Businesses poised to adjust in face of US-China chess match

August 26, 2020 | 10:00
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With the US presidential election mere months away, tensions are continuing to mount in regards to the administration’s position towards China, while nations particularly in Southeast Asia watch on to see how the dragged-out dispute can impact on them.
businesses poised to adjust in face of us china chess match
Major companies are now finding themselves in the crossfire of US-China tensions, photo Le Toan

Some experts last week expressed quiet confidence that the ongoing United States-China war of words is being toned down, especially on the Chinese side, as leaders have one eye on the US presidential election that will take place in November.

President Donald Trump has made somewhat of a target of China as he bids for a second term in the White House, but China’s recent restraint seems to have been planned to appeal to Trump’s challenger at the polls, former vice president Joe Biden, demonstrating to him that China believes problems can be ironed out. There are concerns from Chinese officials that, while Biden is not as volatile as Trump, he could also continue the path of harsh sanctions and other measures against China on trade, technology, and more, according to the New York Times last week.

“There’s still a possibility that tensions could become even more profound and more severe in the future under a Democratic administration,” said Shi Yinhong, director of the Center on American Studies at Renmin University.

However, currently, despite the diplomatic chess match, tensions continue to affect issues from defence and trade to monetary policy and the all-encompassing coronavirus pandemic.

The US and China delayed the review of their Phase 1 trade deal initially set for just over a week ago, with the reason involving the conflict of schedules as well as the need to allow time for more Chinese purchases of US exports, in order to “improve the political optics of the review”. China’s imports of US farm and manufactured goods, energy, and services are well behind the pace said to be required to meet the first-year target of increasing $77 billion over 2017 purchases.

But as China’s economy kicked on from the COVID-19 lockdowns earlier this year, purchases have increased. A fortnight ago, the US Department of Agriculture reported the sale of 126,000 tonnes of soybeans to China, marking the eighth consecutive weekday with large sales to Chinese buyers. US oil traders, shipbrokers, and Chinese importers also told Reuters that Chinese state-owned oil firms have tentatively booked tankers to carry at least 20 million barrels of US crude for the rest of August and September, indicating an increase in energy purchases.

No new date for the compliance review between US Trade Representative Robert Lighthizer, US Treasury Secretary Steven Mnuchin, and Chinese Vice Premier Liu He has yet been agreed, Reuters said.

Wider ramifications

However, postponing the US-China trade deal review may not be a bad thing, an analyst told CNBC last week. “I think it’s in the interest of the two parties to have a little more time,” said David Dollar, senior fellow at the US’ research group Brookings Institution. “China does seem to be stepping up their soybean and energy purchases, so if you review right now, objectively it’s not very good. Give it a little bit more time, it’ll probably look somewhat better.”

“It is not in Trump’s interest to have a review where things are not going well, as he wants this to look like a foreign policy victory,” Dollar added.

The tit-for-tat quarreling between the two powerful nations is of course continuing to send shockwaves worldwide, causing other countries and their businesses to adapt and seek new solutions, and to protect themselves from whatever the outcome may ultimately entail. The two regions most affected seem to be the European Union and Southeast Asia, with interesting new developments this year leading to a repositioning of countries and regions on the globe’s power list.

While the pandemic has seriously impacted the economies of Southeast Asia, nations like Vietnam have so far been able to avoid the worst and may come out of 2020 in a much better position than others. Thailand in particular has been devastated by the near-eradication of tourism and its media has noted the positives that neighbouring Vietnam can offer to businesses attempting to expand and move away from the US-China debacle.

The Bangkok Post last week reported that Vietnam is benefiting from China+1 strategies as rising wages on the mainland and US-China tensions accelerate a trend towards relocation. Multinationals including Apple, Samsung, and Nintendo have moved some capacity from China to Vietnam, while “major export clusters for electronic equipment and textiles have emerged in Vietnam to attract global manufacturers, and industrial zones are booming,” it said.

The report also showed admiration for the advantages Vietnam’s garment sector can offer to other nations, saying that growing exports of clothing labelled “Made in Vietnam” could also benefit related factories in Cambodia and Bangladesh – the world’s second-largest apparel exporter after China.

“Asia is still the single largest apparel sourcing base for Western fashion brands. They have diversified sourcing away from China but their orders have largely been filled by other Asian countries – mainly to the benefit of Bangladesh, Vietnam, and elsewhere in the ASEAN,” the report explained.

Expansion shake-up

The US-China issues could also see more tie-ins between Southeast Asia and the EU. The region is already the EU’s third-largest international trading partner after the US and China, and the new EU-Vietnam Free Trade Agreement is demonstrating that the Europeans see increased prospects in Southeast Asia. Observers note that the deal also has the potential to be a catalyst for fresh EU-ASEAN talks.

Vietnam’s major challenges, in the meantime, lie in port and transport infrastructure that are still less developed than regional peers, while stable electricity supply is set to be the next growing issue. Also, the Bangkok Post noted, highly-skilled workers are in short supply in Vietnam, though this opens up chances for higher-skilled personnel from nearby countries including Thailand to assist Vietnam’s industries in moving up the global value chain.

Another prominent country that has illustrated lessening reliance in China is Japan. As noted extensively in 2020, a rising number of Japanese investors are expanding business in Southeast Asia and scaling down operations in China due to escalating tensions between this nation and the US, a movement that has roots back in 2019.

The Japan External Trade Organization last month published a list of 30 Japanese companies poised to receive subsidies from its government to move production facilities out of China, and 15 of them eye Vietnam as their favoured destination. Even before the pandemic surfaced, the organisation cited that 40 per cent of enterprises surveyed at the end of last year were already considering expansion plans for Vietnam, which was up 5.5 per cent from the previous year.

China is also facing pressures from the States in the tech sector. President Trump has ordered the Chinese owner of TikTok, ByteDance, to sell its US assets after a review of the national security dangers posed by the popular music video app. President Trump has been piling pressure on other Chinese-owned companies, and earlier this month made moves to ban WeChat, a well-known social networking and mobile payment app developed by Tencent Holdings Ltd.

Meanwhile, just over a week ago, President Trump expressed satisfaction at actions he has taken against Huawei Technologies, including trying to persuade other countries to avoid the Chinese group’s products. Asked at a recent conference whether there were other China-owned groups he was considering a ban on, such as Alibaba, President Trump replied, “Well, we’re looking at other things, yes.”

Inklings at changes proposed by the Trump administration that could trigger the delisting of Chinese companies on US stock exchanges are also keeping markets on edge, as the US moves ever closer to the pivotal 2020 election.

By Quang Bao

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