A note to readers: Swamp Notes will be closed until Friday, December 3. To our US readers, we wish you a happy Thanksgiving.
Anyone who hasn’t read the US-China Economic and Security Review Commission Report for 2021 to Congress released last week, pick it up immediately. It’s hard to describe any more than 500-page report to lawmakers as powerful, but here it is. When I write in latest column, it ushered in a new era of US-China separation, with all sorts of new recommendations on capital flow limits between the two countries. The Commission is not a legislative body, but it has a strong track record of advancing recommendations that become regulatory law or policy, from limits on US business with Huawei, to rules around the supply of critical pharmaceutical ingredients.
The commissioners are selected by both Republican and Democratic Party leaders, and there is unusual consensus around this year’s report, which lays out the ways the Chinese Communist Party (CCP) is building building global economic, political and military power to promote a “new paradigm for human progress”. The party is doing so with a lot of help from Wall Street, as FT readers will know. The question is how long will this division last? Is it possible for U.S. financial institutions to distribute capital indefinitely into and out of a country that supports forced labor; have low environmental, social and governance standards; and the main strategic rival of the United States?
I think the answer is no, but I have to say I’m dumbfounded that the hypocritical behavior of American banks and asset managers pouring money into companies could jeopardize US security. received no more attention. That is an issue raised by two of the commissioners, Jeffrey Fiedler and Michael R Wessel, in their additional comments at the end of the report. While it’s technically possible for companies like BlackRock, Goldman Sachs, Charles Schwab, and many others to invest in a company like AVIC Shenyang Aircraft Company, China’s main fighter jet maker, it’s hard to see. argue that’s the right thing to do, especially in the present day. moment. As the commissioners said: “A person could be excused for thinking that it is a fundamental responsibility of an American citizen not to do anything that endangers the United States military.”
Biden’s current executive order only bans investments in 24 publicly traded Chinese companies. But the report also says that about two-thirds of non-state-owned companies in China now have CCP officials involved in their business decisions. That means most US companies that do business with such companies are being affected in some way, even if in a small way, by that party. The trustees speculated that the current lax regulation of capital flows could increase the influence of the Treasury Department and weaken the influence of the US Department of Defense on such matters. But I wonder if that will last as Americans become more aware of how deeply entrenched Wall Street is in China.
When Fiedler and Wessel put it on page 504In a word, U.S. investment banks and institutional investors can still buy, sell, and profit from Chinese military-related companies as long as they don’t do so in China. United States and concerns only non-US citizens. If we are genuinely interested in protecting the national security of the United States rather than simply appearing, this loophole should be closed, as the committee recommends. ”
I’ll agree with that – Ed, how about you? What should Wall Street be allowed to do in China today, if anything?
Edward Luce replied
It’s not just about Wall Street. Major Silicon Valley venture capital funds, such as Sequoia, have stakes in all sorts of Chinese high-tech startups from quantum computing to advanced semiconductor manufacturing. Whether some of these have specific military applications is unlikely. Beijing’s “Made in China 2025” plan is to dominate artificial intelligence and advanced technology by 2030. So the Biden administration is facing a dilemma. Does it require more sweeping measures to decouple the United States from China, as this report recommends, or does it continue with Washington’s distinctive approach to inward Chinese investment? The latter is the easier path.
To be honest, I feel very conflicted on this topic. You mention that almost two-thirds of Chinese private sector enterprises have Communist Party influence. But that’s almost inevitable. The CCP has 100 million Party members, so I am surprised that the number of companies influenced by the party is not 100%. It would be nearly impossible to set up a system that would separate genuine Chinese companies with purely civilian applications from those with more dual-use potential. So the logic is that the US and China should limit trade and investment to low value added electronics and white goods and goods – sectors that generate most of the trade deficit between the US and China. China.
Make no mistake, an economic divorce between the US and China would make the world a far more dangerous place. However, continuing down the path today is also dangerous because the United States risks having to bear the brunt of China’s technological acceleration. As I wrote last weekCompetition between the US and China is a multifaceted global challenge. We disagree on whether the US should increase its diplomatic and commercial presence around the world, which I believe should be done. If Washington follows your preferred path, that means the US will also decouple from other parts of the world, which I believe is what China wants to see. But this is a complex problem and I don’t have a total solution. Divorce is reckless, but so is the status quo.
And now a word from our Swampians. . .
“The United States cannot hope to maintain its status as a global power and ignore the Middle East; but it doesn’t have to have anything like joining there as it has been for most of the time since 1945. . . [A] Much has been written about the geopolitical effects of decarbonisation in the global economy, and Mohammed bin Salman’s monumental statements about hydrogen etc., it is hard to call the Gulf region anything. nothing else but a major net loser both in geopolitics and geoeconomics among these. In this respect, the region becomes less important not only to the US but also to China over the next few decades. However, China seems to stick to the principles underpinning Mackinder’s Theory of Hearts, of which the Middle East is a key player, even putting energy resources aside. But I suspect that there are many geopolitical thinkers within the Beltway who share this view.
The more interesting question is the Sino-American rivalry in the Gulf, which could, of course, be the Sino-Indian rivalry not only in terms of geographical proximity but also deep and enduring historical ties. of India with Iran in particular”. – Alastair Newton, Livingstone, Zambia
“Edward Luce writes that ‘The essence of good diplomacy is to see the world from another’s point of view.’ Then he added ‘America, at least temporarily, no longer seems to want to do that.’ The first assertion is true, the second is less so. Unfortunately, America hasn’t lost – temporarily – the ability to see the world from the other guy’s point of view. It has lacked this ability at least since the last three decades, in other words, since the end of the cold war.
Today, we talk about ‘one world, two systems’ over and over again because America has lost so much credibility; and this is not only due to protracted wars but also because in too many cases American foreign policy has, arrogantly, dictated only a policy of ‘it’s my way or my way’. highway’, alienating many countries”. – Marco Carnelos, Rome, Italy