China and the USA: the bonds that bind

China and the USA: the bonds that bind

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Hello from Wellington. Without the coronavirus pandemic, perhaps the greatest ongoing story of the past year would have been the great decoupling of the world's two largest economies, China and the United States.

Much ink has been spilled to clarify this subject of a new Cold War, but as we highlight in ours Main piece today The picture is nuanced, especially due to the upheavals caused by Covid-19.

Our Chart of the day deals with US LNG exports to Europe while the Person in the news is the Japanese Prime Minister Yoshihide Suga.

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Has the US-China decoupling been overrated?

For several years now, our correspondents across Asia have been reporting on topics that point to a new, defining story of our time: the decoupling between the USA and China.

The decline in trade ties, particularly the Trump administration's efforts to curb supplies to Chinese tech champions like ZTE, Huawei and SMIC, are evident. The countries in the region took the heated argument seriously for a long time. Taiwan incentivized businesses to move factories home in 2018 and South Korean tech giant Samsung's withdrawal from China in favor of Vietnam.

Although the exceptions received less attention, there have been recent developments that call into question the broader narrative. While life has indeed become more difficult for many companies and the risks associated with dealing with Beijing have increased, business with China continues and continues at a pace.

For example, Samsung Display, the world's largest maker of electronic screens, confirmed Tuesday that it had obtained the US licenses required to ship some screens for the Huawei smartphone. This is a positive signal that providers have been able to comply with the new US sanctions.

Beyond technology, the financial world is also testimony to the fact that relations between the US and China are tightening, not fraying.

Just as Beijing and Washington clash over arms sales to Taiwan and other geopolitical hot spots, Wall Street groups such as JPMorgan Chase and Citigroup have received approval to expand their China operations while foreign institutional investors have been replenishing Chinese onshore bonds. With record foreign demand for Chinese assets, the renminbi's international role is expanding.

Samsung Display has secured US licenses for the provision of screens for the Huawei smartphone. This is a signal that providers are in a position to impose new US sanctions. © Noel Celis / AFP / Getty

A sample of trade and economic data also paints a similar picture of growing integration. Beijing's comparatively quick handling of the pandemic and the subsequent return to growth – while the US and Europe battle new virus fluctuations – only deepen the countries' dependence on China as the world's growth engine.

Taiwanese exports – most of which are electronics and telecommunications components and are shipped to China – recently reached their highest monthly monthly level. This week, South Korea, another economy highly exposed to China, reported its strongest quarterly GDP growth in a decade. In June, Australia posted a record trade surplus after an increase in Chinese demand for raw materials.

“US companies have perfected and optimized the global supply chain over the past 40 years. . . (but) the unbundling of supply chains and trade relations between the US and China will prove difficult and costly, ”writes Jack Ablin, chief investment officer at Cresset, a US asset manager.

Of course, the uncertainty is still great and depends heavily on the outcome of the US elections. Whatever happens, the examples above underscore that economic decoupling is not that easy in practice.

Mapped waters

The increasing US production in recent years has enabled the export of liquefied natural gas across the Atlantic. As energy reporters Myles McCormick and Derek Brower point out, exports to Europe – the world's largest LNG importer – are threatened as perceptions of the country's upstream oil and gas industry deteriorate. After the EU launched a methane strategy earlier this month to play with the idea of ​​setting standards for gas imports into the bloc, exporters are nervous. Although industry executives argue that the bloc's imports from Russia can hardly be described as environmentally friendly, the image of U.S. fuels across the Atlantic has declined: not good in an increasingly climate-conscious world.

Bar chart: US LNG exports to the EU have increased in recent years

Person in the news

Yoshihide Suga intends for Japan to become climate neutral by 2050. © Dita Alangkara / AP

Who is it?

Yoshihide Suga, Japan's new Prime Minister

Why is he on the news?

Suga used his first keynote address to the Japanese state parliament to announce plans for the country to be carbon neutral by 2050 – a major change in energy policy.

Japan relies heavily on fossil fuels, especially as many of its nuclear reactors were kept offline after the 2011 Fukushima disaster. Although Suga's announcement was accompanied by few specific details, the direction of travel will affect oil and gas exporters including Australia and Indonesia. It has already put pressure on South Korea to follow up on a similar promise.

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