China America Decoupling Sees Bilateral Technology Investment Plunge 96%

With tensions from China escalating around the globe from trade wars to credit implosions like the Evergrande debacle just the latest. U.S. and China bilaterial Technology investment has been obliterated as they decouple their supply chains Bain and Co.reports.

With tensions from China escalating around the globe from trade wars to credit implosions like the Evergrande debacle just the latest. U.S. and China bilaterial Technology investment has been obliterated as they decouple their supply chains Bain and Co.reports.

Trade War Pandoras Box

Bain and Co.’s latest annual technology report was released on Monday and shows that between 2016 and 2020, overall direct investment between the two countries fell 75% from $62 billion to $16 billion, with the technology sector alone plunging 96% over the period. Notably investments from China to the U.S. fell much more steeply than US investments into China.

Huawei Scandal

This collapse had much to do with the Huawei Technologies executive Meng Wanzhou, who is detained in Vancouver and fighting extradition to the United States. Ms. Meng is the, daughter of Ren Zhengfei, founder of the Chinese telecommunications giant.

Ms. Meng was detained at Vancouver International Airport in December, 2018, on a U.S. Justice Department extradition request for alleged bank fraud related to violations of U.S. sanctions against Iran. The U.S. blacklisted 168 Chinese companies, excluding Huawei and its dozens of affiliates, between 2018 and April this year, according to an earlier Nikkei Asia analysis, most of them technology related. This caused geopolitical uncertainties for businesses that are still ongoing said Anne Hoecker, partner with Bain & Co. who specializes in technology and semiconductor practices.

Chip Shortages

The global semiconductor chip shortage, the result of lower production from COVID restrictions and increased demand due to Work From Anywhere (WFA). Then we had a delay in Intel’s chips. This has put the Taiwanese Semi giants, especially Taiwan Semiconductor Manufacturing Co (TSMC) the world’s largest contract chipmaker in a powerful position for upcoming negotiations with automakers.

Now the global semiconductor shortage puts pricing power firmly on the side of TMC and friends prices hikes of up to 15% are being considered by TSMC Vanguard International Semiconductor subsidiary for auto chips. The other Taiwanese firms including No. 4 foundry United Microelectronics Corp will most likely follow suite.

The US crackdown on Huawei has prompted a nationwide effort in China to build a complete domestic semiconductor supply chain, from chip designs and materials to production equipment to chip manufacturing.

China Threat to Taiwan

This has seen Mainland China get more vocal about destroying Taiwan. Just last week the US, UK and Australia forged a military alliance to counter China. The US, UK and Australia are setting up a trilateral security partnership aimed at confronting China, which will include helping Australia to build nuclear-powered submarines. The initiative, called Aukus, was announced jointly by US president Joe Biden and prime ministers Boris Johnson and Scott Morrison, joined virtually by videoconference. The project will make Australia only the seventh country in the world to have submarines propelled by nuclear reactors.

None of the three leaders mentioned China, but there was no doubt that the initiative was a response to China’s expansionist drive in the South China Sea and increasing belligerence towards Taiwan.- The Guardian

British sources said the conversations about the nuclear power deal were initiated by the Australians in March. 

“The business environment for Chinese companies in the U.S. was probably a little bit less secure than it was before, and they [China] just turned their focus to investments in Europe and Africa,” said Hoecker

  • Chinese overall direct investment to the U.S. collapsed to just $7.2 billion in 2020 from $48.5 billion in 2016.
  • U.S. investment in China dropped 35% to $8.69 billion over the same period.

The biggest fall was in technology, real estate and health care-related fields, the data from the U.S.-China Investment Hub showed.

Direct Investment Between US and China 2021

With this background the world was hit by the COVID-19 pandemic and the world shutting down. From there the supply chain disruptions brought unprecedented semiconductor shortages.

U.S. President Joe Biden only had second call to Chinese President Xi Jinping since in office last week.  They had a 90-minute conversation on Sept. 9. Despite the talks, tensions between the two countries have shown few signs of improving since Biden took office in January. Trade practices and technological competition remain two key points of contention between the two global powers.

New regional supply chains began cropping up outside of China less than 1,000 days after Washington imposed its first wave of punitive tariffs on Chinese imports in 2018, as companies began to view decoupling as an irreversible trend. American tech giants like Apple, Google, Amazon, and Microsoft have all asked suppliers to build capacity outside of China due to the geopolitical uncertainty. This has increasing exponentially since the Covid outbreak traced to the Wuhan lab fallout

Bain’s Hoecker said  there are “massive” uncertainties ahead and business leaders must be able to navigate geopolitical risks, plan cautiously and invest more resources into boosting government relations and global trade teams. Companies will also have to understand the particular “pinch points” of their supply chains, where they are reliant on a country or a single source of supplier and try to qualify new suppliers to add resiliency and regularly review their long-term plans, Hoecker added.

Source: Nikkei Asia, TradersCommunityGuardian,  Globe and Mail

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