Interesting Read on ‘Decoupling’ – Severed Ties & Patchwork Globalization

Ever since the earliest days of China’s opening up and reform, direct or indirect market access barriers for foreign investment have been ever-present, making decoupling a trend that remains relevant to almost every business sector. 

A recent report by the European Union Chamber of Commerce in China & MERICS dives deeper into this troubling development. You can read the whole article here (click)

Here is a summary of the four types of decoupling & the risks associated with them:

Marco Decoupling

  • Political: the politicization of business & geopolitical tensions may imply “political reciprocity” dynamics in the business world resulting from political or diplomatic tensions.
  • Financial: as China lacks a fully convertible capital account & an internationalized RMB, its reliance on the USD remains its “Achilles Heel”.

Trade Decoupling

  • Supply chains: many European companies report the challenge of low-cost Chinese manufacturing moving elsewhere, although the situation varies by sector.
  • Critical inputs: target restrictions on the sale & export of critical goods – such as semiconductors, related manufacturing equipment, software or even rare earths – have become a more pressing concern for companies operating in China and globally.

Innovation Decoupling

  • R&D: although China is an increasingly attractive R&D destination, some concerns still remain. The EU is working on tools to prevent unfair practices within its internal market.
  • Standards: while access to standardization bodies in China has improved considerably in recent years, European companies – particularly in key sectors – still face informal barriers that prevent them from effectively engaging in standards-setting in China.

Digital Decoupling

  • Data governance: data governance regimes in both China and the EU significantly restrict the transfer of data across borders of these jurisdictions, creating significant compliance risks for companies.
  • Network equipment: China’s rapidly expanding barriers to foreign telecommunications & network equipment value chains via requirements for “autonomous and controllable” technology, is pushing European players out of the market or into niche roles.
  • Telecommunication services: China’s long-standing barriers to foreign telecommunications services & digital solutions now affect a larger number of industries, especially with regards to digital technology, which includes value-added telecommunications services (VATS) like cloud and data centers.