By Edward Tse
January 11th, 2018
China is perennially a top of mind issue in American politics. Former President Barack Obama’s “Asia pivot” strategy had China as its centerpiece. President Donald Trump’s election campaign also centered around China, but in a very different light. He reasoned a key reason why America “wasn’t great again” was because of China’s increasing competitiveness which manifests itself mostly in its trade surplus against the US. As he vowed to make “America great again”, he sees China as a “strategic competitor” to the US.
In 2017, China made huge strides in stepping up its leadership position in global politics as the US, under President Trump, receded. At the World Economic Forum at Davos, Switzerland in January, Chinese President Xi Jinping underscored the criticality of globalization against the backdrop of Trump’s US-centric rhetoric. While the US withdrew from the Trans-Pacific Partnership, China stepped up its “Belt and Road” initiative with the formation of the Asian Infrastructure Investment Bank (AIIB) whose member countries now number 84 (as of Jan. 2018). While China (together with the European Union) pledges its commitment to reduce global carbon emissions according to the Paris agreement, the US decided to walk away.
As Trump called for “re-shoring” of manufacturing to the US, paradoxically some Chinese companies were amongst the first to respond to the call. Companies, such as Fuyao Glass, Foxconn, and Great Wall, announced major plans of investing in manufacturing in the US. (Foxconn is of course a Taiwanese company but its operations are overwhelmingly in Chinese Mainland). And, Jack Ma, chairman of China’s leading Internet company Alibaba, announced it will create “one million jobs” in the US.
So what will happen to the US – China relationship in 2018?
It seems likely the “co-opetition” nature of the relationship between the largest and second largest economies in the world will continue.
Donald Trump’s “America First policy”, or at least its rhetoric, would most likely continue and to that end, China will likely continue to be a target of a “strategic competitor” to the US. In global geopolitics, China will likely continue to step up its position as a global leader as China continues to seek its “Renaissance” while the US would continue to fortify its “Me First” position.
In business, as China’s economy continues to grow at around six to seven percent, China will continue to present numerous opportunities for US companies (and those from other countries). At China’s 19th Party National Congress back in October 2017, Xi Jinping made the pledge that China would continue to open its economy to foreign companies. Sure enough in November, the Chinese government announced plans to ease limits on foreign ownership in a range of financial services sectors. We expect the further opening for foreign participation in China’s growing economy will take place in 2018, allowing more degrees of freedom for US companies operating in China.
As China’s middle-class will continue to grow in size and the level of its purchasing power heighten, Chinese consumers will become even more important customers for US products and services both domestically and outside of China. For US companies, such as Apple, Starbucks, Nike, General Motors, Ford and Honeywell, China has become one of their largest, if not the largest, markets in the world. And, China’s importance to these companies will inevitably continue to increase. While competition is super intensive and technology is driving major, discontinuous change in the China market, more US companies will realize the incredible upside potential of the China market and will seek ways to capture its rightful potential. Even Google, who decided to withdraw from the China market several years ago, have recently announced the establishment of a major Artificial Intelligence (AI) Center in Beijing.
China has also become the world’s largest country of outbound travelers. In 2017, the number of Chinese outbound tourists is estimated at around 130 million. Chinese consumers will likely become even more globally active in 2018. The US will continue to be one of the most favored destinations for the Chinese. The Chinese consumers tend to spend a lot as they travel and that would bode well for the US travel and tourism industry.
In 2018, more Chinese companies are expected to invest in the US and to exploit the potential of the US market. For instance, in December 2017, reports claim that Huawei, China’s leading telecom equipment and smartphone maker, would partner with AT&T to sell its Mate 10 smartphones in the US. If true, this would be a breakthrough development, as for a long time, Huawei was not able to penetrate into the US market. Triangle, the third-largest Chinese tire manufacturer, is going to invest into a $580 million plant in North Carolina in 2018. Keer Group, a textile producer in China, plans to invest $218 million over next five years to expand the capacity of its facility in South Carolina. To many Chinese companies, the US is an attractive (and in some cases necessary) market and the conditions for manufacturing are becoming more favorable.
As China’s innovation and entrepreneurship continue to thrive, there will certainly be more opportunities for start-ups of both Chinese and US entrepreneurs, as well as for venture capitalists. Technology, especially AI will increasingly be embraced for enabling innovations by entrepreneurs. Both the US and China are now leading the world in the development and application of AI, and this trend will likely continue to accelerate. The interactions between China and the US at the start-up and investors’ levels are actually taking place intensively as there is so much to share and many opportunities to jointly pursue. Much of this has already manifested in cross-border investments between the two sides. We expect this would happen even more in 2018.
Inevitably, the US government will continue to send rhetoric on trade friction between the US and China, and will announce more policies to address the trade imbalance. Additionally, the US government will likely continue to view China as a strategic competitor, and national security will continue to be a key consideration by both governments when it comes to investments by organizations from the other side. However, common interest would prevail both at the government level and at the business level. In 2018, we expect the US- China relationship would continue to move along. There will be areas of tension and difference in points of view and policies, but there will also be areas of collaboration and alignment. Co-opetition is perhaps the best word to describe the nature of US – China relationship in 2018. After all, it won’t be – and shouldn’t be – a zero-sum game especially not in today’s world of increasing connectivity.
Original published by South China Morning Post on January 11th, 2018. All rights reserved.
Edward Tse is founder and CEO of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in Greater China, and author of China’s Disruptors.
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