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Commentary: U.S.-China relations are no laughing matter

  • December 9, 2021
  • , Nikkei Asia , 9:25 p.m.
  • English Press

TETSUSHI TAKAHASHI, Editor, Economic News Group

 

TOKYO — U.S. President Joe Biden has decided that no administration officials will attend the Winter Olympics in Beijing in February next year in protest of China’s alleged human rights abuses. While the diplomatic boycott has aroused worries about the depth of the diplomatic split between the U.S, and China, of equal concern are their fraying economic ties.

 

Jamie Dimon, CEO of JPMorgan Chase, joked in late November that the investment bank, America’s biggest, would outlive the Chinese Communist Party. Referring to the party’s 100th anniversary, Dimon quipped: “I will bet we last longer.” The remark immediately came under fire on social media in China.

 

Chinese President Xi Jinping and the senior leadership were not amused. Dimon immediately expressed “regret” for the remark, which he called a joke.

 

JPMorgan is known as having built among the closest ties with China of any American financial institution. In August, it was authorized to operate a wholly owned brokerage subsidiary, a first for a foreign bank in China.

 

Until recently Dimon’s gaffe would not have created such a fuss. Despite worsening friction between the U.S. and China under the administrations of Biden and his predecessor, Donald Trump, American financial institutions have maintained close ties with Chinese officials based on a shared interest: China’s leaders want the country’s financial markets to function better, while U.S. financial institutions are eager to do more business in the country, given its huge potential.

 

But the good times may be ending.

 

Since the summer, Xi has stressed the concept of “common prosperity.” He wants to narrow the gap between rich and poor in China, a goal that is behind his government’s attack on vast — and vastly profitable — tech and real estate companies. Foreign financial players that have made a pretty penny doing deals with wealthy locals are likely to feel the heat as well.

 

In years past, Chinese and U.S. officials worked to build bridges between the two countries. Vice President Wang Qishan, for example, worked closely with Henry Paulson, who served as U.S. Treasury secretary under President George W. Bush.

 

Wang became close to Paulson in the late 1990s while he was vice governor of China’s southern Guangdong Province. When Guangdong International Trust and Investment, a nonbank financial institution owned by the provincial government, fell into financial difficulty, Wang sought advice from Paulson, then with Goldman Sachs, on how to liquidate the company.

 

During the global financial crisis triggered by the collapse of U.S. investment bank Lehman Brothers in the autumn of 2008, Wang, as China’s vice premier for financial affairs, helped Secretary Paulson by buying up large issues of U.S. bonds. In his memoir, Paulson said his strong bond with Wang and other Chinese officials greatly helped the U.S. maintain its creditworthiness. He acknowledged that he and Wang communicated frequently during the crisis.

 

Wang is not as powerful now as he was 13 years ago. Incidentally, the provincial government of Guangdong announced on Dec. 3 that it would send a supervisory team to give management advice to Evergrande Group, a large, ailing Chinese property developer.

 

Beijing is taking a hands-on approach to addressing Evergrande’s problems, which have drawn global attention. But at the moment there seem to be no key people in China and the U.S. who can work together behind the scenes as Wang and Paulson did.

 

Biden’s announcement of a diplomatic boycott of the Winter Olympics may further erode financial links between the U.S. and China. Whether the two countries will be able to cooperate in a future financial crisis is an open question.

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