De-risking: I want your market, but you need to slow down tech development

The talk of de-risking from China has been gaining ubiquity among Western politicians and business communities recently, while the de-coupling approach seems to be put away, at least in rhetoric.

Don't get fooled. The nature of the new De-word is in fact to re-define risk and decouple from China in selective fields like high-tech and other key areas where those Western powers want to maintain their global dominance.

For those who carefully craft and embrace such an approach in the United States and other major European capitals, the old way of total decoupling from the world's second largest economy has been proved impossible and immensely self-destructive. They still want to profit from China's mega market and rein in the country's rise at the same time.

That is why they have chosen to walk back from the impossible, and tried to sell their new narrative without mentioning that this new approach, like the previous policy, is also going to rock the global supply chains, fragment the world economy and damage the prospects for common development around the world.

WORD GAME

In a statement following this year's Group of Seven (G7) Summit in Hiroshima, Japan, the G7 countries pledged to build economic resilience by "diversifying and deepening partnerships and de-risking, not decoupling."

State Secretary Antony Blinken explained "there is a profound difference for the United States, and for many other countries, between 'de-risking' and decoupling."

In fact, before being "redefined" by the rich Western countries, "de-risking" was a financial term which referred to the phenomenon of financial institutions terminating or restricting business relationships with clients to avoid, rather than manage, risk. That's a situation where financial institutions practice excessive jurisdiction, and therefore, has long been criticized by the United States, the European Union (EU) and the World Bank.

In April, the US Department of Treasury still described "de-risking" as a practice "not consistent with the risk-based approach," which "undermines several key US government policy objectives by driving financial activity out of the regulated financial system."

However, in the past few months, the term, aggressively peddled around by some Western politicians, has become highly politicized. In a recent meeting in Brussels, European Commission President Ursula von der Leyen said "the EU does not intend to decouple or to turn inwards," while "diplomatic de-risking was central to the bloc's approach."

From "decoupling" to "de-risking," the West's so-called "minefield" in its interactions with China remains the same. A May opinion piece in the Financial Times put the risks that the United States and the EU are worried about into two broad categories -- "stuff the West gets from China" such as new energy technology and critical minerals, and "stuff that China gets from the West," including advanced technology with potential military use.

Simply put: While fearing being held hostage by China on the demand side, Washington and its allies also fear being unable to hold China hostage on the supply side. These moves disregard the fact that interdependence is a natural result of economic globalization, and economic insecurity has nothing to do with their normal economic and trade exchanges with China.

Gordon Flake, founding CEO of the Perth USAsia Centre at the University of Western Australia, said that as "decoupling is from anybody's perspective not realistic and is drastic," the Western policy is shifting towards decoupling from China in specific industries, enterprises, and even products and technologies.

Meanwhile, under the guise of "de-risking," the West continues forging ahead with its policy of protectionism.

In an April speech at the Brookings Institution, US National Security Adviser Jake Sullivan pledged to protect US "foundational technologies with a small yard and high fence," while "unapologetically" pursuing their industrial strategy at home.

Gary Clyde Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics, believed what is embedded in Sullivan's remarks, which peddled a "technology blockade" against China in the name of US national security, were familiar neo-mercantilist themes.

Whether it's called decoupling or "de-risking," the United States is veering towards the wrong path of neo-mercantilism, he said.

PARANOIA TO CONTAIN CHINA

The essence of the US "de-risking" narrative is in fact to cut China's connection in key sectors with the world, hence maintaining its own hegemony. The word game simply shows the US lack of capability to decouple from China, the panic and fear it faces due to competition from China, and a narrow-minded bias regarding different development paths.

Josep Borrell, vice-president of the European Commission, said at the Shangri-La Dialogue in Singapore: "Every day, our trade with China is around ￥2.7 billion dollars. Every Day! So, decoupling? Forget about it. If we tried to do that, we would produce a worldwide crisis."

Statistics show in 2022, the total trade in goods between China and the United States, China and the EU reached 690.6 billion dollars and 856.3 billion dollars respectively, both hitting a new high.

As "decoupling" shows itself to be an unrealistic concept, the United States has to find a new narrative to replace it. "De-risking" became the viable choice, because on the one hand, it suits people's intention to avoid risk, and on the other it makes China the scapegoat as being "the source of risk."

Bates Gill, executive director of the Asia Society Policy Institute's Center for China Analysis, said: "Who doesn't like reducing risks? It's just rhetorically a much smarter way of thinking about what needs to be done."

Over the past decades, the economic development of China and the United States has shown sharp contrast. After over 40 years of reform and opening-up, China has now become the world's second-largest economy, the largest manufacturing hub, the largest trade of goods center, and the second-largest consumer market. Science and technology research and innovation have been constantly enhanced, the value chain keeps moving upwards, and China has been closing the gap with the United States in many areas such as 5G technology and green energy.

