by David P. Goldman – May 21, 2020
Economic historians may date the start of the Asian century to May 2020, when most Asian economies bounced back to full employment while the West languished in coronavirus lockdown. Asia has emerged as an economic zone as closely integrated as the European Union, increasingly insulated from economic shocks from the United States or Europe.
Google’s daily data on workplace mobility uses smartphone location to determine the number of people going to work – by far the most accurate and up-to-date available reading on economic activity. As of May 13, Taiwan, South Korea and Vietnam were back to normal levels. Japan and Germany had climbed back to 20% below normal. The US, France and the UK remain paralyzed. Google can’t take readings in China, but the available evidence indicates that China is on the same track as Taiwan, South Korea and Vietnam.
Asian economic recovery is consistent with success in controlling the Covid-19 pandemic. China, Japan, Taiwan, South Korea, Hong Kong and Singapore have Covid-19 death rates a tenth of Germany’s and a hundredth of the rate in the US, UK, France or Spain. As I reported May 21, the US is struggling to re-open its economy despite a much higher rate of new infections than the Asian countries or Germany. That entails substantial risk. Two Ford Motor plants in the US that had re-opened May 17 shut yesterday after employees tested positive for Covid-19, for example.
Asia’s short-term surge followed its success in disease prevention. But the long-term driver of Asian growth is China’s emergence as a tech superpower. This week’s session of the People’s Congress in Beijing is expected to pass a $1.4 trillion of new government investments in 5G broadband, factory automation, self-driving cars, artificial intelligence and related fields.
Asia now acts as a cohesive economic bloc. Sixty percent of Asian countries’ trade is within Asia, the same proportion as the European Union. The Google mobility numbers confirm what we learned earlier this month from China’s April trade data. Intra-Asian trade surged year-over-year, while trade with the United States stagnated.
The surge in Chinese trade with Southeast Asia, South Korea and Taiwan shows the extent of Asian economic integration. China’s exports to Asia have grown much faster than its trade with the US, which stagnated after 2014.
China’s stock market meanwhile is this year’s top performer, down only 2% year-to-date on the MSCI Index in US dollar terms while all other major exchanges are deep in negative numbers. The strength of China’s stock market is noteworthy given the escalation of economic warfare with the US, including a US ban on third-party exports of computer chips made with US intellectual property to blacklisted Chinese companies, and the threat to de-list Chinese companies on US stock exchange.
Healthcare technology companies, though, led the Chinese stock market, with Alibaba Health Information more than doubling year to date. China’s ambition to lead the world in artificial intelligence and big data analysis in the health sector got a boost from the Covid-19 pandemic, to the consternation of US officials.
Last week the US Commerce Department imposed controls on sales of semiconductors to Chinese firms on Washington’s “entity list,” if they are produced anywhere in the world with US technology. China’s telecommunications giant Huawei, the world leader in 5G broadband, designs its own chips and contracts their fabrication to Taiwan Semiconductor Manufacturing Corporation, the world’s top chip foundry. TSMC uses American chip-making equipment and will fall under the ban. Industry analysts are waiting to see how strictly the US will enforce these rules, which have a 120-day grace period.
As I wrote on May 18, this represents a bet-the-farm gamble on the part of the Trump Administration, which has failed to dissuade most of its allies from doing business with Huawei, which Washington labels a threat to US national security. A handful of US companies and Holland’s ASML now dominate the market for semiconductor fabrication equipment that can produce state-of-the-art chips. If the US prevents foundries around the world from selling to Huawei, the Chinese firm will have no source of high-end semiconductors. Huawei reportedly has a large inventory of chips; China’s semiconductor imports doubled between late 2017 and late 2018, suggesting that China has stockpiled chips as a precaution. The US ban if fully implemented would damage the Chinese firm.
But that is the last card that Washington has to play. Semiconductor manufacturing equipment is America’s last control point among critical technologies. In US corporate boardrooms and engineers’ Internet chat rooms, the question is not whether, but when China will reverse engineer American or Dutch machines and produce its own. China may not be able to buy high-end computer chips, but it can hire all the chip engineers it wants anywhere in the world. Taiwan now dominates chip fabrication, and a tenth of Taiwan’s chip engineers are now working at double pay on the Chinese mainland, according to media reports.
In the past, China has established its high-tech autonomy much faster than most observers expected. Its number two telecommunications equipment firm ZTE nearly shut down in April 2018 after Washington embargoed sales of the Qualcomm chips that power its smartphones. By December 2018, Huawei was producing its own Kirin chipset, with more power than the Qualcomm product. China still uses American software to design chips, and depends on Taiwanese foundries using US equipment. If China reaches self-sufficiency in chip production quickly, the last stronghold of US tech dominance will fall.