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Chinese businesses boost self-reliance as trade war rolls on
BEIJING, Dec 12, 2019 (BSS/AFP) – Whether Beijing and Washington reach a
trade deal or not, China is already speeding up efforts to break its reliance
on a country that is one of its biggest economic partners but also its
biggest adversary.
The effort has gained greater urgency for Beijing after more than a year
and a half of protracted negotiations, painful tariffs and US sanctions
against leading Chinese technology companies.
Negotiators are working towards a potential “phase one” deal but tensions
could escalate again if President Donald Trump goes through with a planned
tariff hike on Sunday.
To fortify themselves for future levies or political waves, Chinese
companies are looking to new markets, adapting supply chains, sourcing
homegrown parts and shifting to domestic suppliers.
President Xi Jinping issued his own directive in May, calling for self-
reliance in “key core technologies” while warning of a “Long March” against
foreign challengers — a reference to a now-legendary 1934-35 strategic
retreat by China’s Communist revolutionaries.
A manager surnamed Liang at Weipai Industrial Ltd, a tablet computer maker
in the southern tech hub of Shenzhen, said the company was diversifying
supply chains to reduce reliance on US parts, and looking for a Chinese
company to provide semiconductors.
But other industries have also had to rethink their plans.
A sales executive surnamed Lu at textile exporter Zhejiang Zhuang En said
after shipments to the US almost halved this year they were targeting
European and African fashion brands instead.
– Tech leads the drive –
Samm Sacks, China digital economy fellow at think tank New America, said
the trade war “has added fuel to the fire of the Chinese government’s
ambitions to duplicate industries inside China that they in the past got from
the outside world”.
Joerg Wuttke, president of the EU Chamber of Commerce in China, said the
two countries were in the process of “decoupling” — a term that has
regularly sprung up during the trade war.
“China has realised that it can’t rely on some of the foreign suppliers,”
Wuttke told reporters on Monday.
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“And the US has deliberately decided to contain China in many ways and
decided to withhold technologies which they deem is beneficial to the Chinese
industrial military complex.”
Sunday’s potential tariff hike would target Chinese goods that were not
previously hit by US duties — including about $12 billion worth of Chinese
toy imports, plus cellphones, laptops and tablet computers.
Electronics and technology companies are at the forefront of China’s drive
to become self-sufficient.
Chinese tech giant Huawei launched its own operating system Harmony OS in
August, as it faces the threat of losing access to Android systems with US-
China tensions escalating.
The company was swept into the trade war in May when it was blacklisted by
Trump owing to suspicions its equipment could provide a backdoor for Chinese
intelligence services, something the firm denies.
Another tech firm, ZTE, nearly collapsed after US companies were prevented
from selling it vital components over its continued dealings with Iran and
North Korea.
– ‘A critical battle’ –
Sacks said the ZTE case was a “watershed moment” for the Chinese
government, and gave “a glimpse of what things might actually be like if they
were cut off from global suppliers”.
Trump later allowed ZTE to resume imports under tough conditions.
The trade war is now “a critical battle of ideology, value systems, and
morality”, said Larry Ong, senior analyst with political risk consultancy
SinoInsider.
This week state news agency Xinhua reported that two Chinese companies
were to jointly build a domestic operating system, seemingly in a bid to
unseat the dominance of US giant Microsoft’s Windows.
Xinhua quoted one CFO as saying there was an “urgent need to develop a
domestic independent operating system with a unified technical system and
ecosystem”.
But experts have warned it is not easy to entirely cut out the world’s
biggest economy, particularly in the technology sector.
“You open up a ZTE phone — and the same can be said for Huawei — and
you’re looking at components from all around the world,” said Sacks.
“In many ways this nationalistic rhetoric doesn’t conform to the reality,
which is very tightly woven interdependence (for technology).”
But Beijing’s drive to reduce economic reliance on the US is one sign of
the hardening tensions between the two in what some have called a “new Cold
War”.
Max Zenglein, head of economic research at MERICS, warned the two
countries were “at the beginning stages of decoupling”.
“The outcome of the current negotiations will only have an impact on the
speed and scale of the decoupling process, but not reverse the trend.”
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