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Janet Yellen in China as countries clash over trade, chips and espionage

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Treasury Secretary Janet Yellen is on her first visit to China since taking the post in 2021. The trip comes as the world’s two largest economies remain at odds. Here are five ways tensions between the United States and China are affecting business in this week’s Five For Friday

#5: Executive visits

Talks of decoupling from China are picking up, forcing captains of industry to traverse the Pacific Ocean to calm the rhetoric.

JPMorgan Chase CEO Jamie Dimon visited Shanghai in May to assure the Chinese the bank will remain in the country in good times and bad. It was far more conciliatory than when he suggested America’s largest bank would outlast the Chinese Communist Party.

Elon Musk made the trip around the same time and also opposed the idea of decoupling while visiting Tesla’s Gigafactory in Shanghai, where the company made more than half of the vehicles sold in 2022.

Starbucks CEO Laxman Narasimhan also made China his first stop outside of North America since taking the role last year. Narasimhan stressed the company’s long-term commitment to the country, where a new location opens every nine hours

#4: U.S. bans Chinese tech

America has had China’s tech dominance in its sights for decades. The U.S. recently banned new telecommunications equipment from Chinese telecom giants Huawei and ZTE, citing national security risks. The government even offered reimbursement for companies that rip and replace existing Chinese tech from its infrastructure.

The Biden administration is also looking to block Chinese companies from purchasing high-end chips used in artificial intelligence made by the likes of Nvidia, AMD and Intel. And Congress passed the $280 billion CHIPS Act last year, which takes aim at China by pushing manufacturers to build facilities in the U.S. 

#3: China’s retaliatory bans

Technology bans are not a one-way street. China recently banned America’s biggest memory maker Micron from its infrastructure projects, also due to national security risks. Analysts don’t believe this will have too much of an impact based on Micron’s clientele in the country, which spans far beyond government entities.

The decision came one day after G7 leaders criticized China and brought up de-risking the relationship. China also launched espionage investigations into multiple American consulting firms, including Capvision. Authorities even raided of the company’s offices in several Chinese cities. Bans are nothing new in China, most of the biggest names in tech are barred from operating there, from Google to Facebook. 

#2: TikTok in the crosshairs

Talking about TikTok is all the rage on Capitol Hill, but it’s not doom scrolling that’s caught politicians’ ire. They are more fearful that China could have a backdoor into user data.

Parent company Bytedance even switched to Oracle servers to quell those concerns, but employees were apparently still able to spy on journalists.

The federal government and many states have banned TikTok on government devices. There’s an outright ban in Montana taking effect in 2024, if it makes it through legal challenges

#1: Moving manufacturing 

China has long been the leader in manufacturing output throughout the globe, but the last thing a major company wants is production slowdowns due to supply chain disruptions, COVID lockdowns or geopolitical tensions. Apple is moving some of its China-based production to other locations in southeast Asia. Microsoft shipped its latest Xbox console from Vietnam, while Amazon is shipping Fire TV devices out of India.

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SIMONE DEL ROSARIO:

TREASURY SECRETARY JANET YELLEN IS IN CHINA FOR THE FIRST TIME SINCE TAKING OVER THE POST. THE HIGH-STAKES VISIT COMES AT A PRETTY FROSTY TIME FOR THE WORLD’S TWO LARGEST ECONOMIES. WE’VE GOT FIVE WAYS TENSIONS BETWEEN THE U-S AND CHINA ARE AFFECTING BUSINESS IN THIS WEEK’S FIVE FOR FRIDAY.

WITH TALKS OF DECOUPLING FROM CHINA, CAPTAINS OF INDUSTRY ARE TRAVERSING THE PACIFIC TO SMOOTH THINGS OVER. IN SHANGHAI IN MAY, JP MORGAN CHASE’S JAMIE DIMON PROMOTED DE-RISKING OVER DECOUPLING, SAYING THE BANK WILL BE IN CHINA IN GOOD TIMES AND BAD. HEY, THAT’S FRIENDLIER THAN WHEN HE SAID CHASE WOULD OUTLAST THE CCP. ELON MUSK MADE THE TRIP AROUND THE SAME TIME, OPPOSING ANY KIND OF BREAKUP WHILE VISITING TESLA’S GIGAFACTORY IN SHANGHAI, WHERE THEY MADE MORE THAN HALF OF TESLAS SOLD IN 2022. NEW STARBUCKS CEO LAXMAN NARASIMHAN ALSO VISITED CHINA FOR HIS FIRST TIME OUTSIDE NORTH AMERICA IN HIS NEW ROLE, STRESSING THE COMPANY’S LONG-TERM COMMITMENT IN THE COUNTRY WHERE THEY OPEN A NEW STORE EVERY 9 HOURS.

