The author is the Executive Director of the International Institute for Strategic Studies Asia and the author of “The Billionaire Raj”.
Two recent visits to Beijing by world leaders have shed light on many of the paradoxes of the future era of economic decoupling.
Last week’s visits by French President Emmanuel Macron and European Commission President Ursula von der Leyen sparked a wave of controversy in the West. It didn’t get noticed, but in many ways it made the decoupling challenge much clearer.
Macron traveled to Beijing with von der Leyen to present Europe’s unified approach to China. But he also brought in the business leader Phalanx to expose Paris to accusations of commercial foreign policy and make Europe appear divided.
A few days ago, von der Leyen made a speech, arguing that Europe should “de-risk” China rather than cut it off. According to her, complete fragmentation is undesirable, so Western countries should instead de-risk strategic sectors such as semiconductors, batteries and critical minerals. This week, the G7 finance ministers also spoke about the need for “diversity” in his supply chains and planned to “empower” emerging economies.
Anwar’s visit to Beijing could not have been better. There was no talk of decoupling here. Rather, Malaysian leaders praised China’s economic strength and encouraged more investment. He also bought a group of Malaysian companies and came back with a deal worth around $39 billion, at least on paper.
The sight of the leaders of the “Global South” returning to Beijing should surprise the West. Xi Jinping, who has previously focused on resolving China’s Covid-19 crisis and securing his third term in office, has gone from peace deals in Ukraine and the Middle East to investment deals with neighboring countries in Southeast Asia. , once again demonstrating diplomatic power.
As Western leaders seek to unleash decades of globalization, Asian nations, from Bangladesh and Indonesia to Malaysia and Thailand, see China as the center of their future economies. Rather than decoupling, they want more trade with Beijing. And, paradoxically, this is a real possible outcome of Western policy.
Global companies are now talking about “friendshoring,” which means moving production to geopolitical partners such as India, Mexico and Poland. Alternatively, it may set up facilities in Southeast Asia, where most countries are geopolitically neutral between Beijing and Washington. The likes of Malaysia and Vietnam are often predicted to be decoupling winners, which could boost Western companies leaving China.
However, there is a problem with this account. The first is that very little segregation has started to happen so far. Semiconductors are one of the notable exceptions given the successful US attempt to block global semiconductor makers from selling to China. But despite all the talk about de-risking and increasing resilience of supply chains, it’s hard to find similar moves in other sectors.
Western multinationals are talking more often about a “China plus one” strategy. The strategy will continue to make things in China, but will also choose other manufacturing bases as a hedge, Malaysia said.
But imagine geopolitical events going from bad to worse, Western corporations reeling, and decoupling starting to move forward more rapidly. Then what? Here, many in the West believe the shift in production will make them less dependent on China, but the process of decoupling could draw countries such as Malaysia and Vietnam toward the West. Both assumptions are dubious, to say the least.
take samsung. The company’s decision to move production to Vietnam in 2020 means the South Korean giant now assembles millions of phones each year in its factories in Vietnam. Many are then exported to the West. However, many of the components used in these phones are still made in China, so Vietnam also has to import more of them.
Vietnam’s bilateral trade with China has surged in recent years, and a similar pattern can be seen elsewhere in what is sometimes referred to as ‘factory Asia’. East Asian countries have recently increased their exports to the United States, but they have also significantly increased their imports from China, according to future research by World Bank economist Aditya Mathu.
The result is a double paradox. First, decoupling will make regional countries such as Southeast Asia less, if not less, economically dependent on China, rather than bringing emerging economies and the West closer together. Second, while changing supply chains around the world seem to reduce the Western world’s dependence on China, the continued need for components mostly sourced from It means that the underlying vulnerability remains.
Before a recent visit to Beijing, von der Leyen argued that “decoupling from China is neither feasible nor in Europe’s interest.” she is right Given the complex and intertwined fabric of modern globalization, even the task of partially reducing our dependence on the Chinese economy could prove to be much more difficult than it seems.
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