U.S. de-risking policy and China’s response

Jae-hung Chung, GyuBeum Kim

jameschung@sejong.org

gbkim826@sejong.org

The Sejong Institute

■ U.S. 'De-risking' Policy and Implications

❍ The Biden administration's recent "de-risking" policy began to manage the complaints from allies caused by the prolonged U.S.-China confrontation and served as an important opportunity for the U.S. to resume high-level government communication with China.

❍ "De-risking" does not mean China's appeasement policy toward the U.S. or the true "detente" in U.S.-China relations. High-level communication between the U.S.-China government is so frequent that it is reminiscent of a "honeymoon period" in the past, but the Biden administration's policy toward China is proceeding very consistently.

❍ The U.S. 'de-risking' is interpreted as a concept to ease the nuance of 'decoupling' and provide a more accurate definition to express U.S. policy toward China. Future global industrial supply chain, next-generation high-technology, defense security field to suppress Chinese influence, long-term China policy in more sophisticated manners.

■ Chinese Perception and Response

❍ Xi Jinping's leadership recognizes the main purpose of the U.S.'s de-risking policy is not only to curb China's economic and technological development but also to minimize the economic damages caused by the U.S.-China confrontation. Hence, China's expectations for fundamental improvement in the U.S.-China confrontation are not high.

❍ China, which has been wary of U.S. interception of China and its Peaceful Evolution after the Globalization Era since the beginning of the Xi Jinping administration, is expected to respond strongly to U.S. pressure and sanctions on China in the future. Thus, China is expected to commence active global diplomacy to offset damages caused by U.S. sanctions.

❍ China's hard-line policy toward the U.S. is likely to be limited due to various factors and conditions such as the comprehensive gap with the U.S., the need to maintain harmonious relations with Europe, and attract foreign capital to boost the domestic economy.

■ Prospects of U.S.-China Global Supply Chain Conflict

❍ Currently, the U.S. is curbing China's rapid technology rise in key areas such as the global supply chain, next-generation advanced technologies (AI, Semiconductors, Quantum computers, etc.), and military-security under the name of "decoupling." Currently, China is diversifying its industrial supply chain, strategically utilizing core raw materials and machine parts, and continuing large-scale national research and investment in high technologies.

❍ In the future, the U.S. might partially limit China's influence and advanced technology development in the global supply chain, but it is unlikely to completely block China. In the end, the level and scope of U.S. sanctions against China are likely to continue to expand, and the U.S.-China confrontation is expected to continue for a long period.

❍ With various debts of local governments and public companies, China's extended real estate asset bubble poses a critical risk to China's economic development.​