Decoupling is the last thing on business leaders’ minds

IF YOU WANT to understand how Asia’s view of the world order has changed, consider the remarks of Lee Hsien Loong, Singapore’s prime minister. Asked recently if China was rising and the United States was declining, he replied in a qualified way: “If you take a long view, you really have to bet on America recovering from whatever things it does to itself.” Across the region firms and politicians are adapting to a new geopolitical reality, as was evident at the Bloomberg New Economy Forum in Singapore last week.

Designed to be more useful than Davos, less Utopian than COP26 and less wooden than China’s Boao forum, the summit convenes some of the figures who built Sino-American links over the past decades, and bosses and investors responsible for over $20trn of market value. Amid hygienically controlled flesh-pressing, and relentless nasal swabbing, you could get a sense of the tensions between the world’s two biggest economies. It was clear that calls to divide them into two camps are wildly unrealistic.

Asia matters because of its size, with 36% of the world’s GDP, 31% of its stockmarket capitalisation, and 11% of the sales of S&P 500 firms. The region is likely to grow faster than the rest of the world. It is also where the struggle between America and China is played out overtly, with the two systems competing side by side. China dominates trade. Of the 20 major Asian economies, 15 have China as their largest goods-trading partner. Yet most countries also rely on America. In many cases it is their defence partner and the dollar is the currency in which most Asian trade and capital flows take place (in contrast to Europe, which has the euro).

The region’s balancing act has got harder as America and China have turned inward, partly in response to the perceived shortcomings of freewheeling global capitalism. A widely held view is that America’s system of government has been permanently impaired by cronyism and populism. As a result its promises are taken less seriously. Gina Raimondo, the commerce secretary, said America would launch a new Asian economic “framework” in 2022 (it has not joined CPTPP, a regional free-trade deal). Her proposal was greeted only politely, given the Biden administration’s protectionism and the risk that Donald Trump wins the election in 2024.

China has also become unpredictable. Most executives and officials are sanguine about the crisis at Evergrande, a property firm. They believe that China’s technocrats are in control and can avoid a systemic financial crisis. Many sympathise with China’s antitrust crackdown on big tech. But there is deep unease at Xi Jinping’s totalitarian impulses and his broader assault on business. Whereas before, well-connected foreigners would have been given reassurances by China’s economic reformers in private meetings, now they have to make do with stilted video calls monitored by the Communist Party. Ties are fraying even within companies. One founder of an Asian firm with a Chinese parent company has not met the owners for two years. Few expect China to reopen its borders until after the Party Congress in late 2022, and even then only if the population has been re-jabbed with better vaccines.

One response to estrangement is separation. America’s Trumpian right and progressive left would like their country to be more self-sufficient, while Mr Xi’s “dual-circulation” campaign is aimed at producing more goods at home. There are some signs on the ground of Asia’s investment patterns shifting and becoming less centred on greater China. India’s biggest business, Tata Group, is investing in electric vehicles and battery production at home. On November 9th TSMC, the world’s largest semiconductor company, said it would build a new plant in Japan in co-operation with Sony. Most banks are wary of expanding in turbulent Hong Kong.

But the overall picture is still one of intense interdependency. China has 75% of global battery manufacturing capacity. Even after its new investments, TSMC will have over 80% of its plant in Taiwan, which China claims as its territory. The impossibility of Asia decoupling from China is brought home by a tech boss who reckons 80% of goods sold on South-East Asia’s booming e-commerce platforms are from the Middle Kingdom. Were multinational firms to spend as they are today, they would need 16 years to replace the cumulative stock of cross-border investment in Asia. Even if they could, few firms want to exit China’s economy.

As you might expect, most firms want to be geopolitical hybrids that hedge their bets. Singapore’s firms lead the way. DBS Bank has a third of its deposits in dollars and is expanding in India and China. Temasek and GIC, two sovereign-wealth funds, have about a third of their combined assets in America and a fifth in China. SGX, the exchange, is integrated with Western markets but makes a fifth or so of its business from Chinese investors. American and Chinese firms are adopting Singapore-style dexterity. TikTok, an app owned by ByteDance, a Chinese firm, has an army of staff in Singapore: the idea is to show that it is independent of the Chinese state. Jamie Dimon, the boss of JPMorgan Chase, has just visited Hong Kong and said he was “not swayed by geopolitical winds”: the bank has boosted its exposure to greater China by 9% since 2019, to $26.5bn. On November 24th he apologised for joking that the bank would outlast the Chinese Communist Party.

Testing times

If the worst relations between China and America for decades have not prompted decoupling in Asia, what might? The confrontation could yet escalate but both sides seem keen to avoid that for now. Wang Qishan, China’s vice-president, declared that “isolation leads to backwardness”. Regulatory and technological shifts could eventually end American dominance in finance and drag Asia more firmly into China’s orbit. One boss reckons the opening of China’s capital markets will ultimately be as consequential in finance as its membership of the World Trade Organisation in 2001 was for trade. But for now investors and firms—and Singaporean prime ministers—face years of carefully straddling the divide.■

Read more from Schumpeter, our columnist on global business:
Walmart gets its bite back (Nov 20th 2021)
The supermajors have an LNG problem (Nov 6th 2021)
The three unknowns of the modern ad age (Oct 30th 2021)

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This article appeared in the Business section of the print edition under the headline “In the flesh”