Last autumn, China crossed an important milestone: its trade volume with developing countries exceeded the combined trade volume with the United States, Europe, and Japan for the first time since China's reform and opening up more than 40 years ago. As tensions over trade, technology, security, and other thorny issues intensify, China and the West are moving in different directions, and China's crossing this milestone is one of the most obvious signs to date.
For decades, Western countries such as the United States have sought to have China serve as a partner and consumer in the single global economy led by these wealthiest countries. Nowadays, trade and investment flows are forming a new pattern around two competing power centers.
In the increasingly fragmented world economy, Washington continues to pressure China with investment restrictions and export bans, while China adjusts its direction for some major components of its own economy, shifting from the West to the developing world.
For the United States and Europe, the benefits include reducing dependence on China's supply chain and bringing more job opportunities to Americans and Europeans, which could have flowed to China. But there are also significant risks, such as the potential to drag down global economic growth, and many economists are concerned that the gains and losses for both the West and China will not be worth the losses.
But the relevant strategies are becoming increasingly difficult to shake as both sides invest more resources in it.
Chinese factories are replacing corresponding Western products with chemicals, components, and machine tools from their own countries or from developing countries. In 2019, China's trade volume with Southeast Asia exceeded that with the United States. Nowadays, the trade volume between China and Russia exceeds that with Germany, and soon, the trade volume with Brazil will also be the same.
China's outward investment now mainly flows to resource rich places such as Indonesia or the Middle East, rather than the United States.
Major Western companies, including Apple, Stellantis, and HP, are seeking to shift production from China. Financial companies such as Sequoia Capital have begun to restrict or isolate their activities in China.
According to a survey by the U.S. China Business Council, which represents American companies in China, more than one-third of American companies have stated that they have reduced or suspended their planned investments in China in the past year. This proportion has reached a historic high, much higher than last year's 22%.
The world is splitting into competing fields, "said Noah Barkin, a senior consultant at Rhodium Group, a consulting firm based in New York. There is a momentum... that is to some extent self driven. There is a risk that this momentum will accelerate over time and become more difficult for the government to manage
Slow growth
The International Monetary Fund (IMF) stated in October that the fragmentation between China and the West is dragging down the recovery of the world economy this year. IMF research suggests that a more severe division between camps led by the United States and China could result in global economic output losses of up to 7%, worth trillions of dollars.
This economic fragmentation will hinder enterprises from entering important markets that can drive profit growth, and make it more difficult to share technology and capital, thereby inhibiting economic growth.
The cost borne by large companies in this regard has been increasing, especially in European countries such as Germany; In the past few decades, German companies have flourished by selling cars and high-end machinery to China. According to data from the China Association of Automobile Manufacturers, with the expansion of Chinese brands, German and Japanese automakers such as Volkswagen and Toyota currently have a market share of about 30% in the Chinese automotive market, down from nearly 50% three years ago.
From the perspective of China, the economic sphere of influence centered around Beijing may not provide sufficient growth to prevent China from falling into long-term stagnation in the face of declining birth rates and excessive debt. China's success largely depends on reaching out to high consumer groups and technology in the West.
In mid-2018, the United States accounted for as much as 22% of all imports from China. According to data from the Census Bureau, this proportion has dropped to 14% in the 12 months to August this year, despite an increase in bilateral trade in US dollars.
According to data from the United Nations Conference on Trade and Development, some Western funds are flowing back to the United States, or to places such as Mexico and India, which attracted four times more investment in new factories and offices last year than China.
Tomi Ristimaki, CEO of Kempower, a Finnish manufacturer of fast charging devices for electric vehicles, said the company plans to invest $40 million in the United States within five years.
He hopes that the United States can become an important market for the company like Europe, and stated that he has no plans to enter the electric vehicle market in China. He said, "The political atmosphere has changed. We will not focus on China
Jungheinrich is a forklift manufacturer headquartered in Hamburg, Germany, with an annual revenue of nearly 5 billion euros (approximately 5.3 billion US dollars). In its 2020 strategic plan, the company prioritized China and plans to expand its business in China. Lars Brzoska, CEO of Yonghengli, stated that it has recently decided to replace the Chinese market with the US market as a priority for the company's development.
Brzoska stated that Evergrande has not yet decided whether to move out of China, especially as geopolitical tensions escalate. The company has two factories and nearly a thousand employees in China.
