China Takes Steps Towards Economic Decoupling
The ongoing decoupling between the American and Chinese economies has taken a significant turn as Beijing joins Washington in favoring the separation. President Joe Biden has not only maintained the Trump-era tariffs on Chinese goods but has also imposed restrictions on the sale of advanced semiconductors to China and American investment in Chinese technology. On the other side, Chinese Communist Party (CCP) leader Xi Jinping has initiated a campaign to replace foreign technology in China with domestically-developed alternatives. This accelerated pace of decoupling is expected to have far-reaching consequences, potentially hindering advancements that would have otherwise occurred.
China’s authorities have long shown a preference for home-grown technology, but they have recently intensified their efforts through a program called “Delete A.” This initiative requires state-owned firms to replace foreign software in their IT systems by 2027, aiming to make China self-sufficient in various sectors including finance, energy, and technology. To support this transition, Beijing has increased spending on science and technology by 10 percent this year, reaching around $51 billion.
American businesses have already begun feeling the impact of this decoupling. Hardware manufacturers such as Dell, IBM, and Cisco Systems have seen a decline in orders from China since 2019. Dell’s share of the Chinese market has halved since 2015, and Hewlett Packard Enterprise’s revenue from China sales has dropped from 14 percent to a mere 4 percent. Companies like Adobe, Citrix, and Salesforce have either pulled out of China or significantly downsized their operations. Hewlett Packard has even announced the sale of its almost 50 percent stake in a Chinese joint venture.
To fill the void left by American companies, Beijing has identified three domestic companies: Tongfang, Alibaba, and Huawei. The Chinese government has mandated that Tongfang equipment replaces all foreign-made computers in government operations. However, these domestic products still face resistance due to their lower quality compared to their American counterparts. Nevertheless, it is expected that China will overcome this challenge and eventually offer products as good as those from companies like Microsoft and Oracle. In the meantime, China will have to contend with delays and inefficiencies.
Both the United States and China will suffer from the decoupling of their economies, but in the long run, China is likely to bear the brunt of the consequences. The United States aims to limit Beijing’s power and influence in specific sectors for security reasons, accepting some inefficiencies and missed opportunities. However, it remains open to global engagement. On the other hand, Xi Jinping seeks self-sufficiency across the board, signaling a complete break with the West and potentially Japan as well. This ambition may provide a sense of security but will come at the cost of ongoing inefficiencies and a slowdown in economic dynamism. As a result, China is likely to lag behind other economies, including that of the United States.
It remains uncertain whether Xi and his colleagues fully grasp the implications of this decoupling strategy. No economy, no matter how dynamic, can excel in every aspect compared to other economies. By prioritizing security and self-sufficiency, China risks sacrificing economic growth and falling behind its global counterparts. The effects of this economic decoupling are yet to fully unfold, but it is clear that both China and the United States will face significant challenges and missed opportunities as they pursue their respective goals.
Disclaimer: The views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.
