked Chinese companies by cutting the high-tech industrial chains and limiting domestic market access, it has seen much opposition at home and from its allies.

The decoupling policies are aimed at allowing the US to gain the upper hand in negotiations and making China bear the brunt of the effects. However, it is impossible for the US to decouple from China in every respect.

The decoupling in the technological sector is driving Chinese companies toward independent research and development. Moreover, the US government's attempts at protecting US intellectual property rights and gaining further access to China's financial market are conducive for the latter's structural reforms for stable and long-term economic development and in line with the strategy of furthering reform and opening-up.

First, China and the US have become further integrated in the sector instead of heading toward decoupling.

According to financial data provider Dealogic, more than 20 Chinese companies have publicly issued shares on the Nasdaq Stock Market and the New York Stock Exchange since the beginning of this year, raising a total of $4 billion, higher than the $3.5 billion that Chinese companies raised through initial public offering in the US in 2019.

As an indicator of the performance by Chinese companies in the US stock market, the Bank of New York Mellon index of Chinese companies' American Depositary Receipts Index of Chinese companies of the Bank of New York increased by 18 percent since the beginning of 2020, outperforming the 4.4 percent increase of the S&P 500 index.

Many well-known US financial institutions are also expanding the scope and scale of their businesses in China, which is mainly driven by China's long-term strategy of furthering reform and opening-up. Goldman Sachs received approval in March to increase its 33 percent minority stake in its joint venture securities firm, Goldman Sachs Gao Hua Securities Co, to a 51 percent majority ownership.

Morgan Stanley has also taken a majority stake in its joint venture. Rating agencies such as S&P and Fitch have established wholly-owned companies in China and received approval to rate Chinese onshore issuers.

Second, the US direct investment in China in yuan-denominated terms went up by 6 percent year-on-year according to the data from the Ministry of Commerce, although China's total FDI dropped by 1.3 percent year-on-year in the first six months of this year because of the novel coronavirus outbreak and global economic recession.

According to a survey on China's business environment released by the US-China Business Council in 2020, US enterprises remain upbeat about investment in the Chinese market in the years to come. The total investment of Tesla's super factory in Shanghai, for instance, is expected to reach $5 billion.

However, only 18 percent of the companies that will improve investment in China plan to increase R&D input in 2020, compared with 33 percent in 2019 and 47 percent in 2018. The decline in R&D input can be attributed to the increasing restrictions on data flow, the intensifying of China's export control policies and changes in the US tax incentive policies for R&D.

Meanwhile, China's direct investment in the US has continued to decline after peaking at $46.5 billion in 2016; it stood at only $4.8 billion in 2019.

Third, the US government has cut the industrial chains of China's high-tech enterprises with the goal of suspending production as it strives to stop chip supplies to enterprises such as Huawei and ZTE. It has also closed its domestic market to Chinese companies such as WeChat, TikTok and excluded Huawei from its 5G layout and forced its allies, especially the major developed countries, to shut the enterprises out of their markets so as to reduce the Chinese companies' profits and contain their growth.

Several US multinational conglomerates have expressed concern over the potential impact of the US government's executive orders on WeChat and opposed the decision, mainly for access to the WeChat platform, which has more than 1 billion users in China.

On Aug 11, the German Information Security Agency released a new catalog on telecommunication network security without special provisions on banning Huawei's entry. Germany's stance and the United Kingdom's delaying tactics of stopping the use of Huawei's equipment by 2027 show that the countries are unwilling to follow US practices and want to act at their own will.

Although China and the US are competitors in some fields, the two countries are closely interconnected on the whole. The US hegemony is weakening as it abuses its power, for Chinese companies have been reducing their reliance on US chip suppliers and the ties between the US and its allies have loosened. In fact, subtle changes have emerged in US-German relations, marked by the relocation of the US European Command. As the US closes its market to Chinese companies, it is keeping out new technologies and business models and suppressing the innovation and vitality of its market-oriented economy.

The author is a research assistant with Fudan Development Institute. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.