Everyone is considering the potential invasion of Taiwan by China, "Brzoska said. If this happens, it would be a big problem for the whole world. If we had other footholds, perhaps it would be even better
A single slap cannot make a sound "
At the same time, China has invested heavily in nickel factories in Indonesia to supply China's electric vehicle industry. Technology companies Tencent and Alibaba have expanded their operations to Asia, Africa, and Latin America. Other Chinese companies are targeting renewable energy projects in Latin America and Africa.
An analysis of Chinese customs data by The Wall Street Journal shows that developing markets in Latin America, Africa, and Asia currently account for 36% of China's total trade, while China's trade with the United States, Europe, and Japan accounts for 33%. Just last summer, these three developed markets accounted for a higher proportion of China's trade.
Part of the reason is that Chinese factories are transferring to countries such as Vietnam, India, and Mexico to avoid US tariffs and continue selling to US customers. However, China's increasing development in affordable smartphones, cars, and machinery that are attractive to customers in developing countries is also driving these changes, which are negatively affecting Western competitors.
Chinese automaker Great Wall Motors announced last year that it will spend $1.9 billion to produce hybrid and electric vehicles in the state of S ã o Paulo, Brazil over the next decade. BYD will invest $600 million in Brazil and $500 million in Thailand; The company is one of the largest sellers of electric vehicles in Thailand.
Chinese home appliance manufacturer Midea Group opened new factories in Egypt and Thailand last year and is building factories in Brazil and Mexico to serve the local market.
Although it may seem that the West is pushing for decoupling, as people say, one hand cannot clap, "said Allen Morrison, a global management professor at the Thunderbird School of Global Management at Arizona State University. Morrison co authored a book on Chinese business strategy.
Looking back at China, local brands such as Genki Forest are increasingly competing with Western brands such as Coca Cola. Huawei Technologies Co. has launched a new smartphone with ultra high-speed data connectivity that uses semiconductors made in China, helping the company compete with Apple.
According to data from the Dutch government agency CPB, which tracks global trade activities, as Chinese companies replace Western manufacturers of tools and finished parts, the proportion of imported products used in industrial production in China has decreased by about 50% from its peak reached in 2005, even though Chinese exports have been growing during the same period.
After decades of global integration, the division of the world is constantly expanding. China initiated reform and opening up in the 1980s and joined the World Trade Organization (WTO) in 2001, igniting a new stage of globalization, bringing investment to China and cheap consumer goods to Western consumers.
When Western leaders began to examine their relationship with China, this economic order began to unravel, as previous relationships with China had disrupted the job markets of some American and European communities. Western companies complain that they have to transfer their technology to Chinese partners in order to gain market access in China.
In the initial stage, economic decoupling was still somewhat hesitant, mainly focusing on product trade directly affected by the US tariffs on Chinese imports, such as semiconductors, computer hardware, and automotive components.
After Donald Trump imposed tariffs on about 60% of Chinese imports, Biden took action to prevent China from acquiring high-end computer chips and imposed new restrictions on US investment in China. The US government has introduced billions of dollars in subsidies to attract manufacturing backflow.
According to data from China, in the four quarters ended June, foreign direct investment in China decreased by 78% compared to the same period last year.
However, assuming there will be no military conflict, the possibility of China completely decoupling from the West is unlikely.
China's low production costs and vast consumer market are still something many companies cannot give up. BASF, a German chemical company, will invest up to approximately $10.5 billion in China by 2030. Starbucks, Ralph Lauren, and Hormel Foods have been expanding their business in China.
Brands with connections to China, such as TikTok and fast fashion giant Shein, have also established large businesses in the United States, but the political pressure they face may constrain their development.
The analysis by the Peterson Institute for International Economics shows that although the US imports of semiconductors and IT hardware from China have significantly decreased due to tariffs, the purchase volume of toys, games, and other products not affected by Trump era tariffs is soaring.
Chinese officials say they still welcome Western investment, including companies like Tesla, which is expanding battery production in Shanghai. Washington describes its policy towards China as a "small courtyard with high walls", which means it only hopes to implement strict controls in sensitive areas such as computer chips, but in other areas, it hopes for bilateral trade and investment to continue.
Nevertheless, there is evidence that the economic relationship between China and Western countries led by the United States is accelerating to loosen.  
Adam Slater, Chief Economist of Oxford Economics, said, "We are at a point from the early stages to the next stage. Decoupling has indeed formed a certain momentum, and I believe it still has a long way to go.