China’s increasing support for its hi-tech companies amid rapidly tightening trade restrictions by Washington and Beijing have spawned “wickedly competitive” local firms that multinational entities must engage with to remain globally competitive.
Yet new limits announced by the two sides in recent years, and particularly over the past week or so, make such engagement as partners, suppliers or competitors all but impossible.
This was one of the final warnings that Craig Allen, the outgoing president of the US-China Business Council, issued on Tuesday, ahead of his departure from the non-profit industry association that counts General Motors, Honeywell and Walmart as members.
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For US companies and other multinationals operating on the mainland, “local Chinese peers, especially Chinese private companies, are ... becoming wickedly competitive”, said Allen in a keynote address to the Centre for Strategic and International Studies.
This was happening as they work to overcome slower domestic growth and oversupply, the former senior US government official added.
Allen’s cautionary message follows measures announced by US President Joe Biden’s administration last week imposing new export restrictions on 24 types of chipmaking equipment and three categories of software essential for semiconductor development.
The updates included revisions to the foreign direct product rule, which allows the US to block products manufactured outside its borders if they contain American technology.
“With the export controls, the potential threat of being cut off from a critical supplier leaves Chinese companies with little choice but to form new partnerships, preferably with other Chinese companies, but [also] with European, Japanese or Korean suppliers, if possible,” explained Allen.
Biden’s recent order apparently triggered significant countermoves by Beijing, which banned the export of items categorised as “dual-use” – products or materials that can be adapted to civilian and military applications – to any US military end users.
Even before the Biden administration began banning the export of advanced chips and other hi-tech products to China, citing national security concerns, Beijing was enacting policies that favoured domestic companies in key sectors.
In particular, Beijing has done so through its ambitious Made in China 2025 plan to achieve self-reliance in manufacturing as well as its rules preventing state-owned enterprises from using foreign information technology.
Allen asserted that the accumulation of restrictions from both sides was leading to a bifurcated global tech ecosystem.
And when foreign companies are squeezed in China, he added, they lose what they need most to compete globally: tech talent nurtured in an ecosystem that enjoys significant government support.
The Biden administration’s concerns about talent acquisition came up in a separate event a day earlier, when Rima Oueid of the US Department of Energy said that half of the US jobs in quantum computing are unfilled, hampering America’s ability to close a “significant” gap with China in the country’s pursuit of an edge on this front.
“Chinese talent is essential,” said Allen. “It is required that American or multinational companies maintain an R&D presence in China to keep up with the innovative trends in the Chinese market, which is necessary for their regional, their domestic China, their bilateral, their regional and indeed their global competitiveness.”
“Right now, we’re kind of in the worst of all possible worlds, where we’re anticipating that what is legal on Tuesday might not be legal on Wednesday,” he continued.
“I would say exactly the same thing is true for Chinese companies interested in doing business in America. And the value that we lose, the opportunity costs of that, are very, very high.
More from South China Morning Post:
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- China retaliation for US protectionism, while ‘never a good choice’, may be just starting
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