Over the past few years, the relations between the United States and China have been declining, with both countries engaging in conflicts over a range of issues, including trade, technology, human rights, military activities, and foreign policy.
Previously, the appointment of a new Chinese foreign minister Qin Gang has caught the attention of political analysts, who interpret it as a signal of Beijing’s attempt to adopt a warmer diplomatic foreign policy stance and establish closer ties with Western nations.
However, Qin Gang was replaced by Wang Yi, who was previously the State Councilor and Foreign Minister, shortly after only 6 months. Backtracking on Qin Gang’s appointment weakens China’s attempts at winning back international investments since governments and business leaders viewed Qin Gang’s appointment as a shift away from China’s previously rigid “wolf-warrior” diplomacy.
A “Pro-Business” foreign minister is axed
Qin Gang was a noteworthy appointment as he has a more soft-spoken style as opposed to the usual “wolf-warrior” figures in China. He is also viewed as relatively pro-business by his Western counterparts, that some Western diplomats perceive Qin Gang as someone who is “easy to work with” in contrast to previous assertive “wolf-warrior” diplomats from China such as former Foreign Minister Wang Yi.
The Chinese economy is currently in a state of flux. It is recovering from the Covid-19 pandemic, but it is facing a number of challenges, including a property market slowdown, rising debt levels, and an aging population. The Chinese government is trying to address these challenges by implementing a number of reforms, such as reducing debt levels, stimulating domestic consumption, and attracting foreign investments. However, its attempts to attract foreign investors are beginning to look less and less successful as China becomes known for its intellectual property theft, government intervention in the business sector, and a high degree of political risk.
Choosing a pro-business Foreign Minister would help China recover its reputation as a country that welcomes foreign investors. Before the sudden news of replacing Qin Gang with Wang Yi, China was regarded to be changing its diplomatic tone towards Western nations. However, both the opaque nature of Chinese Community Party’s decision making and the return of “wolf-warrior” Wang Yi, would only discourage businesses from investing in China’s market.
U.S-China tech market competition is intensifying
The race for technological supremacy between China and the U.S. has been intensifying over the past few years, and the gap in capabilities is likely to widen as foreign firms look to diversify their investments away from the Chinese market. Whalen and Alcantara present nine charts that illustrate the current state of the U.S-China tech competition. As depicted in the chart, China leads in areas such as smartphone and commercial drone sales, social media usage, the production of batteries, and solar panels. On the other side of the competition, U.S. firms dominate the global market in electric vehicles, mobile games, and semiconductors. As it currently stands, China is able to outproduce American manufacturing while the U.S. still holds the innovation advantage.
To counter China’s technological advancements, U.S. Congressional lawmakers are exploring ways to support domestic manufacturing through tax breaks and other incentives. Additionally, they are debating measures to restrict the use of Chinese tech components in federally funded infrastructure projects.
While China only holds a partial advantage in the technology sector, the U.S.and its allies must not underestimate China’s current and future capabilities or its ability to generate its own innovations. The U.S.’ innovation advantage is only one part of the equation, which will lead policymakers to focus more on bolstering domestic manufacturing regardless of China’s diplomatic posturing, further encouraging U.S. investments away from the Chinese market.
The U.S.’ pursuit of decoupling from China
China’s efforts to attract foreign investments are further complicated by U.S. policymakers looking to decouple and de-risk from China. Both the Trump and Biden administrations have attempted to partially “decouple the U.S. from China.” Meanwhile, in 2015, before the Trump administration took office, China introduced its Made in China 2025 policy to reduce its reliance on U.S. made goods, while emphasizing the Communist Party’s principle of “independence and self-reliance.” Despite China’s attempt to reduce its economic reliance on the U.S., the CCP has failed to create a strong domestic supply chain and is now making efforts to maintain its economic relationship with the U.S. and the international business community.
China’s attempts to win foreign investors are too little too late. China’s recent diplomatic tone comes after years of anti-free market policies, military aggression, Covid lockdowns, and politically-motivated arrests and detentions of foreigners and entities operating in China. Instead of seeing an influx of investments into China, we will see an alignment between U.S. policymakers and the business community as both shift trade and investments to other nations, further degrading China’s position as the dominant trading partner.
The U.S.’ trade initiatives, including the Indo-Pacific Economic Framework and the U.S-Taiwan Initiative on 21st Century Trade, have already led to more streamlined trade through the reduction of non-tariff trade barriers with Indo-Pacific countries other than China. Ongoing trade diversification efforts have already led the U.S. to replace China as South Korea’s top export destination. This is a promising trend for both businesses and the U.S. government, which are looking to diversify trade and de-risk their supply chains.
China-related policies to be debated in the 2024 U.S. presidential election
The combination of poor diplomatic decision making in China, low trust of the Chinese business environment, pro-investment U.S. economic policies, and the 2024 US presidential election spells further disaster for China’s investment-dependent economy. The frontrunners – Joe Biden, Donald Trump, Ron DeSantis, Nikki Haley, and Mike Pence – are all already competing in the area of China and Taiwan policy. This competition will lead to more pro-Taiwan and anti-China policy.
While the Democrats are attempting to balance their support for Taiwan with maintaining a productive relationship with China, some Republicans present a more ambitious plan for Taiwan – full support for Taiwanese independence. Although U.S.’ calls for Taiwanese independence will cause conflict with China, it has not stopped former Secretary of State Mike Pompeo from calling for the U.S. to immediately recognize Taiwan as an independent country. Meanwhile, Ron Desantis, and Nikki Haley present more ambitious alternatives to Donald Trump’s Taiwan strategy with the aim of deterring Chinese aggression.Even if the next U.S. president does not act to unilaterally recognize Taiwan as an independent nation, the road to the next U.S. president will be paved by further U.S-China conflict. This conflict will continue to sway international investors away from the Chinese market and to other Indo-Pacific nations or even re-shore investments back to the United States.
This article was previously published on The News Lens International on July 31, 2023.
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