Complete US-China decoupling would be catastrophic for global economy, CEO says at Davos

Policymakers on both sides realise the consequences and are keen to find areas where the world's two biggest economies can co-operate

Workers at the Foxconn plant in Shenzhen, China. The Taiwanese company, which makes Apple’s iPhones in China, is also making them for the US company in India. AFP

A complete decoupling of the US and China would have catastrophic consequences for the global economy and policymakers on both sides are keen to find areas where the world’s two biggest economies can co-operate, the chief executive of money manager Fidelity International said in Davos.

There is a lot of “rhetoric” in terms of what is being said by officials, however, it is really important to “listen very hard to get what is actually being said”, said Anne Richards.

“My take is that the realisation that complete decoupling would be catastrophic for the global economy means that there is a genuine desire on both the US and Chinese sides to find the areas where co-operation can happen,” Ms Richards told a panel at the World Economic Forum on Tuesday.

The fact that these conversations are taking place between the two sides and there is an intent “not to completely fracture the global economy” is really important, added Ms Richards, whose company has $9.6 trillion in assets under administration globally.

The US and China have been at loggerheads since Donald Trump's Republican administration took control of the White House in 2016. The two sides engaged in a tit-for-tat tariff war that has seen the US slapping duties on more than $300 billion worth of Chinese imports.

The US has also imposed embargoes on advanced technology sales to Chinese companies and the US markets regulator has sought more scrutiny of the financial affairs of Chinese enterprises listed on US stock exchanges.

The situation has improved little in terms of a rollback of tariffs or China’s access to advanced technology under the Biden administration, but the rhetoric has toned down considerably.

Last year, China’s President Xi Jinping called for greater global economic integration and warned against decoupling, saying international affairs should be conducted by way of negotiations and discussions.

As Chinese companies seek to develop their own advanced technology industrial base, US enterprises that have relied on China for supplies and manufacturing for decades are now seeking alternatives.

Exports of iPhones made in India crossed the $1 billion mark last year, as Apple tries to cut its reliance on China, where the bulk of its smartphones are manufactured.

Most businesses, however, do not want a complete breakage in global supply chains and want to follow a “China plus one” policy, Ms Richards said.

The trend of adding resilience to supply chains by having an alternative is evident from a rise in foreign direct investments into countries such as Indonesia, Mexico, Cambodia and other places, she said.

“I think that's important. It's a realisation,” she added.

For major companies, especially those that are publicly traded, it will be extremely difficult to completely cut off ties with China if sanctions similar to those imposed on Russia were levied against China, Lubna Olayan, chairwoman of Olayan Financing Company’s executive committee, told the panel.

“The pressure on the companies, and especially, [publicly-traded companies] who have major [revenue] contributions from China, I don't think there is going to be that choice [for them],” she said.

Most companies are having a hard time because the bulk of their supply chain is in China, but little by little, they are moving away to alternatives, Carmine Di Sibio, global chairman and chief executive of EY, said.

“China is very different to Russia. I mean, there's just too much revenue, there's too much at stake,” he said.