At the same time, the US economy has been experiencing industrial hollowing out, an Internet bubble, a sub-prime mortgage crisis, surging debt, and now a risk of depression.

While China is becoming an important engine for world economic growth, America's "competition panic" keeps simmering. It now regards China as a "competitor on all fronts" that thus needs to be suppressed.

In the eyes of the 48 Group Club's Chairman Stephen Perry, US politicians have a tendency to blame others. "I think that the Americans have found it easier to explain away the advances that China has made by demonizing China," Perry said.

Fu Xiaolan, founding director of the Technology and Management Center for Development at the University of Oxford, said China has been using "a combination of the state and the market to drive innovation and has integrated the country into the global innovation system," which has given fresh impetus to its economic development, setting an example for other countries.

However, the United States, seeing itself as a "beacon for freedom" and a champion of opportunity, only endorses the rules and values beneficial to itself, and sees other non-American values as a challenge and security threat.

As former US Secretary of State Henry Kissinger said in his book "Diplomacy," there is no other country like the United States stuck in the conviction that its institutions are universally viable. Thus, other cultures and ideologies should be altered.

REAL RISK

A market economy is, in fact, never without risks. While the West is pitching so-called "risk control," chances are such a disruptive move may push risks "out of control."

"Is the risk of losing trade in the future a good reason to avoid trading now, when the option is still available? One normally does not commit suicide to reduce the fear of death," former Swedish Prime Minister Carl Bildt said when questioning the notion of de-risking in his article "The Risks of 'De-Risking'" on the website of the Project Syndicate.

"Over the years, US businesses have really recognized the dual benefits of investing in China. They get more efficient production ... and they also get the opportunity to tap the world's richest and deepest market," Stephen Roach, a senior fellow at Yale University, told the US National Public Radio (NPR) on a show weeks ago. "But those advantages are now slipping away as we focus on security," he added.

Now, the risks from such a de-risking or decoupling are also being felt worldwide, and may further weigh on human progress.

Economic globalization remains an inevitable trend of world development. China plays an important role in this system, its economic aggregate accounting for about 18 percent of the world's total and contributing over 30 percent to world economic growth on average in the decade from 2012 to 2021. The scale of its manufacturing industry has ranked first in the world for 13 consecutive years, and it is the country with the most complete industrial categories and industrial system, providing the world with a large number of quality and cost-efficient industrial raw materials and finished products. Meanwhile, China has the largest and fastest growing middle-income group, comprising a major new high-end market in the world.

The US-based Conference Board projects that emerging economies' share of global gross domestic product (GDP) will have risen to 61 percent by 2035, based on purchasing power parities, with most of them counting China as their largest trading partner.

Non-cooperation is the biggest risk, and excluding China from the international economic system will weaken the momentum of global economic growth and undermine global trade rules.

The Singapore-based Straits Times commented that the negative impact of "de-risking" economic links with China goes far beyond China, the United States and the EU, but also affects other trading partners. "De-risking" is putting all parties involved at risk, it said.

The United States also played up this narrative to conceal the fact that it is de facto the biggest risk and source of global chaos. A look at the history of recent world economic crises will suffice.

In the 1997 Asian financial crisis, American hedge funds took advantage of the defects of the Asian economic and financial system to cash in on the Asian stock and foreign exchange markets, leaving many economies in bubbles, which eventually burst one after another.

During the 2008 international financial crisis, US financial entities sought to profit greatly from sub-prime loans. Credit rating agencies, which should have been the authoritative and just "gatekeeper" of the market, whitewashed "toxic" assets as "quality" ones to mislead global investors. Eventually, the crisis broke out and expanded, crippling the world economy.

Following the outbreak of the COVID-19 pandemic, the US-led West frantically printed money to stimulate the economy, triggering steep inflation, and later on aggressively raised interest rates to curb inflation.

Such an egoistic move once again took a heavy toll on many countries -- a sharp depreciation in their currencies, a surge in debt burdens, huge capital outflows, and weakened economies.

And in the eyes of investors worldwide, China is still a land of all kinds of opportunities. German Chancellor Olaf Scholz said that his country welcomes China's development and prosperity, noting Germany rejects all forms of decoupling and "de-risking" is not "de-sinicization."

That is why key European businesses are expanding, not shrinking, their investments in the Chinese market. For example, German automaker Volkswagen signed late May a contract with the Hefei Economic Development Zone in east China's Anhui Province, announcing an investment of around 1 billion euros (1.1 billion dollars) to launch a new company in early 2024.

At the end of the day, people will find the de-risking approach designed by a handful of Western politicians, if carried out, will bury development opportunities, undermine cooperation and stability, and lead to total destruction of the world economy at large.