Measuring Raimondo’s ‘big step forward’ with China
Commenting on her recent visit to China, Commerce Secretary Gina Raimondo said, “It was a big step forward. We can’t solve any problems without first communicating.”
US-China relations had apparently deteriorated to the point that just talking can be regarded as progress. But that also suggests recognition that there are limits to the US government’s ability to suppress the development of China’s economy.
In its readout of Raimondo’s meeting with Chinese Commerce Minister Wang Wentao, the US Commerce Department said that Raimondo and Wang agreed to:
- “Establish a new commercial issues working group, a consultation mechanism involving US and PRC government officials and private sector representatives to seek solutions on trade and investment issues and to advance US commercial interests in China. They agreed that the working group will meet twice annually at the vice minister level, with the US hosting the first meeting in early 2024.
- “Launch the export control enforcement information exchange, which will serve as a platform to reduce misunderstanding of US national security policies. The first in-person meeting will occur at the assistant secretary level at the Ministry of Commerce in Beijing on Tuesday, August 29.
- “Convene subject matter experts from both sides to hold technical discussions regarding strengthening the protection of trade secrets and confidential business information during administrative licensing proceedings.
- “Communicate regularly at the secretary and minister level about commercial and economic issues and to meet in-person at least once annually.”
The announcement was welcomed by the US business community. Michael Hart, president of the American Chamber of Commerce in China, was quoted by The Wall Street Journal as saying,“It feels like the machine has started again.” It “cools the tone, making it more constructive and less combative.”
Raimondo was careful not to overstate her success. On August 30, after “three days of productive meetings,” she said, “I have no expectation that on my first visit, after my first meetings with Chinese officials, we would suddenly resolve specific issues. I came to lay it on the line directly and precisely … challenges US companies and workers are facing.”
US business, she said, needs “a predictable regulatory environment,” including “transparency and the fair application of laws and regulations.” Without this, US firms increasingly regard China as “uninvestible.”
Raimondo was reported to have told Chinese Premier Li Qiang that President Joe Biden “asked me to come here to convey the message that we do not seek to decouple. We seek to maintain our US$700 billion dollar commercial relationship with China.”
On the other hand, Raimondo also said, “There is no room to negotiate
when it comes to protecting America’s national security, including
detecting emerging technology.”
But where does concern about national security end and ordinary commerce begin? The conclusion of the Commerce Department’s readout indicates no change in US policy:
“Finally, Secretary Raimondo reinforced the administration’s commitment to taking actions necessary to protect US national security and reiterated the administration’s ‘small yard, high fence’ approach, underscoring that export controls are narrowly targeted at technologies that have clear national security or human rights impacts and are not about containing China’s economic growth.”
But less than a month before, on August 9, Biden issued an executive order stating that the advance of semiconductor, microelectronics, quantum computing and artificial intelligence technologies in China constitutes a “an unusual and extraordinary threat” to the national security of the United States. Declaring it a “national emergency,” he ordered the establishment of procedures to restrict US outbound investments that could exacerbate this threat.
Aimed primarily at private equity, the executive order covers a broad range (not a “small yard”) of technologies. In addition, at US instigation, new and potentially damaging Dutch and Japanese sanctions on the Chinese semiconductor industry are coming into effect.
At the same time, however, the US has reportedly decided to allow Taiwanese and South Korean semiconductor makers including TSMC, Samsung Electronics and SK hynix to continue to ship equipment and other supplies to their factories in China.
As for US companies, Micron Technology plans to invest another $600 million in its integrated circuit packaging facility in Xian, while Intel has established a technology development facility in Shenzhen.
With the assistance of local government, the Intel Greater Bay Area Innovation Center will provide technical assistance and marketing support for Chinese companies in fields that are likely to include AI, edge computing, server and PC applications and energy efficiency.
Obviously, the world’s leading semiconductor companies do not regard China as “uninvestible” – except in the sense that the US government has made it difficult for them to invest in China. Anyway, for the time being they have been granted a reprieve in what for them is a crucially important market.
Speaking at the Aspen Security Forum in July, Intel CEO Pat Gelsinger said, “Right now, China represents 25% to 30% of semiconductor exports. Right, if I have 25% to 30% less market, I need to build less factories, right? You know, we believe you want to maximize our exports to the world.… You can’t walk away from 25% to 30% and the fastest growing market in the world…. this is strategic to our future, we have to keep funding the R&D, right, the manufacturing, etc.”
This message appears to have gotten through to the Biden administration.
The Chinese must be pleased, but they are not dropping their guard. In the three months to June, 39% of Tokyo Electron’s equipment sales were to China. That was up from 23% the previous quarter, which was also the average for the previous fiscal year. And China has reportedly ordered $5 billion worth of AI processors from Nvidia for delivery over the next several months.
While hedging against sanctions and shortages, China continues with its national campaign to develop the advanced semiconductor manufacturing equipment, design skills, computing capability and software needed to overcome the bans. Regular consultation with the US will not make this more difficult but it could, by keeping tempers in check, make it easier.
It is hard to escape the conclusion that Raimondo’s visit was a success for US business, for China and for reducing economic risk in the run-up to the US elections in November 2024. It does not appear to have done anything to increase US national security, but has left the door open for additional sanctions and activities aimed at “detecting emerging technology” in China.
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