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US Imposes Investment Ban on China's Sensitive Technologies Amid Growing Tensions
Introduction to the US-China Investment Ban
In a significant move, the White House has declared a ban on certain US investments in China, specifically targeting sensitive technologies like computer chips. This action marks a further escalation in Washington's disengagement from Beijing, driven by perceived national security threats. Analysts suggest that these steps taken by the US to de-risk from China indicate that Western allies might be drawing lessons from previous national security shortcomings in their dealings with Russia.
Implications of the Investment Ban
The investment ban, announced on Wednesday, is seen as a strategic move by the US, given the escalating tensions over Taiwan. Experts suggest that the potential repercussions of a conflict between China and Taiwan could be catastrophic. The executive order, set to take effect next year, aims to prevent China's military from benefiting from American technology and funding, particularly in sectors that could undermine the capabilities of the United States and its allies.
The Concept of 'Decoupling'
Such actions are often referred to as a 'decoupling' of the world's two largest economies. However, the US has favored the term 'de-risking.' China has responded strongly to the announcement, with its foreign ministry expressing firm opposition to what it calls the US's 'blatant economic coercion and technological bullying.' China's ambassador to Washington has previously warned of Beijing's retaliation against such measures.
Decoupling and Potential Conflicts
The idea of decoupling, which involves shifting manufacturing and production facilities from China to other countries such as India, is seen as a preemptive strategy in anticipation of potential conflicts. As Olena Yurchenko, an advisor at the Economic Security Council of Ukraine, points out, such a strategy could help mitigate the impact of imposing restrictions in the event of a conflict, such as one involving Taiwan.
Taiwan: A Global Flashpoint
Taiwan, which has been governed independently of China since the end of a civil war in 1949, is considered a global flashpoint. While most of the West views Taiwan as a self-governing nation, Beijing regards the island as part of its territory and has called for reunification. China's stance on Taiwan was outlined last year in a white paper, describing Taiwan as an 'unalterable' part of China.
Predictions of a Potential Attack on Taiwan
Prominent China critic Kyle Bass, who claims to have consulted military experts, believes that Chinese President Xi Jinping could initiate an attack on Taiwan as early as next year. He cites Beijing's recent intensification of military drills around the Taiwan Strait as a potential indicator. However, these claims could not be independently verified by CNBC.
China's Response to the US's De-risking Efforts
In response to the US's clear intent to de-risk from China, the Chinese government has argued that the issue with Taiwan is an internal affair and that its military exercises are a reaction to repeated meetings between Taiwan's president and US representatives, a move Beijing considers a red line.
Western Sanctions and Lessons Learned
The Biden administration has been ramping up measures to de-risk from China amid growing global tensions following Russia's full-scale invasion of Ukraine. Western allies have imposed unprecedented sanctions on Russia in response to its ongoing war. Despite these sanctions, Moscow has managed to circumvent them by relying on intermediary countries to import Western goods, including advanced technologies for its military equipment.
China's Role in Helping Russia Circumvent Sanctions
Elina Ribakova, a senior fellow at the Peterson Institute for International Economics, suggests that China, cited as the primary intermediary supplying Western tech to Russia's military, is closely observing the West's approach to Russia. If the West is ineffective with Russia, and if China plays a key role in helping Russia bypass export controls, how can the West expect to be effective against China if a conflict involving Taiwan were to occur?
Western Sanctions Against Moscow
Western sanctions against Moscow continue to be imposed, almost one-and-a-half years after Russian forces invaded Ukraine's borders. The UK recently announced new sanctions on a range of foreign businesses accused of supplying Russian forces with weapons and components for use against Ukraine.
China's Role in International Relations and Global Markets
As the world's second-largest economy, China's contributions to international relations and global markets far exceed those of Russia, prompting heightened caution from the West. The European Union's approach to China has been more ambivalent than that of the US. The British government is considering whether to follow the US's lead as it continues to assess potential national security risks attached to certain investments.
Need for a More Firm Approach
However, Bass believes that the current approach of Western allies, a 'slow decoupling,' could be misguided, leaving governments to 'improvise' quickly if a conflict involving Taiwan were to occur. He advocates for a more firm approach, including strict outbound restrictions on surveillance companies, genomics companies, and any companies that assist the Chinese military in building their war machines.
Conclusion: The Impact on New Businesses
The escalation of tensions between the US and China, marked by the recent investment ban on sensitive technologies, presents a dynamic and challenging landscape for new businesses. This situation underscores the importance of geopolitical awareness and adaptability in the business world.
The 'Decoupling' Effect
The concept of 'decoupling' suggests a significant shift in global economic relations. For new businesses, this could mean rethinking supply chains, exploring new markets, and being prepared for sudden policy changes. This situation could also open up opportunities for businesses to fill gaps left by the withdrawal of US investments in China.
Learning from the Past
The lessons drawn from Western dealings with Russia, particularly the effectiveness of sanctions, also provide valuable insights for new businesses. It's crucial to understand the potential for sanctions to be circumvented and the role of intermediary countries in this process.
A More Firm Approach
The call for a more firm approach, including strict outbound restrictions on certain companies, highlights the need for businesses to stay informed about regulatory changes and their potential impacts. In a rapidly changing geopolitical landscape, new businesses must be ready to adapt and respond to ensure their survival and growth.
Article First Published at: https://www.cnbc.com/2023/08/11/us-executive-order-on-china-shows-its-learning-from-russia-mistakes.html
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