G-7 leaders agree approach to ‘de-risk’ China

Group of Seven leaders agreed there was a need to reduce risk, not dissociate from China, and acknowledged the challenges posed by the mainland’s practices that “distort the global economy”.

“We are not decoupling or turning inward,” the G-7 said in a joint statement issued over the weekend as leaders met in Hiroshima, Japan. “At the same time, we recognize that economic resilience requires risk reduction and diversification.”

The leaders added, “We will seek to address the challenges posed by China’s non-trade policies and practices, which distort the global economy. We will fight against malicious practices, such as illegitimate technology transfer or data disclosure.

Reiterating his position, President Joe Biden said at a press conference on Sunday, “We are not looking to dissociate ourselves from China, we are looking to reduce risk and diversify our relationship with China.

He explained that this means taking steps to diversify supply chains, “so that we are not dependent on any country for the product we need. It means resisting economic coercion together and fighting against harmful practices that harm our workers. It means protecting a narrow set of cutting-edge technologies that are critical to our national security.”

Speaking after the meeting of G-7 finance ministers and central bank governors earlier this month, US Treasury Secretary Janet Yellen said China’s behavior is “an issue that should concern us all”.

“There have been examples where China has used economic coercion on countries taking actions that it is not geopolitically happy with,” she said, citing China’s trade disputes. with Australia and Lithuania as examples.

In their statement, the G-7 leaders said, “We will foster resilience to economic coercion. We also recognize the need to protect certain advanced technologies that could be used to threaten our national security without unduly restricting trade and investment.

The world’s major democracies said the group would “reduce overdependencies in our critical supply chains” while stressing the need to cooperate with China, citing its role in the international community and the size of its economy.

“We stand ready to establish constructive and stable relations with China, recognizing the importance of engaging frankly with China and raising our concerns directly with it. We are acting in our national interest,” the statement said.

President Joe Biden’s administration previously briefed industry groups such as the Chamber of Commerce on moves to curb U.S. investment in China, according to media reports.

Such rules would mean stricter guidelines for U.S. companies who will be required to notify the government of new investments in Chinese tech companies, according to Politico. Transactions in critical sectors such as microchips will also be prohibited, according to the publication.

British Prime Minister Rishi Sunak also told reporters that London was willing to follow the United States’ lead on Chinese investment restrictions, the Financial Times reported.

Ahead of the weekend’s G-7 summit, Goldman Sachs economists Hui Shan and Andrew Tilton said they expected action from the Committee on Foreign Investment in the United States, or CFIUS – a US government agency that reviews deals involving foreign investment in the United States to see if the transaction harms the country’s national security.

In a note outlining the package earlier this month, they said there could be “more emphasis on refining existing tariff, export control and investment regimes once the basic frameworks will be in place”.

“We expect them to focus quite narrowly on advanced semiconductors and related technologies, alongside last fall’s export controls, and not foresee significant restrictions on portfolio investments in the market. secondary.”

The impact of a widening rift between the United States and China could lead to further damage, Allianz economists said in a note last Wednesday.

“The economic implications of a further decoupling between the West and China could be significant,” they wrote, adding that the damage to China’s economy could be “far from negligible.”

“China could retaliate by reducing the supply of critical raw materials in which it has a dominant position, which could seriously disrupt global supply chains,” they said.

“But that is unlikely as it already enforces some forms of overseas investment restrictions and still leans towards economic pragmatism.”

Further escalations could potentially occur in US-China relations after Washington concluded negotiations with Taiwan on a number of trade issues on Friday, marking a potential agreement on the first part of the bilateral “21st Century Trade” initiative. .

The first agreement under the initiative includes: customs administration and trade facilitation, good regulatory practices, domestic regulation of services, anti-corruption and small and medium enterprises, the office of the U.S. Trade Representative in a statement.

U.S. Trade Representative Katherine Tai said of the agreement, “This achievement represents an important step forward in strengthening the economic relationship between the United States and Taiwan.”

China has repeatedly warned against deepening bilateral engagement between the United States and Taiwan.

Goldman Sachs argued that with the Taiwan factor, the focus of US-China tensions could shift from trade to the military.

“The most immediate focus has been on building Taiwan’s military capabilities to deter conflict,” US political economists Alec Phillips and Tim Krupa wrote earlier this month, adding that they see “good chances” that the US Congress will provide additional support for currently existing programs. .