In recent years, policymakers and analysts worldwide have been striving to study how to address the challenges posed by the Chinese Communist Party (CCP). Even those who acknowledge the broad threats posed by the CCP regime in various areas are struggling to formulate clear plans to address these threats. So, how should the world respond to the threats posed by the CCP regime?
When discussing the “China risk,” we first need to specifically define the meaning of this term. For our purposes, we will focus on the risks brought to foreign countries and companies by the trade and financial ties with the CCP regime and Chinese companies, whether these companies are physically located in China or in third countries.
However, we need to consider risks on multiple levels. In most of our practices, we will rely on two specific concepts of risk.
First, is there a national security risk? Unfortunately, the national security in the digital age involves more sectors and products than most people acknowledge, but we must consider these risks.
Secondly, if there is no national security risk, what are the potential risks if a certain type of product excessively relies on China? If China exercises its market power (which it often does), can such products be easily and swiftly purchased in adequate quantities elsewhere?
It is clear that China has established dominance in some industries, which brings very real risks, such as basic electronics manufacturing like televisions, mobile devices, telecommunications network equipment, and durable goods, as well as foreign and domestic brand export cars entering the high-end automotive market. The issue with these goods is that they pose clearly identifiable and verifiable risks of unauthorized data collection and monitoring.
The initial approach to addressing the national security risks of surveillance and data collection was to target specific companies. However, for every company shut down, other state-supported companies from the CCP regime emerge, or concerning components are exported to other countries for assembly into end products. We need to take a more comprehensive approach to address the threats posed by CCP electronic products embedded in various products.
The fundamental problem lies in the fact that the CCP has invested heavily to dominate some key industries, especially manufacturing and primary inputs. For instance, China controls 90% of global production capacity in many industries. This situation is most evident in critical input areas, such as rare earth metals used in most electronic components, and even stretches into the manufacturing sector. Unless the complete control of the CCP regime over many industries and the issues of achieving supply diversification are addressed, no strategic response to the CCP threats can be considered credible and effective.
To address the root issue, there are at least several methods available. Firstly, the U.S. needs to enact clean technology regulations and audit the global supply chains of electronic companies to ensure compliance. Currently, there are very few regulations regarding digital protection of goods. Given the shared concerns regarding CCP companies like Huawei and TikTok, the threats they pose apply similarly to many other CCP companies and other companies as well. Rather than tackling problems one by one for each company, it would be more effective to apply data protection and privacy standards to all products.
Secondly, the U.S. needs to implement a “friendshore” strategy for a substantial amount of manufacturing to break China’s dominance in many industries and assist in shifting businesses like final assembly and basic manufacturing. In reality, returning manufacturing from China to the U.S. is not plausible for many industries. However, the U.S. would be more eager to accept manufacturing from Mexico, Japan, Ghana, or the UK compared to Chinese manufacturing.
To achieve this, incentivizing businesses in different ways and signing long-term trade agreements with partner countries to demonstrate America’s commitment is necessary. Unless the U.S. makes a clear long-term commitment, changes the flow of trade, and allocates resources to alter the global trade patterns, most businesses and other countries will not easily risk provoking the global risks posed by the CCP.
Whether it’s the U.S. implementing “decoupling” or the EU implementing “derisking,” countries worldwide are actively seeking various ways to reduce dependence on China. However, it must be noted that to date, the methods adopted by the U.S. government and other countries, even those acknowledging the issues, have been fragmented and piecemeal.
If the world is serious about addressing the risks posed by the CCP, a comprehensive approach to solving the entire threat must be considered, rather than addressing individual companies in isolation.
This translation and rewrite does not reflect the views of any original publisher or writer.