De-risking in the West, De-coupling in the East
This column was previously published in L’Opinion on july 19th 2023
China is speeding up the process of breaking away from the West, forcing European companies to find systematic ways of reducing the risks to their operations there.
History is speeding up: macro-economists predicted that China’s growth rate would slow down to 2% by the end of the decade, in fact, that is already happening in 2023. Rather than believe the official GNP figures, which are themselves below expectations for the second quarter, one should go to the horse’s mouth of the Chinese state: China National Offshore Oil Corporation (CNOOC), the third largest oil company in the country, announced in June that Chinese oil consumption in 2023 would only increase by 3.5%, instead of the 5% that had been expected, after having been stable in 2022. This figure is probably the closest estimate to the real situation of the economy, now showing an average annual increase of no more than 2%. What is to blame is the triple de-coupling that Beijing has been attempting to speed up since the 20th Party Congress last October.
The first of the three is the de-coupling in capitalism by erecting a wall — no longer between Chinese and foreign capital but between private and state capital -, the latter being the only one left to “prosper” in China. The second de-coupling lies in the building of an imbalanced interdependency: the purpose of the exercise is, on the one hand, to put the brake on imports by slowing down domestic consumption while, on the other hand, maximising exports as well as the trade balance surplus.
Self-sufficiency. The third de-coupling is in the ideology of self-sufficiency. This is symptomatic of the “war economy” already announced last year when the ineffective “zero Covid” policy was in operation and when Beijing refused Western vaccines from BioNTech. It can now be seen in the new Data Security Law, which compels both foreign and Chinese multinationals to cut off their domestic operations from the rest of the world.
The de-risking now being forced on European companies by Beijing takes many forms. For example, the Dutch specialty chemical DSM has preferred to throw in the towel, at the cost of €500 million in depreciation and restructuring, and bring a halt to its animal food ingredient operations in China. The financial targets of the German company Volkswagen had to be pushed until 2030, which foreshadows a deadly price war in the electric car market for the rest of the decade.
However, three rays of hope shine through the haze of these adverse developments and could win out over time.
Another example of this de — risking is the Anglo-Swedish company AstraZeneca who are thinking of splitting up their Chinese operations, even if they quickly denied the leaked information (thereby making it all the more credible) that they were going to spin off to Hong Kong their $6 billion Chinese business. This would be complete industrial nonsense since Covid has proved that there can be no frontiers when it comes to healthcare research.
However, three rays of hope shine through the haze of these adverse developments and could win out over time. Firstly, the Chinese private sector is more interested than ever in benefiting from European technology, even if they are looking more and more towards deploying it in South-East Asia these days.
Secondly, the brilliant results recently obtained in China by Nike and Uniqlo herald the renewed appetite of the Chinese consumer for better-quality foreign products. Thirdly, politicians from Chinese local authorities, in serious financial difficulty, are still desperately scouring Europe seeking to attract our private capital — a long way from Beijing.
