Since the U.S. government and the EU started talking last week about how China likely would start arming Russia, I’ve been feeling like pretty much “everybody” agrees with me on the big risks involved with doing business in or with China, but they are raising me one. I am increasingly hearing from people who are convinced that the world has ZERO use for China and we should expect it to return to the stone age within a year or so…
…China is getting riskier and all of the data points point to that continuing. Nonetheless, there are still some companies that should not leave China. If you are making money from China or you cannot yet move your manufacturing out of China and the benefits of you staying in China outweigh whatever harm to your reputation you might face by doing so, you should stay. There are a surprising number of these companies and many of my firm’s lawyers are still kept busy helping them navigate China’s legal landscape.
2-23-2023 Update. Politico this morning has come out with an article that very nicely details and updates the decline in China’s relations with the democratic world, and how China’s aid for Russia (on top of its spying) has accelerated this. The article is titled, U.S. diplomatic counter-offensive targets China’s ‘false information and it focuses on how close to the “red line” China is with Russia.
Per Politico, the Biden administration is “pushing back on Beijing behind the scenes through diplomatic outreach to allies and partners” in an effort to underscore its “resolve to hold Beijing accountable for the [balloon] incident and to use it as an exemplar of the long international reach of China’s malign activities, even as China tries to woo Europe and other regional blocs.”:
The Biden administration has reacted strongly “because it’s so clearly a case where the Chinese should just have admitted that they took an action that they should not have taken,” said Zack Cooper, former assistant to the deputy national security adviser for combating terrorism at the National Security Council.
“And rather than just owning up to what was pretty obvious for all to see, [Beijing] launched into a whole propaganda campaign that was pretty frustrating for the administration, especially given that they were heading into what would have been [Secretary of State Antony] Blinken’s first trip to Beijing.”
China has continued to push back against the U.S. allegations, deflecting questions about its surveillance activities and the extent to which it is planning on supporting Russia in Ukraine. Now, the two countries are engaged in an intense public standoff, and neither side is indicating that it’s ready to back down anytime soon.
In addition to explaining to U.S. allies what happened with China’s spy balloon and China’s subsequent lies about it, the U.S. is also revealing its intelligence regarding China’s plans to send lethal weapons to Russia. The U.S.’s concerted anti-China PR campaign seems to be working as “messages coming from Europe” is “creating a united front.”:
On Monday, the EU’s top diplomat, Josep Borrell, said it would be a “red line” for the European Union if China sends arms to Russia. Top diplomats from Sweden and Lithuania voiced similar sentiments. And NATO chief Jens Stoltenberg followed suit on Tuesday.
China’s Wang Yi, meanwhile, arrived in Russia Wednesday where he met with President Vladimir Putin and the head of Russia’s National Security Council. Putin declared that Russia-China ties had reached “new frontiers” and announced that Chinese paramount leader Xi Jinping is expected to visit Russia later this year.
Why We Are Writing This Now? What Will the Future Hold?
This post is coming out now because I am tired of seeing companies tie their global plans to every possible upward tick in the US-China trade war. Too many companies keep holding off on moving out of China based on news reports that this deal or that deal will soon be made between the United States and China. This is happening again with the so-called Phase One deal that has been perpetually touted as being on the verge. See Millimeters’ separate U.S., China from phase one trade deal.
This post is intended to burst that bubble.
First off, I put the odds at less than 50 percent of even a very limited Phase One happening. Financial analysts and economists keep saying that deal will happen, but that is because they view things from an economic perspective and they are convinced that such a deal makes economic sense. But as we have been saying since day one, if the US-China trade war were based on economics, China would have been able to end it by buying more soybeans and Boeing airplanes. Also, the longer the U.S. economy continues roaring ahead, the less economic need for any deal at all.
Second, even if the Phase One deal does happen, it will be so limited as to be meaningless for most companies and nothing but a short-term pause in the decoupling. Look at all that has happened between the United States (and the West) and China over China’s treatment of Hong Kong and the Uighurs and tell me that the US and China are millimeters away from patching things up. Look at what is going on between Australia and China and between the EU and China and between Sweden and China and tell me that relations between the West and China will get better. Look at how “Beijing orders state offices to replace foreign PCs and software” and tell me who you think will stop the straight line detoriation in relations between the West and China.
Decoupling is happening and will continue happening and you and your business need to act accordingly.
Dan Harris is a founding member of Harris Bricken, an international law firm where he mostly represents companies doing business in emerging market countries. Most of his time is spent helping American and European companies navigate foreign countries by working with the international lawyers at his firm in setting up companies overseas (WFOEs, Subsidiaries, Rep Offices and Joint Ventures), drafting international contracts, protecting IP, and overseeing M&A transactions. In addition, Dan writes and speaks extensively on international law, with a focus on protecting foreign businesses in their overseas operations. He is also a prolific and widely-followed blogger, writing as the co-author of the award-winning China Law Blog.
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