China Drifting Away?
European Straits | Monday Note
Hi, it’s Nicolas from The Family. Here’s a Monday Note on the growing rift between China and the West—not least because of the COVID-19 crisis.
Sometimes, the “Key to Last Week” is a particular event that has shaken the tech world. But here’s the beauty of having the world interpreted by the media industry: in many cases, the most important news is that people simply come together in realizing that we’ve reached an inflection point on a given matter, resulting in many people writing about it.
And last week, I was struck by the acceleration in discussing the irreversible rift that has been growing over the past years between China and the Western world. Below are a few links to dig deeper.
😡 One thing that happened last week is that Trump went as far as he could in voicing his distaste for China. It happened in two rows:
At one of his daily press conferences at the White House, he abruptly ended the whole thing by suggesting to an Asian-American journalist that she should submit her questions to China rather than him. Here’s the excerpt: 'You should ask China': Trump abruptly ends press conference.
Later in the week, Trump was asked about his relationship with his Chinese counterpart Xi Jinping and was quite straightforward: Trump Says He Doesn’t Want to Talk to Xi as China Tensions Rise. Here’s some interesting background by Bill Bishop, who publishes a great newsletter to help us all understand what’s happening within the Chinese Communist Party: There are increasing signs the US-China trade deal is about to fall apart.
Some people have been observing this growing rift for quite some time. Geopolitical strategist Peter Zeihan wrote about the topic at length in his great book Disunited Nations. His work was an inspiration for my recent issues of European Straits about the US (Adieu to Old America), China (The Rise of a New China), and even Germany (Is Germany Nearing the Abyss?).
But last week Peter revisited his thoughts about China in the context of every government in the world trying to fight the COVID-19 pandemic—and reaffirmed his assessment that the current period reveals many of China’s fundamental weaknesses. Read his recent newsletters about what he sees as a failure of leadership in Xi Jinping’s China: How To Lose Friends and Mobilize People Against You (continued here).
In any case, the US is accelerating the pace in recovering their economic and strategic independence from China. There were so many signs of that happening last week:
Viewed from afar, China is far from having caught up on the US when it comes to military capacity. Yet that’s only the case if you assume future wars will resemble those of the past. Here’s Christian Brose, a close adviser to late US Senator John McCain, arguing otherwise: Think we have military primacy over China? Think again.
A brutal competition is underway in the semiconductor manufacturing industry, with the US trying to convince Taiwan’s TSMC to open a factory on American soil while China is working furiously to acquire technological independence in that industry. The jury’s still out as to whether it will succeed. Here’s my friend James Crabtree writing for Nikkei in 2019: A long march to high-tech self-reliance would hold back China.
There are many reasons to think that Chinese companies which have gone public on a US stock exchange might not be there for long. Those writing about it are still not sure what will become of those corporations, but it’s yet another sign of the world fragmenting, both strategically and economically. Here’s Bloomberg’s Shuli Ren: China Inc. Is Unloved Abroad, Unwanted at Home.
Zoom, the star of the moment, is caught in the middle, for various reasons—some fallacious (Zoom’s founder was born in China and settled in the US only at age 27 after he was denied a visa 8 times), and some more serious (some of Zoom’s servers appear to be located in China). This has all led to radical measures, such as Zoom banning Chinese individuals from hosting meetings via its application. Stratechery’s Ben Thompson has a great explainer on Zoom’s unique position (and frequent missteps) in these transitioning times.
As for Europe, well, we still don’t know how things will shake out. My view is that Europeans should play it like Israel: doing what it takes to remain as practical as possible in the current showdown between the US and China. Still, as could be expected China hawks in the US are pushing for Europe to side with its Western ally rather than getting closer to China. Have a look at Jakuk Grygiel’s writing about Europe and China in The American Interest: No, We Can’t Just Get Along.
What I find most interesting is that it’s possible China is taking advantage of the current situation, even making things worse for the West with its odd (and apparently failing) COVID-19 diplomacy. After all, what do they have to lose? While we’re obsessing with the COVID-19 pandemic and tantrums by Chinese diplomats, they’re taking care of their own business, like rewriting the institutional rules in Hong Kong and dealing with their slowing economic growth and rising unemployment.
In any case, for all of us who’ve come up in a period where China was treated, if not as an ally, at least as a partner in boosting global economic growth, this is a radical change. I would never rejoice in China collapsing (actually, I happen to think the rise of China is a good thing for us Europeans), but all of us—nations, firms, and individuals—need to reposition themselves in a world that grows more fragmented by the day. (About that, have a look at my Big Tech in a Fragmented World.)
😀 Our portfolio company Harmony has had many problems trying to distribute their CBD products in France. However, a lawsuit initiated by the French government has just led to a favorable decision for Harmony from the European Court of Justice. Read the details here and some background (by me) here.
🙂 Carta is one of the companies to watch these days. I first heard about them some time ago through my friends at Anthemis, one of their early-stage investors. Then my firm became a customer. And now, as told by the Financial Times, they’re planning a private share trading platform to rival Nasdaq!
😏 Dan Primack just revealed that Facebook has agreed to buy Giphy (yes, the sharable animated images), for $400M. The race is heating up between Facebook and China’s TikTok. Also, as tweeted by Box’s Aaron Levie, “this is the first time something has felt remotely “normal” in the past 2 months”.
😐 France just announced that it was considering building a platform to empower French hotels and restaurants by directly competing with the likes of Booking and Airbnb. This is nuts and I don’t even know where to begin, but it certainly squares with my thinking on our fragmenting world.
😒 Speaking of travel, we now have a better understanding of what it will be like once airlines start operating again (and some already did last week). On top of the articles I shared last week, have a look at those testimonials by actual travellers: photographer Laurel Chor and CNN’s Will Ripley.
😖 Everyday we learn more about COVID-19 and what it does to the human body. The good news is that there is such a thing as antibodies. The bad news is that COVID-19 could have long-term negative effects on organs such as kidneys, lungs, the brain, and our nervous system.
If you’ve been forwarded this paid edition of European Straits, you should subscribe so as not to miss the next ones 🤗👇
From Normandy, France 🇫🇷
Nicolas
