Prepared for the United States and China separation

Executive summary

The epidemic may accelerate the trend of a dual United States and China in the world. In this regard, the company’s presence in Hong Kong and China need to prepare for an unfriendly environment. Practical steps include the reduction of Hong Kong presence, the relocation of the supply chain of political and friendly countries, to re-evaluate the relationship, Chinese companies and researchers and the factors, geopolitical risk into investment decisions.

Dilok Klaisataporn/Images

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At the same time Covid-19 dominated the news for many years, this is understandable, because people and businesses to fight for their survival—a larger, more persistent problem has been the ongoing development of the background, many companies will soon need to address: to understand the globalization accelerated, two rival economic blocs are emerging, one centered around China and the other in the United States.

Can say that we have toward this moment for a long time. De globalization has been more than ten years: at best, international trade stalled before the epidemic hit, and foreign direct investment fell by 70 percent in 2018 from its peak in 2007. Not easy, the China-U.S. relationship has taken a more confrontational, but also according to the study. In 2018, we have already seen the opening skirmishes of a new Cold War.

Further reading

Covid-19 accelerated the process, provide a reason to re-support the production of strategic commodities. Japan, for example, only set aside $ 2.2 billion, in order to re-support from China. Direct and indirect species pandemic also added to the main points of competition has long list of friction points between China and the United States the issue of the responsibility of the pandemic on Beijing’s decision, in the likely end of the”one country, two systems”in Hong Kong.

Sources in the political risk consultancy firm has stated to me that corporate America has been hoping that may be the end of Wang served as the Chairman next month, the 2020 elections. They will be disappointed. First, it is by far not an inevitable result, Trump will lose. Second, and more importantly, if there is one thing Democrats and Republicans agree on these days, it is the rise of China needs to be checked.

In late 2018, I conducted a survey of 109 members of the Committee of the international company, laid out a Cold War solution with two exclusive economic sphere of influence, and ask them for their own strategic response. They offer two main choices: to deepen your business, so it will be, on either side of the split, is seen as a place; or the withdrawal of a field.

At the time, ripped off a localized strategy’s success will be a strategic wonderful move. The enterprise has been successfully should congratulate themselves. But as tensions rise and the connection weakened, deepening becomes more difficult. This allows a high level of preparedness for further decoupling. In practice this means that U.S. companies and those in the United States the market should be ready:

1. Reduce its presence in Hong Kong.

Beijing has clearly demonstrated its willingness to impose a national security law in Hong Kong. Although the content of the law remains unclear, this move represents a clear break in the Hong Kong situation, as internal self-government. China’s open intervention raises questions about the capacity of Hong Kong to maintain the rule of law is a feature of the weak development of domestic land. It also implies a risk that other countries, particularly the United States, will no longer be extended the privileges of processing of Hong Kong. The company should therefore prepare a contingency plan to relocate its sensitive activities elsewhere. Remarkably, US companies—who are directly affected by the US competition did not seem ready, even if they are aware of the dangers: Day 2020 survey of American Chamber of Commerce in Hong Kong shows that more than half of respondents are”very concerned”about national security law, while 60% believe it will damage their business. Almost half are pessimistic in the long-term future of Hong Kong. But two-thirds did not make any contingency plans, in response to the law and escalating tensions.

2. The relocation of the supply chain, to the more politically secure countries.

The recent efforts of the manufacturing operations of the country’s neighbours-such as the move through the Apple, Google, and Microsoft to increase production in Vietnam and Thailand—may not be enough. If history is any guide, close a key parameter in the prediction of their country to become a member of its economic group, or even against their will. Several Eastern European countries have voluntarily acceded to the Warsaw Treaty, for example. Company need to at least consider the possibility that most parts of the world may no longer be viable, the host country for their supply chain. The company, instead of the need to consider capacity building of the farther(from a geopolitical angle)of the”security”of the country. For example, Apple manufacturing partners are increasingly not only in East Asia, but also in India and Mexico.

3. Re-evaluation of the relationship between the Chinese company and University.

Traps, these relationships are apparent when considering the area of advanced technology with potential military uses. However, if the relationship between China and the United States is more and more understood as a zero-sum game, one party’s gain is the other aspect of the loss—the other, seemingly harmless relationship will also be affected, too. More and more companies may find themselves(fairly or not)in the U.S.”Entity List”or Chinese”unreliable Entity List,”entire departments or individual managers may be affected. For example, China in the last year moved to the punishment, the Canadian arrest of China on the implementation of the Monte million arrested two Canadian citizens, sentenced another to death, and to restrict imports of Canadian canola oil. A similar punishment more than the dispute has been sentenced to Norway(salmon)and Australia(beef). Your industry, company, or managers may be next.

4. Due to geopolitical risks.

Investment in companies dependent on the United States with the markets of other groups may become increasingly difficult to prove—including the commitment of new funds to maintain existing operations. Investors will have to explain why, by their investment, they are promoting economic growth, and therefore the power of the opponent. This argument, that economic development brings democracy and therefore peace(“democratic peace”)has become untenable in the context of China, where the opportunities for democratic governance has subsided according to the study. Such a proposal, economic interdependence makes conflict less likely (the”commercial peace”), it seems likely credible, but the reality is, the economy of prices in China or the United States will be paid from the loss of economic interdependence is very small, relative to their Gdp. For example, the large size of the U.S. GDP($21.5 billion U.S. dollars, in 2018, the latest available figure)is such that it can replace the entire value of U.S. direct investment($117 billion in 2018)in China, half of the week. In the short term, companies need to begin to consider the geopolitical conflicts when making investment plans.

The current dire prediction of the future of U.S.-China relations may prove to be wrong, and it is possible that we will again enjoy the fruits of globalization and international cooperation. I sincerely hope that this will be the case. But hope is not a strategy, it’s always better to be prepared.

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