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AB 2000 studies

Alain Boublil Blog


China-United States : The necessary appeasement

Among the many tensions which are hurting the world, the evolution of the relations between China and the United States was the one which was offering both the highest economic risks and the threat of a war between two nuclear powers. The affirmation by the White House that Beijing constituted a strategic rival with an escalation of protectionist measures from the two sides and the major crisis regarding peace which could occur about the situation in Taiwan has betrayed a degradation which seemed to be irreversible of the relations between the two biggest economies in the world.

The declaration of the Treasure Secretary, Janet Yellen, with inevitably the agreement of the president Biden, constitutes a 180° turnaround of the American administration positions. It has immediately been followed by words with the same nature, from Lawrence Summers, her predecessor during the Clinton administration and the head of the Council of economic advisers of president Obama. The U.S. must not decouple with China and the measures dedicated to protect the country safety have not as an objective to stifle the Chines economy.  An honest and constructive economic relation between the two countries must be built and not a divorce, which would be disastrous for them and for the world economy.

Until now, the Democrat administration was considering that if China became the first economy in the world, that would represent a threat and it is what had leaded to put forward the concept of strategic rivalry. But this criterion is absurd. China has a population four times more numerous than the U.S. According to that principle, a Chinese person would have to accept to have a level of life four times lower than the American one, and if not, his country would become a threat. What is important, it is the utilization which is done by a country with its wealth, and not the level of that one and it exists countries, as Russia whose GDP is by large inferior and which, them, as we have seen it with the invasion of Ukraine, are a real threat.

The tensions about Taiwan are misinterpreted. The island is in an electoral campaign because must be elected in 2024 the next president. Two parties are facing each other, the Progressist Democrat party, which openly militates in favor of the independence and which has brought to power Tsai Ing-wen, and the Kuomintang, favorable to a soft transition and to a rapprochement with Beijing. The welcome offered in California to her, as the visit of Nancy Pelosi, the President of the House of the Representatives, are the obvious signals of the support of the current president, even if these supports are going out from the China Recognition Agreement concluded by Richard Nixon, after the negotiations managed by Henry Kissinger. The military maneuvers started by Beijing so has had as an object to remain to the United States the terms of this Agreement according to which there was only one China without that the issue of its political regime was evocated. The Chinese military operations around the island so mean more a gesticulation that a the preparation of an invasion.

The Janet Yellen declaration occurred at the end of this political confrontation episode and when China has just published its 1st quarter results. Growth has been better than expected with 4.5% year-on-year. The country is just emerging from its lockdown period and that first estimation shows that the economy has not been hurt by structural damages and is able to rebounding, as the progression of the retail sales of more than 10% in March testifies. The official growth forecast for the current year is 5% and many China economy experts think that it will be overpassed.

Despite the constrains which have weighted on the supply chains and a low dynamic international environment, industrial production has increased by 3% during the 1st quarter year-on-year and the investments by 5%. Janet Yellen has taken into consideration these figures because their economies are strongly dependent from each other. Despite the pandemic crisis, the exchanges between the two countries have increased in 2022, the Chinese imports from the U.S have reached 154 billion dollars and the Chinese exports have reached 537 billion creating the very heavy American trade deficit of 383 billion, not so far from the 2018 record with 418 billion. Yet we notice since October a slowing of the American imports, to the profit of the other economies in South-East Asia, which has allowed to reducing the deficit with China, which is, as a monthly average, since the beginning of the year, 22 billion.

These China trades surplus have fed the currencies reserves of its central bank which reached 3 200 billion dollars at the end of last year. The biggest share of these reserves is in dollars which makes Beijing the first creditor of the United States. But none of these two countries has interest in exploiting to its profit that situation because they would be the first victims of the crisis they would have contributed to start. The delicacy of the American banking system which has just appeared with several defaults and the difficulties of the Biden administration to obtain from the Congress the increase of the public debt ceiling make to worry about the outbreak of a new major financial crisis. That so incites to the appeasement in the relations between the two countries.

The protectionist measures adopted by Washington to make the country less dependent from outside with atop of the list China, must not be overestimated. The Inflation Reduction Act has, as an objective, to re-localize on the American territory industrial production units, largely in the batteries and equipment for electric vehicles sectors, and the Chips Act wants to strengthen the country independence in electronic components. As a total, these two texts, voted in August 2022, represent near 400 billion dollars offered under the form of subventions, tax reductions or loans.

The most important project concerns the Taiwanese microprocessors giant, TSMC, which has announced an investment of 28 billion dollars in Phoenix, Arizona. But the Chinese companies, despite the presence of restrictive conditions, are not excluded of the program because the batteries producers, CATL and Gotion, have forecast to create plants in the Michigan, the first one under an alliance with Ford through licensing. Apple has announced it will reduce its presence in China to the profit of India. But it will not leave the country because it is one of its most important markets.The strike in its Zhengzhou plant against the excess of the zero-covid policy had contributed to convince the Chinese president to lift the restrictions during the last Autumn.

The economic relations between the two countries so seem to recover a real dynamic. In her speech, Janet Yellen has recognized that it was in the interest of the U.S. That would be translated in facts and the coming meetings between the economic leaders of the two countries will allow to measuring its extent. It will not go until a reconciliation as the history and the culture of these two countries are different. But the appeasement would already be a real progress for the whole world and would definitely contribute to soften the support Beijing has until now given to Moscow.

France must be conscient of that. The fact to take business leaders in an official trip is not enough. It is essential for the industrial development of the country that these enterprises have a greater access to the Chinese market and can create partnerships with their homologues where each one will be the winner.      




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