SINGAPORE – China’s investment deal with the European Union could pave the way for Beijing’s “dual circulation” strategy of being self-contained in technology while still remaining part of the global supply chain, a professor told CNBC.
Last year, the Chinese government issued a series of policy conditions to strengthen its economy, which fall under a vague umbrella term of “double circulation”. The term broadly refers to two circles of economic activity – internal and external – with a greater emphasis than before on home business.
“Double proliferation is such an important point in the midst of this technology war between China and the US,” said Winston Ma, associate professor of law at New York University.
The two superpowers continue to fight for technological dominance and superiority. Reuters recently reported that the Trump administration had in the past few days informed Huawei suppliers that they are revoking certain licenses for sales to the Chinese tech company. Huawei has been embroiled in ongoing US-China tensions as sanctions from Washington seriously affected its ability to do business worldwide.
Ma told CNBC’s Squawk Box Asia on Tuesday that an EU-China investment treaty, if passed, could potentially give Beijing an opportunity to bypass the United States altogether.
“You can see that this double circulation is balanced by focusing on domestic innovation while trying to find a place other than the US to get into the external circulation so that the global supply chain and global innovation dialogue continues can be in the midst of tensions between China and the US, “he said.
The European Union’s executive, the European Commission, announced an investment deal with Beijing last month that followed seven years of negotiations. The agreement would have to be approved by the European Parliament before implementation and the legislator has already expressed major concerns about the agreement. Ma expects it to be approved by this year.
Experts have said that US-China tensions are fueling the disconnection between technology development in both countries – the situation is often referred to as technical “decoupling”.
Ma said part of that split is already taking place, indicating that China is focused on strengthening its domestic semiconductor industry by pouring funds into local research and development. Earlier last year, US lawmakers also proposed funding for the development of 5G alternatives to Huawei. “What we are really seeing is that both countries are promoting innovation, but promoting innovation in ways that are independent of each other. In that sense, the decoupling is really happening,” he added.
It is not clear that President-elect Joe Biden’s administration would reset relations with Beijing, according to Ma. “I would say there is a lot of uncertainty,” he said.
While the Biden administration has the power to suspend pre-existing US sanctions, Ma said they could choose to keep them, “and they can even impose further restrictions on these Chinese companies.”
The smartphone manufacturer Xiaomi, for example, was recently blacklisted by the Trump administration of suspected Chinese military companies. Biden could potentially add the Chinese company to the entity list, which could prevent American companies from exporting technology to Xiaomi, Ma said.