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China troubles ‘the new normal’: Verisk Maplecroft

Lachlan Maddock
— 1 minute read

Corporates can no longer be bystanders as boardrooms become battlegrounds in the stand-off between the US and China.

US firms operating in China are increasingly vulnerable to government interference campaigns as both countries seek to consolidate their economic power. 

“US companies with exposure to the mainland market will be prime targets during periods of heightened geopolitical tensions and may find themselves on the receiving end of China’s so-called ‘qualitative measures’, which include politicised regulatory probes, state-sponsored consumer backlashes and discriminatory import restrictions,” said Hugo Brennan, principal Asia analyst at Verisk Maplecroft. 

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“International companies that are perceived to be siding with the US in this emerging ‘great power’ rivalry also risk earning Beijing ire and all the consequences that go with it.”

China has also sought to establish an “unreliable entity list” of foreign individuals and organisations perceived to pose a threat to China’s security or interests. FedEx – which reportedly rerouted Huawei documents to the US at the request of law enforcement agencies – could be included on such a list, according to China’s state-owned media. 

“The establishment of a Chinese blacklist would institutionalise Beijing’s currently ad hoc means for punishing foreign companies for their perceived transgressions and those of their home governments,” Mr Brennan said. 

At the same time, China will likely continue to heavily subsidise the operations of its state-owned enterprises (SOEs) as part of its “Made in China 2025” strategy to become the main high-quality goods producer in the world. China’s willingness to underwrite the operations of its SOEs was a sticking point during last year’s trade negotiations, but a decisive solution to the problem was noticeably absent from the phase one deal. 

The US has also taken steps to control the business of Huawei by pressuring allies to bar the telecom from infrastructural projects and accusing it of carrying out espionage on behalf of the Chinese state. Boris Johnson’s decision on Wednesday to approve Huawei’s limited involvement with the UK’s telecommunications infrastructure could be a major sore spot in its relations with the US, which is currently pursuing criminal charges against the company’s CFO in a move some view as part of its broader trade war strategy. 

“The Trump administration will likely continue its systematic campaign to stymie the rise of Chinese tech companies, with an eye on the perceived threat they pose to America’s technological supremacy and national security,” Mr Brennan said. 

“This approach will utilise criminal prosecutions, pressurising allies to bar Chinese telecoms firms Huawei and ZTE from participating in the rollout of 5G networks; and restricting the export of critical tech components to Chinese firms via the US entity list.”

And while President Donald Trump is usually identified as the main cause of the current trade woes – and a second term isn’t out of the question – it’s not certain that US-China relations would be better off without him. 

“None of the leading contenders for the Democratic nomination look likely to adopt a dovish stance against Beijing,” Mr Brennan said.

“In short, the shift towards increasing strategic competition between the US and China both pre-dates and will likely outlast the Trump presidency.”

 

China troubles ‘the new normal’: Verisk Maplecroft
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