US-China decoupling: if it comes down to a US bloc vs China bloc, who stands to gain the most?

Prominent Beijing adviser says loss of access to hi-tech goods from US would equate to having an abundance of rice but no delectable foods

China is already trying to tackle the challenge through its dual-circulation strategy that aims to reduce reliance on other economies


Cissy Zhou

16 Sep, 2021

According to recent research from Capital Economics, if the decoupling between the world’s two largest economies continues gradually – with supply chains reconfigured rather than entirely severed – the implications will be far more devastating to the China bloc than to the US bloc.

This is due to the fact that the United States controls the majority of the global economy. According to the report, 114 of the 217 worldwide economies recognized by the World Bank, plus Taiwan, are classified as part of the US bloc, while 90 are classified as part of the China bloc.

It also stated that, although having a somewhat bigger percentage of the global population, the China bloc accounts for only a quarter of global GDP, while the US bloc accounts for 68 percent.

The report stated, “China has a huge number of countries in its camp, although the majority are tiny in economic terms.” “For both end demand and inputs, China continues to rely heavily on the West.” The report, written by economists Julian Evans-Pritchard and Mark Williams, claims that trade will be the most significant economic impact of decoupling.

Within the United States, more than half of all global trade takes place. However, within the China bloc, that figure is only 6%, with 40% of that small percentage occurring between mainland China and Hong Kong, with a large chunk of those items being re-exported to nations outside the China bloc, according to the report.

“A significant implication is that China’s bloc is far more reliant on US demand than the other way around. Even before accounting for Hong Kong re-exports, 59 percent of China’s bloc exports flow to the US bloc. In the other direction, the proportion is only 15%, “according to the article. Trade is significantly reliant on demand from, as well as production in, the US bloc in 43 of the world’s 50 major economies, while this reliance is somewhat reduced among nations in the China bloc. The largest economies create 12% of their GDP from exports that are eventually consumed in the US bloc, and they spend a comparable amount of GDP importing foreign value added produced in the US bloc. China’s reliance, on the other hand, is substantially smaller, averaging roughly 4% of GDP in both directions, regardless of bloc.

The decoupling between the US and China, which began under Trump, has widened under Biden, partly as a result of the coronavirus pandemic.

Decoupling, according to Yu Yongding, a senior economist and former adviser to China’s central bank, will have a “major” impact on China. “But that doesn’t rule out the possibility of China overcoming the challenge,” Yu told the Post. “Decoupling can actually speed up China’s drive to reform its economy, which could be beneficial.”

China is taking moves in this approach, such as President Xi Jinping’s dual-circulation economic plan, which he announced last year.

“As for who will be affected more – the United States or China – I don’t think there’s much point in projecting that since there are so many unknowns in the world,” he said.

In Washington, calls for new tech sanctions against China have grown louder this year. The US Senate enacted comprehensive legislation in June to bolster Washington’s position in the increasing geopolitical and economic conflict with China. The 2,400-page Innovation and Competition Act of 2021, which touches on practically every facet of Washington’s increasingly fraught relationship with Beijing, allocates hundreds of billions of dollars for American semiconductor production and research and development.

According to Capital Economics, decoupling will be faster and more extensive in some areas than in others, and nations with comparable alignments may have their degree of integration with China drastically shift.

In the ISEAS-Yusof Ishak Institute’s 2021 State of Southeast Asia survey of Asean stakeholders, 61.5 percent of respondents said they would support the US over China if it came down to it, up 7.9 percentage points from last year. Meanwhile, 46.4 percent of respondents indicated China would be their first choice, down 7.9 percent from 2020.

According to the paper, “there is no guarantee that growing economic clout would translate into greater political clout in the rest of the world.” “One example is [China’s] deterioration of relations with European countries. Another indicator that more economic engagement may not always translate to increased fondness is the failed Belt and Road Initiative.”

“Economic advances by China may just heighten the urgency for the US and its allies to advocate decoupling rather than encourage deeper involvement as long as China’s political system is regarded as a challenge to Western values,” it added. Shi Yinhong, a State Council adviser and Renmin University professor of international relations, claimed the US would welcome a tech war with China, even if it had a negative impact on the US economy. He explained that this is a deliberate and calculated choice, since if China takes the lead in high-tech, the US will lose out not only economically, but also strategically.

“After the US curbs its hi-tech exports to China, China will still be able to feed itself,” Shi said of the potential impact on China. However, after eating a single bowl of rice today, two bowls may be available tomorrow by quasi-high-tech and non-high-tech techniques, but premium delicacies like sea cucumbers, fish, and meat will be unavailable.”

However, Yu believes that claims of a complete decoupling between the US and China are either premature or far off.

“While they prepare for a prospective decoupling, the two countries are still doing business,” Yu added. “It’s still uncertain what will happen in the future, but there’s a ray of hope that there won’t be any more decoupling.”

https://www.scmp.com/economy/china-e...-vs-china-bloc