The US and Europe are set to isolate China as Australia allows it to occupy its sphere of influence in the Solomons. The cowards of Canberra are beyond reproach.
Nearly two months into the Russia-Ukraine war, US policymakers – troubled by Beijing’s pro Kremlin rhetoric – are forging ahead with robust plans to accelerate US-China decoupling. Of the five major decoupling pathways being explored today, two – the likely acceleration of the start of the process to delist nearly 250 Chinese firms on US capital markets by one year to 2023 and a first-of-kind US outbound investment screening regime – are currently included in different versions of the top-priority, bipartisan China competition bill that has favourable odds of being passed by mid-year. Two more pathways have the growing backing of the Biden administration, as evidenced by Treasury Secretary Janet Yellen’s pointed warning to China last week that its continued fence-sitting on Russia will jeopardize further global economic integration. Barring an unlikely U-turn by Beijing, the upshot is that the decoupling of the world’s two biggest economies will gather speed over the next three to 18 months – likely unleashing bear market risks for both China’s economy and US equity valuations – that will be reinforced as the EU charts its own decoupling path by mid-decade.
Investor attention to date has largely focused on the first pathway for decoupling: the potential delisting of an estimated 248 Chinese firms from US capital markets under the 2020 Holding Foreign Companies Accountable Act (HFCAA) for failing to allow full access of their books to USapproved auditors. Notwithstanding recent signs that Chinese regulators may be softening their stance, we expect an eventual delisting of key high-profile firms as an inevitable by-product of Beijing’s own data security concerns. Under a provision in the China competition bill, the start of this delisting process is set to be brought forward to next year (from the 2024 timeline set by HFCAA); its likely inclusion in the final bill would fast-track an initial rerouting of investment flows.
