US companies set to pay price of trade row with China

By Hu Weijia Source:Global Times Published: 2019/5/13 21:13:40

US-based software company Oracle attracted a lot of attention in recent days after firing hundreds of employees, mainly engineers, from its China team.

It was not immediately clear why Oracle was making the cuts, but many observers have linked them with the ongoing trade row between the US and China. These observers cited Oracle co-founder Larry Ellison's interview with Fox Business last year, in which he called China a "big competitor" and hinted he doesn't want China to produce more engineers than the US does. "I'm on Team USA," Ellison said.

If the trade war continues for a prolonged period, we cannot rule out the possibility that other foreign companies may shrink their operations in China. At present, the trade row is the greatest threat to global value chains. Changes in industry chains could be a double-edged sword for both the US and China.

In the case of China, the country has integrated itself deeply into global value chains. If the trade row breaks those chains, the global economy will inevitably feel the pain. The country will do its best to maintain the stability of its industry chains, which will help minimize the negative impact of the trade row on the global economy.

In recent decades, China has established a series of complete industrial chains with foreign companies as an important component. Although a large-scale withdrawal of foreign firms is impossible, we need to keep the possible departure of certain companies from breaking up China's production network. This is a major challenge faced by the Chinese economy amid the trade row.

The Chinese side has still plenty of options it can use to handle the difficulties positively. This is an opportunity for China's own enterprises to fill any gaps left by foreign companies to seize market share in China. As long as the Chinese market is attractive and companies can make money here, there will be no need to fear the withdrawal of some foreign companies.

Oracle's decision to cut jobs was a surprise because software companies' earnings are good in China. In a short video circulated online, Oracle employees held banners, which bore such slogans as "High profits, why layoffs?"

A profit-making opportunity in the Chinese market leaves room for China to handle the challenge properly and maintain the stability of its industrial chains.

We need to prepare for the worst-case scenario, in which the trade row may affect industrial chains, and strive for the best outcome by making adequate preparations. Timely measures to support Chinese enterprises will help the nation build complete industrial chains with local companies and move up the value chain. Such moves will increase the competitiveness of Chinese companies, especially those in high-technology sectors such as software. Oracle and other US companies will pay a price for the trade row.

The author is a reporter with the Global Times.




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