How China’s ‘old friend’ diplomacy will shape its economic future
Faced with political isolation, economic decoupling and tech barriers, China is determined to woo US tech giants and businesses, undeterred in its quest to become a global hi-tech hub
Tesla founder and CEO Elon Musk’s surprise visit to Beijing before the Labour Day holiday was hailed as a pivotal moment for the electric vehicle maker, which has been grappling with soft demand and fierce competition. The company’s stock soared after it reportedly received in-principle approval to roll out its semi-autonomous driving technology in China and clearance for meeting key data security requirements.
The significance of the meeting between Chinese Premier Li Qiang and his “old friend” Musk should not be underestimated. It can be seen as a watershed, a valuable glimpse into China’s economic trajectory and the policies slated for discussion at the postponed third plenum in July.
Li’s intent is resolute: China will persist in opening up its economy, endeavour to ascend as a formidable technological force, foster collaboration with Western countries and fortify its economic might to propel worldwide progress.
The Li-Musk meeting evokes a memory from October 1970, when American journalist Edgar Snow stood alongside Mao Zedong at the Tiananmen gate tower. It sent a signal to Washington that China was prepared to align with the United States against the Soviet Union.
Today, China’s ambition and strategy is to surmount political isolation, economic decoupling and the technological separation imposed by the US. Its focus is on wooing the American business community and tech giants amid an economic cold war. China is undeterred in its quest to become a global hi-tech hub.
By embracing Tesla’s semi-autonomous driving technology, China aims to establish itself as a pioneer and testing ground for innovation. China’s new economic orientation will be propelled by high technology, with an emphasis on advanced manufacturing. This is the sole viable pathway for China to sustain long-term growth.
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Elon Musk meets Premier Li Qiang in Beijing amid Tesla bid to promote self-driving tech
Elon Musk meets Premier Li Qiang in Beijing amid Tesla bid to promote self-driving tech
In the last two decades, Chinese start-ups, once derided as mere imitators, have surpassed their American counterparts. Numerous hi-tech companies, including Alibaba Group Holding (owner of the South China Morning Post), Tencent and Baidu, have flourished in China’s ecosystem.
And just as with the US-Japan rivalry of the 1970s and 1980s, it seems apparent that China’s ascent will ultimately yield benefits for the US economy.
Despite the “de-risking” strategies pursued by Western countries, China is keen to maintain strong ties with the West and avoid decoupling. By engaging with American business leaders and tech giants like Musk and Tesla, China aims to show its commitment to collaboration and prevent complete economic isolation.
But convincing the West of this intention is proving challenging.
China has a history of leveraging foreign companies’ access to its market to serve its own agenda. For multinational companies, the potential of the vast Chinese market cannot be ignored. Tesla and Apple, for instance, generate about one-fifth of their sales from China.
Apple recently reported better-than-expected sales and its iPhones remain among the bestselling smartphones in China despite weakened consumption. As for Tesla, its full self-driving (FSD) technology will give it a competitive advantage in not just the fiercely competitive electric vehicle market in China but also the global market.
China’s goal is to maintain its position as the world’s factory and global supply chain hub, and this requires a growing presence of multinational companies. Indeed, such companies from Europe and the US, such as Intel, Nvidia, Volkswagen and BMW continue to have a significant stake in China.
But to deal with the disruptions caused by the pandemic and changing geopolitical conditions, many multinational companies have adopted a “China for China” strategy. This involves sourcing and manufacturing within China to minimise risks and maximise efficiency.
At the same time, they are diversifying their risks through a “China Plus One” strategy, which involves sourcing and manufacturing in alternative countries such as Vietnam, Indonesia and India.
Musk’s surprise China visit, which came after a high-profile cancellation of a trip to India, in effect meant China stole India’s thunder.
India is emerging as an alternative global supply hub as a result of shifting supply chains amid the China-US rivalry. However, China is determined to attract and retain multinational companies by showcasing its willingness to adopt advanced technologies from Western countries.
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Chinese premier says Beijing opposes cutting off supply chains amid calls for decoupling
Chinese premier says Beijing opposes cutting off supply chains amid calls for decoupling
The most significant takeaway from the Li-Musk meeting is that China is determined to open up its economy to the world and pursue growth. However, it is crucial to maintain reasonable expectations and acknowledge that political control is unlikely to be loosened soon.
China has encountered difficulties in convincing multinational companies that it is irreplaceable for global investors, even after reopening its borders at the end of 2022. China seeks to counter negative perceptions and maintain relevance in the global economic landscape.
Restoring confidence will necessitate a more pragmatic approach to driving its economy and providing equal opportunities to state-owned enterprises, the private sector and foreign companies. The third plenum is expected to unveil deeper reforms; more concrete policies will be required to maintain China’s relevance in the global economic landscape.
China will continue its charm offensive with American business leaders, to sway the hawkish stance in Washington towards Beijing. With a dearth of moderate politicians in the US willing to engage with China, it must rely on the support of multinational companies to shape the political landscape.
The tech giants are likely to face a hostile reception in Washington given the prevailing sentiment towards China. Nonetheless, influential figures such as Musk and Microsoft founder Bill Gates, also regarded as an “old friend” of China, as well as Apple CEO Tim Cook, may have a more substantial impact than American politicians in persuading the US public that collaboration and competition with China will foster innovation and sustainable growth, and benefit consumers worldwide.
Ningrong Liu is associate vice-president at the University of Hong Kong, and the founding director of HKU Institute for China Business
