While the pandemic reveals the dangers of overreliance on a single nation’s production facilities, Washington is calling on American MNCs to shift supply chains away from China. However, the economic relationship between the world’s top two economic powers is complex and a rushed decoupling could sink the global economy to unprecedented depths. Instead, both nations should carefully consider how to effectively diversify the risk of economic overdependence while continuing to maintain healthy trade relations.
Category: China Insight Articles
The narrative of AIA and Ping An is one familiar to Western brands that enter China – with many fallen prey to the pitfalls of misaligned cultural values. AIA had not fully weighed the taboo of death when it entered the Chinese market and faced significant challenges when selling insurance – stymieing its growth and providing the perfect opportunity for China’s now largest life insurer to seize the market.
In its push for an international RMB, China squares off against the “impossible trinity,” an economic principle stipulating that no open economy can simultaneously manage exchange rates, control monetary policy, and allow for full capital mobility. In recent years, China has attempted to juggle all three at once, but seen limited success. To reap the benefits of a fully internationalized RMB, China must consider the pros and cons of taking a bolder step towards one side of the triangle.
2020 is certain to be an arduous year for VCs around the globe; however, investors in China will emerge from the pandemic with a unique opportunity to invest in innovative companies at a discount. While China’s capital winter and coronavirus outbreak have shuttered the doors of countless startups, those resilient enough to have survived are likely to be positioned well to extend their industry influence and consolidate market positions.
China introduced the ‘One Belt, One Road’ (OBOR) initiative to foster a Chinese-driven international trade initiative focused on regional economic collaboration. While the West may be concerned about the geopolitical undertone of OBOR, certain Western policies are instead spurring global participation in the initiative. Italy and Iran are two such examples, with restrictive economic policies from the West driving them to seek alternative sources of funding.
China plans to drive global demand for the RMB by introducing a PBOC-backed digital currency into OBOR and other Chinese-driven global trade initiatives to lubricate cross border trade. While a digital RMB and China’s recent market reforms alone may not be enough to drive demand for the currency to levels that can eventually challenge USD supremacy, the strategy represents the PBOC’s methodical approach to RMB internationalization.
China is pursuing top foreign talent and investment to strengthen its fintech industry. The industry offers easy access to capital and supportive regulation that provide substantial market potential for ambitious market entrants. Despite cultural barriers and distinct consumer preferences, foreign startups with a proper China strategy can receive many of the same incentives and opportunities for success as domestic competitors.
As Chinese factories open their doors, American buyers close theirs. Amid the backdrop of waning foreign demand, Beijing has introduced several critical trade-friendly policies intended to support the resumption of ordinary Chinese operations. Once the coronavirus outbreak subsides and global demand recovers, China may be the only viable trading partner left standing.
Once the coronavirus outbreak is contained and business returns to ordinary operations, the Chinese market will continue to offer the unique opportunities that originally attracted global investors. With patience and an opportunistic approach, investors will discover a wealth of new opportunities to leverage the Chinese market’s low sensitivity to the global market and build a more diversified investment portfolio.
While the Phase One trade deal marks a milestone in the US-China Trade War, it will likely disappoint foreign businesses seeking improvements in intellectual property rights protections and enhanced market access in China. Regardless, there were a few positive points of progress in the Phase One trade deal that pave the way to address improvements on additional securities and protections for American businesses abroad in a subsequent ‘Phase Two’ agreement.