Tensions with the West: China’s Global Influence
Eleanor Montgomery provides an overview of China’s global influence, rising tensions between Beijing and the West and the consequences of changes in Chinese law.
Geopolitical tensions between China and the West have recently been aggravated by the ban of Huawei 5G technology, a decision taken by countries including the US, UK and France. While investigating the telecom giant’s links with the Chinese government, the US has cited concerns over national security in their campaign calling countries to ban the technology.[1] In the UK, Huawei was granted permission by the government to set up their 5G network. However, the offer was rescinded in July following the US campaign - Huawei must now remove their existing UK hardware by 2027. Liu Xiaoming, the Chinese ambassador to the UK, suggested that banning Huawei would undermine Chinese infrastructure projects, including the HS2 high-speed rail network.[2] With similar regard for national security concerns and Chinese influence, on the 6th August, President Trump announced sweeping restrictions barring American companies from doing business with the Beijing-based video-sharing app TikTok and Tencent, a Chinese company which owns WeChat and has major shares in Tesla and Reddit.[3] Microsoft and Oracle have allegedly been in negotiations regarding the acquisition of TikTok, a deal which would have to be completed within the 45-day deadline set by President Trump. To put this into context, mergers and acquisitions often take a period of 4 to 6 months to market, negotiate and close; Microsoft's 2016 acquisition of LinkedIn took 5 months.[4] TikTok issued a statement stating they intended to "pursue all remedies available to us in order to ensure [...] our company and our users are treated fairly - if not by the Administration, then by the US courts".[5] These actions are directly contributing to growing tensions between the US and China and such restrictions will almost certainly influence the foreign policies of other countries. China’s global influence has grown steadily, with the Belt and Road Initiative (‘BRI’) being a significant contributor to Chinese investment in foreign infrastructure: 65 countries are affiliated with the initiative. Recently, Vietnam proposed a railway line to connect Hanoi to Kunming, the capital of China’s Yunnan province.[6] This line will be reconstructed from what remains of the original, built by the French in the 20th Century. Historically, the line enabled France to exert its influence over ‘French Indochina’, a former group of French colonial territories in Southeast Asia. According to analysts, small states such as Vietnam have two basic foreign policy options: “align closely with one great power” or “maintain a hedging posture”.[7] Given China’s global presence, this route will allow for increased Chinese influence in Vietnam. The BRI could provide economic opportunities and persuade these small states against leaning towards certain strands of Western ideology. Furthermore, the Hong Kong National Security Law allows Beijing to control and influence Hong Kong in a manner unprecedented in recent times. The law has given authorities the capacity to restrict acts of secession, subversion, terrorism, or collusion with foreign or external forces.[8] This expands on the ‘one country two systems’ notion through which China already exerts influence over Hong Kong. China defended the law as necessary for restoring stability in Hong Kong, but many claim that it curtails freedom of speech and public protests.[9] Various pro-democracy activists have called upon foreign governments to help their cause, but even this course of action could become unlawful in the future. This new control over Hong Kong could generate antagonism amongst sympathisers of Western democratic principles and reduce the city’s allure as a global business hub: international trade relationships may alter and according to Waite/Alms, the new law may “limit the independence of the judiciary, which could result in negative implications on contract law, dispute resolution and IP / Technology protections.”[10] Yet despite the aforementioned tensions, the total number of IPOs by Chinese businesses in the New York Stock Exchange and Nasdaq have doubled this year. The total amount of dollars raised by these Chinese listed companies is 2.9 billion, an increase of 30% from last year’s listings.[11] The reasons why Chinese companies have decided to list in the US are complex. The US markets have several advantages; for example, the higher trading turnover eases the process of secondary share offerings. Chinese companies may have therefore decided to start distancing themselves from state control as the USA's attractive equity capital markets take priority over geopolitics. Furthermore, in 2019, the Shanghai London Stock Connect was launched to provide scope for Chinese investors to directly invest in companies listed on the London Stock Exchange, without being subject to domestic capital controls.[12] The British government's response to the Hong Kong National Security Law sparked rumours that the operation had been halted (Foreign Secretary Dominic Raab stated that it “undermines the one country two systems framework under which Hong Kong is guaranteed a high degree of autonomy with executive, legislative and independent judicial powers”).[13] However, Chinese Regulator Chang Depeng has since confirmed that the Stock Connect has been “operating normally”[14] since its inception last year. This is likely another instance of economic prosperity taking priority over political tensions. The potential benefits for both sides may prove too significant: it has eased the process for Chinese companies to raise capital internationally, and LSE listed companies’ access to the second-largest equity investor pool in the world[15] is not an opportunity to turn one’s back on. Lastly, in 2018, China announced the relaxation of the Joint Venture Law, which required that foreign businesses operating in China be at least 50% Chinese owned.[16] Tesla’s new Shanghai Gigafactory is the first fully foreign-owned car plant in China.[17] By 2022, all limits in manufacturing will be lifted. Furthermore, the Chinese Foreign Investment Law was enacted in January 2020, which provides uniform protection for foreign and domestic investors in the Chinese market.[18] These changes represent the modernisation and internationalisation of Chinese laws in order to compete in the ever-changing global economy. From an external perspective, China could be perceived as opening its economic doors. These legal changes will strengthen China’s arguments that it is the West’s lack of trust in Chinese foreign investment (whether founded or unfounded) which is a major cause of halted progress and aggravated tensions. So, what does the future hold? Could Germany be next to drop Huawei’s 5G network? Will the UK ban TikTok? How will COVID-19 affect China’s foreign policy? As the 100th Anniversary of the Chinese Communist Party approaches in 2021, China’s leaders will remain focused on its global ambitions. However, by then, the US could have a new President in Joe Biden, who may contribute to easing tensions between China and the West. Written by Eleanor Montgomery.
