Interview: U.S. export restrictions on Chinese tech companies hurt both sides

Photo shows Chinese and U.S. national flags. (Xinhua)

WASHINGTON, March 2 (Xinhua) -- U.S. export restrictions on Chinese tech companies, citing national security concerns, hurt both U.S. companies and Chinese businesses, said a renowned economist, calling for an international agreement on technology flow across countries.

"These security restrictions, restricting the flow of high-tech products to China, (bring) major negative consequence, both for U.S. companies and Chinese companies," Yukon Huang, a senior fellow with the Asia Program at the Carnegie Endowment for International Peace, told Xinhua in a recent video interview.

Huang, who served as the World Bank's country director for China from 1997 to 2004, noted that if the United States prevents Chinese companies from getting high-tech products from their U.S. counterparts, it could jeopardize the future prospects of Chinese enterprises.

"But to the same extent, when you actually restrict American exports of these high-tech products to China, U.S. companies suffer a lot," Huang said, noting that 20 to 50 percent of the revenues of these high-tech U.S. companies come from exporting to China.

"So if they no longer can sell to China, then you have a major problem in America," because the financial position of the high-tech companies significantly weakens, and they can no longer invest, he said.

The economist noted that "a chaotic decoupling process" during the Trump administration led to less engagement between the United States and China, from which both sides have suffered.

With Joe Biden in office, Huang said he believes the new president is trying to forge a more "sensible" and "constructive" approach to strategic issues.

In the case of TikTok, Huang said "I think they're going to look at the key question, how can (the) United States protect its interests in terms of data security in a way that doesn't cut off the economic activities" of foreign investors.

Huang said rather than decoupling, both sides should search for an intermediate solution, because decoupling reduces the flow of knowledge across countries, which will undermine economic growth.

"Knowledge spread is the reason that growth (in) countries and the world has soared over the last 10 or 20 years," Huang said.

If a "technology trade war" continues, he said, "global growth will stagnate, they're going to go back to the dark ages in some way, because nobody by themselves can create all that knowledge."

The economist said countries must allow knowledge to move across borders, while noting that security issues should be addressed through an international agreement.

Huang said countries are within their right to consider security when it comes to investment flows. "But we don't want that right to prohibit economic investment flows or technology transfer, because if we did growth would stop globally."

Commenting on the China-U.S. phase-one trade deal, Huang said the Trump administration failed to achieve its intended goals, one of which was to reduce the U.S. trade deficit with China, as America's overall trade deficit actually expanded.

One of the major issues in phase-two negotiations, Huang said, is subsidies. "The definition of competitive neutrality has not been agreed upon," he said.

The economist noted that in the Boeing-Airbus subsidy dispute, the World Trade Organization (WTO) determined that both the United States and Europe subsidized their aircraft manufacturers.

"So if America complains about China state subsidies, the West also subsidizes its own companies, but they do it in different ways," Huang said, adding that "we don't yet have an agreement of what is a sensible policy."

"And then the question is, can WTO bridge this difference, the answer, yes, but not very quickly," he said. "It's going to take a lot (of) discussions about what are the principles."

The economist said he thinks both China and the United States have a vested interest in reviving the WTO, the World Health Organization and other multilateral institutions to address major concerns.

Huang noted that China was the only major economy to achieve positive growth last year. The former World Bank country director for China said despite a robust recovery in the short term, China should strive for higher returns on investment in order to boost its long-term growth rate.

Huang laid out a few reasons for relatively lower investment returns in recent years, one of which is that a large share of government investment is channeled into the interior provinces, as opposed to the coastal provinces.

"China's emphasis over the last several decades has been to push more money into rural areas, to push more money into the interior provinces and to narrow these differences," Huang said, noting that the country has done "a great job" at alleviating poverty.

Another major factor is innovation, Huang said. "When you try to become more innovative, and you invest in more high-tech activities, your growth rate actually falls," said the economist. "Because innovation requires a lot of capital investment, but generates relatively modest productivity increases."

Noting that the same is true in innovative economies such as South Korea, Israel and the United States, Huang said China needs to figure out that the solution to rapid growth "is not just innovation."

"The solution to rapid growth is job creation of more highly skilled jobs across a broader group of people," said the economist. "And that has a lot more to do with investment policies."