AMERICA’S HAD CHINA’S TECH DOMINANCE IN ITS SIGHTS FOR SOME TIME. THE U-S BANNED NEW TELECOM EQUIPMENT FROM CHINA’S HUAWEI AND Z-T-E DUE TO NATIONAL SECURITY RISKS, AND EVEN OFFERED TO REIMBURSE COMPANIES THAT RIP AND REPLACE EXISTING CHINESE TECH FROM THEIR INFRASTRUCTURE. ON THE EXPORT SIDE, THE BIDEN ADMIN IS LOOKING TO BLOCK SALES TO CHINA OF HIGH-END CHIPS THAT POWER A-I FROM THE LIKES OF NVIDIA, A-M-D AND INTEL. AND THE $280 BILLION CHIPS ACT TAKES AIM AT CHINA BY PUSHING MANUFACTURES TO MOVE FACILITIES TO THE U-S.

THE BANS GO BOTH WAYS. CHINA RECENTLY BANNED AMERICA’S BIGGEST MEMORY MAKER MICRON FROM ITS INFRASTRUCTURE PROJECTS, ALSO CITING NATIONAL SECURITY RISKS, BUT ANALYSTS DON’T THINK IT WILL HIT TOO HARD. THE MOVE CAME ONE DAY AFTER G7 LEADERS CRITICIZED CHINA AND BROUGHT UP DE-RISKING. CHINA ALSO LAUNCHED ESPIONAGE INVESTIGATIONS INTO MULTIPLE AMERICAN CONSULTING FIRMS, INCLUDING CAPVISION, RAIDING ITS OFFICES IN SEVERAL CHINESE CITIES. AND FOR YEARS, CHINA’S BANNED MOST OF THE BIG TECH BOYS INCLUDING GOOGLE AND FACEBOOK.

AMERICAN POLITICIANS ARE PERPETUALLY PERTURBED ABOUT TIKTOK, FEARING CHINA HAS A BACKDOOR TO USER DATA. PARENT COMPANY BYTEDANCE EVEN SWITCHED TO ORACLE SERVERS TO ASSUAGE FEARS, BUT ITS CHINESE EMPLOYEES WERE APPARENTLY STILL ABLE TO SPY ON JOURNALISTS. NOW TIKTOK’S BANNED ON FEDERAL GOVERNMENT DEVICES, AND IN MANY STATES. THERE’S AN OUTRIGHT BAN IN MONTANA THAT GOES INTO EFFECT IN 2024 IF IT GETS THROUGH THE COURTS. GOOD LUCK GETTING CONTENT FROM THOSE DRYWALL CHICKS.

CHINA’S LONG BEEN A GLOBAL MANUFACTURING HUB. AND THE LAST THING A MAJOR COMPANY WANTS IS TO GET SWEPT UP IN SUPPLY CHAIN DISRUPTIONS, COVID LOCKDOWNS, OR GEOPOLITICAL TENSIONS. AFTER YEARS OF RED FLAGS, APPLE’S MOVING SOME OF ITS CHINA-BASED PRODUCTION TO SPOTS IN SOUTHEAST ASIA, MICROSOFT HAS SHIPPED ITS LATEST XBOX CONSOLE FROM VIETNAM, AND AMAZON IS NOW SHIPPING FIRE TV DEVICES FROM INDIA.

THIS FRAUGHT RELATIONSHIP IS FIT FOR REALITY TV. THAT’S FIVE FOR FRIDAY, I’M SIMONE DEL ROSARIO AND IT’S JUST BUSINESS.