The conclusion of the 20th CPC National Congress means that the Central Committee with Xi Jinping at its core will remain in power. In responding to the outbreak of COVID-19, COVID-19 lockdowns, sanctions from the US government, and problems in global supply chains, which has had a considerable impact on American companies investing in China. A large number of multinational companies began adopting a “China + 1” strategy, both to maintain a sizeable scale of business in China and to seek potential possibilities in other Southeast Asian countries.
Earlier in October, President Biden signed an executive order restricting Nvidia and AMD from exporting certain graphics processing units (GPUs) to China, on top of an existing export ban. Among other things, considering that the federal government may conduct strategic decoupling of other industries and impose additional tariffs and sanctions on China, it is time for companies operating in China to consider whether or not they should withdraw from China as soon as possible. However, for companies, pursuing a withdrawal from China regardless of manufacturing costs may put them at a disadvantage in the cost competition of the industry. It is unwise for US companies to withdraw from the world’s largest market while their European, Japanese and South Korean competitors are constantly profiting from it.
The first nine months of 2022 have been marked by an energy as well as supply chain crisis, in addition to lockdown measures in China due to the epidemic. However, China’s automobile exports have increased by more than 50%, and the number of electric vehicles sold in China has surpassed the total number of those sold in the world. US automaker Tesla delivered 83,135 domestically produced electric vehicles in China in September. up 8% from August and breaking the record for monthly deliveries. As a result, we should keep an eye on the future of this market. China remains one of the biggest potential destinations to which US companies have access.
And the latest edition of China’s epidemic prevention guidelines issued on November 11 also shows more support for international flights. The Chinese government is seeking a balance between epidemic control and economic development, which is a good sign for Western companies. On November 4, German Chancellor Scholz led a delegation of German business leaders to China and secured $17 billion in orders. Chinese President Xi Jinping and US President Joe Biden met at the G20 summit in Bali. Daniel Russel, Vice Chairman of the Asia Society Policy Institute, said that the meeting between the heads of state of the US and China would bring new hope to the international community. US stock index futures also rose, with the Nasdaq 100 up 10% in the last 5 days, and the market value of various sub-financial products increasing in response. As of November 16, China’s stock market in Hong Kong has risen more than 20% over the last three weeks, indicating that many people are confident in US-China trade relations after the 20th CPC National Congress.
Both Katherine Tai, U.S. Trade Representative and Craig Allen, President U.S-China Business Council affirmed that the meeting between the two presidents will have an important impact on the world economy. Both need more face-to-face exchanges and interactions. China is the second largest economy in the world, contributing 30% to world economic growth, we need more cooperation with each other.
US companies have more market advantages than their Chinese counterparts in terms of capital and technology, but China’s development potential cannot be ignored. As we all know, funds that once shorted China have failed one after another, so we should avoid making mistakes due to epidemic policies and sanctions, and missing out on development opportunities for companies in the next decade. Over the past four decades since the establishment of diplomatic relations between the US and China in 1979, trade between the two countries has been growing in leaps and bounds despite ups and downs in the relations. While there are many troubling elements in US-China relations, we should think in big-picture terms. As Scott Kennedy, a well-known China expert, says, it may be a long time before the Chinese market reaches its peak in consideration of its enormous potential.
