G-7 leaders agree on approach to ‘de-risk’ from China

Chinese President Xi Jinping and palms with then U.S Vice President Joe Biden contained in the Great Hall of the People on December 4, 2013 in Beijing, China.

Lintao Zhang | Getty Images News | Getty Images

Leaders of the Group of Seven agreed there is a want to de-risk, not decouple from China, and acknowledged challenges posed by the mainland’s practices which “distort the global economy.”

“We are not decoupling or turning inwards,” the G-7 mentioned in a joint assertion launched over the weekend as leaders met in Hiroshima, Japan. “At the same time, we recognize that economic resilience requires de-risking and diversifying.”

Leaders added, “We will seek to address the challenges posed by China’s non-market policies and practices, which distort the global economy. We will counter malign practices, such as illegitimate technology transfer or data disclosure.”

Reiterating the stance, President Joe Biden mentioned at a press convention on Sunday: “We’re not looking to decouple from China, we’re looking to de-risk and diversify our relationship with China. 

He explained that means taking steps to diversify supply chains, “so we’re not dependent on anyone nation for vital product. It means resisting financial coercion collectively and countering dangerous practices that damage our staff. It means defending a slender set of superior applied sciences crucial for our nationwide safety.”

Speaking after the G-7 finance ministers and central bank governors’ meeting earlier this month, U.S. Treasury Secretary Janet Yellen said China’s behavior is “a matter that must be of concern to all of us.”

“There have been examples of China utilizing financial coercion on nations that take actions that China’s not pleased with from a geopolitical perspective,” she said, citing China’s trade disputes with Australia and Lithuania as examples.

In their statement the G-7 leaders said, “We will foster resilience to financial coercion. We additionally acknowledge the need of defending sure superior applied sciences that might be used to threaten our nationwide safety with out unduly limiting commerce and funding.”

The world’s leading democracies said the group will “scale back extreme dependencies in our crucial provide chains” while emphasizing the need to cooperate with China, citing its role in the international community and the size of its economy.

“We stand ready to construct constructive and steady relations with China, recognizing the significance of participating candidly with and expressing our considerations immediately to China. We act in our nationwide curiosity,” the statement said.

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President Joe Biden’s administration previously briefed industry groups such as the Chamber of Commerce on measures seeking to curb American investments into China, according to media reports.

Such rules would mean stricter guidelines for U.S. companies that will be required to inform the government of new investments in Chinese technology companies, according to Politico. Deals in critical sectors such as microchips will also be banned, according to the publication.

U.K. Prime Minister Rishi Sunak also told journalists that London was open to following the U.S. lead over curbs on Chinese investment, the Financial Times reported.

Decoupling risks ahead?

Ahead of the weekend’s G-7 summit, Goldman Sachs economists Hui Shan and Andrew Tilton said they expected steps to be taken by the Committee on Foreign Investment in the United States, or CFIUS — a U.S. government agency that reviews deals involving foreign investment in the U.S. to see if the transaction infringe on the country’s national security.

In a note previewing the set of measures earlier this month, they said there may be “extra focus on refining the present tariff, export management, and funding regimes as soon as primary frameworks are in place.”

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“We count on them to be pretty narrowly-focused on superior semiconductors and associated applied sciences, paralleling final autumn’s export controls, and don’t anticipate vital restrictions on secondary market portfolio investments.”

‘Far-reaching’ damages

The impact of a widening rift between the U.S. and China may lead to further damage, economists at Allianz said in a note las Wednesday.

“The financial implications of an additional decoupling between the West and China might be far-reaching,” they wrote, adding the damage to the Chinese economy could be “far from negligible.”

“China might retaliate by curbing the availability of crucial uncooked supplies through which it has a dominant place, which might severely disrupt international provide chains,” they said.

“But that is unlikely because it already applies some types of outbound funding restrictions and remains to be trying in direction of financial pragmatism.”

The Taiwan factor

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U.S. trade representative Katherine Tai said of the agreement, “This accomplishment represents an vital step ahead in strengthening the U.S.-Taiwan financial relationship.”

China has repeatedly warned against deepening bilateral engagement between the U.S. and Taiwan.

Goldman Sachs argued that with the Taiwan factor, the focus of U.S.-China tensions may shift from trade to military.

“The extra rapid focus has been on constructing Taiwan’s navy capabilities to deter a battle,” U.S. political economists Alec Phillips and Tim Krupa wrote earlier this month, adding that they see “good odds” that the U.S. Congress passes extra help to at present current schemes.

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