[1] Greg Roumeliotis, Yingzhi Yang, Echo Wang and Alexandra Alper, “US opens national security investigation into TikTok” (CNBC, 1 November 2019) <https://www.cnbc.com/2019/11/01/us-to-investigate-tiktok-over-national-security-concerns-sour ces-say.html> accessed 21 August 2020
[2] Tim Shipman, “China threatens to pull plug on new British nuclear plants” (The Times, 7 June 2020) <https://www.thetimes.co.uk/article/china-threatens-to-pull-plug-on-new-british-nuclear-plants-72 7zlvbzg> accessed 8 August 2020
[3] Ana Swanson, Mike Isaac and Paul Mozur, “Trump Targets WeChat and TikTok, in Sharp Escalation With China” (The New York Times, 19 August 2020) <https://www.nytimes.com/2020/08/06/technology/trump-wechat-tiktok-china.html> accessed 21 August 2020
[4] Wall Street Prep, “Microsoft - LinkedIn Timeline: An Inside Look at the Merger” <https://www.wallstreetprep.com/knowledge/a-look-at-the-microsoft-linkedin-merger/> accessed 21 August 2020
[5] TikTok, ‘Statement on the Administration’s Executive Order’ (7 August 2020) <https://newsroom.tiktok.com/en-gb/tiktok-responds> accessed 10 August 2020
[6] Belt and Road News, “Vietnam-China Train to put Relations on Track” (28 January 2020) <https://www.beltandroad.news/2020/01/28/vietnam-china-train-to-put-relations-on-track/> accessed 21 August 2020
[7] Ngo Di Lan and Truong-Minh Vu, The Sino-US-Vietnam Triangle in a Belt and Road Era (East Asia Journal, Volume 36, 2019)
[8] “Hong Kong security law: What is it and is it worrying?” (BBC News, 30 June 2020) <https://www.bbc.co.uk/news/world-asia-china-52765838> accessed 21 August 2020
[9] Ryan Hass, “Why now? Understanding Beijing’s new assertiveness in Hong Kong” (17 July 2020) <https://www.brookings.edu/blog/order-from-chaos/2020/07/17/why-now-understanding-beijings-new-assertiveness-in-hong-kong/> accessed 18 August 2020
[10] Marc Alms and Charles Waite, “Will Hong Kong continue to be a hub for global business spokes?” (25 June 2020) <https://www.alvarezandmarsal.com/insights/will-hong-kong-continue-be-hub-global-business-s pokes> accessed 17 August 2020
[11] “Chinese listings surge on Wall Street despite tensions” (Financial Times, 25 July 2020) <https://www.ft.com/content/81092178-2a42-477f-9233-d5452f8bd483> accessed 21 August 2020
[12] London Stock Exchange Group, “Shainghai-London Stock Connect”
<https://www.lseg.com/markets-products-and-services/our-markets/shanghai-london-stock-conn ect> accessed 20 August 2020
[13] UK Parliament, “Foreign Secretary makes statement on Hong Kong National Security Legislation and UK response” (2 June 2020)
<https://www.parliament.uk/business/news/2020/june/foreign-secretary-makes-statement-on-hong-kong-national-security-legislation-and-uk-response/> accessed 17 August 2020
[14] Parker Lewis, “Shanghai-London Stock Connect Still Operating Normally: China Securities Regulatory Commission” (China Briefing, 3 April 2020)
<https://www.china-briefing.com/news/shanghai-london-stock-connect-still-operating-normally-china-securities-regulatory-commission/> accessed 11 August 2020
[15] London Stock Exchange, “Shanghai-London Stock Connect”
<https://www.londonstockexchange.com/discover/china/shanghai-london-stock-connect?tab=list ing&lang=en> accessed 21 August 2020
[16] David Rood, “China to Relax Joint Venture Requirements for Manufacturing” (23 April 2018)
<https://www.mondaq.com/china/export-controls-trade-investment-sanctions/694396/china-to-relax-joint-venture-requirements-for-manufacturing> accessed 20 August 2020
[17] “Tesla gets the go-ahead to build cars in China” (BBC News, 17 October 2019 <https://www.bbc.co.uk/news/business50080806#:~:text=The%20new%20factory%2C%20kno wn%20as,up%20construction%20of%20the%20plant.> accessed 21 August 2020
[18] Angel Huang, Jessie Chenghui Tang, Liming Yuan, Ross Keene and Patrick Hu, “China Further Opens its Market with New "Foreign Investment Law"” (February 2020) <https://www.jonesday.com/en/insights/2020/02/chinas-new-foreign-investment-law> accessed 21 August 2020