Summary

In relation to the US and China, Alastair is of the view that decoupling will be painful but the shift from strategic rivalry to ideological struggle means that it looks like it will happen anyway. Despite the economic risks, Mr. Xi has decided that everything and everyone in China must be subservient to the party. The EU is also important, and Alastair thinks the key to Germany’s relationship with China lies in the foreign ministry. The Greens are likely to get this spot and they see Ms. Baebock bringing a harder line on both Russia and China. That said, Alastair thinks that Xi Jinping’s domestic agenda poses a greater threat to China’s technological independence than any foreign influence is likely to have. China is moving to cut its own companies off from foreign capital and Wall Street’s new and growing relationship with China is likely to come to a sudden end like cryptocurrencies. There is an effort underway in Washington to constrain China’s ability to benefit from Wall Street’s financial strength. Alastair thinks the attempt to undermine the dollar as the worlds reserve currency with the digital Yuan is unlikely to succeed.

Richard noted that the balance between prosperity and heavy regulation is currently tipped strongly in favour of regulation with consequences for the technology sector. Seven sheriffs will regulate most of the technology industry in China, but their actions will be governed by the motivations of the Politburo. RFM view Chinese regulation as central government motivations implemented through 6 supervisory categories. The supervisory categories define the type of regulation imposed allowing RFM to estimate the nature and scale of the intervention. Control of banking and money is a key element of all authoritarian governments. RFM expects fintech and cryptocurrencies to be hardest hit of all. Alibaba has little impact on the social fabric of China but is important to the economy continuing to grow. RFM thinks that the worst is over. If Ant Group is anything to go by, Tencent’s fast growing and profitable financial services business could be decimated by regulation. Within semi’s there is zero chance China will catch up. However, they look very well placed within the strategically important categories of AI, Autonomous Driving and Quantum computing. China is claiming that its quantum computer is 380,158x faster than Google’s. Western academia has been positively surprised by China’s ability to scale the optical circuit to 100x100.  

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