TAIPEI – Political tensions have decimated investment in the technology sector between the United States and China as the world’s two largest economies attempt to decouple their supply chains, according to a recent report.

Between 2016 and 2020, overall direct investment between the two countries fell 75%, from $ 62 billion to $ 16 billion, with the tech sector alone falling 96% over the period, according to the latest annual technology report. of Bain and Co. published Monday.

Investments from China to the United States have fallen much more sharply than those in the opposite direction due to Washington’s crackdown on Chinese companies creating geopolitical uncertainties for businesses, partner Anne Hoecker told Nikkei Asia. Bain & Co. who led the research.

“The business environment for Chinese companies in the United States was probably a little less secure than before, and they [China] come to focus on investments in Europe and Africa, ”said Hoecker, who specializes in semiconductor technology and practices.

Chinese direct investment in the United States fell to just $ 7.2 billion in 2020, from $ 48.5 billion in 2016. U.S. investment in China fell 35% to $ 8.69 billion over the course of the year. from the same period. The decline was most pronounced in tech, real estate and healthcare, data from the U.S.-China investment center showed.

Several large economies are investing more than ever in their own technology and the independence of their supply chains, said Hoecker, which was not a key issue just a few years ago, when the main theme of business leaders American business was how to access the Chinese market.

Hoecker said supply chain disruptions caused by COVID-19 and the unprecedented semiconductor shortage have fueled this trend, making technological decoupling a problem for economies beyond the United States and the United States. China.

The Bain report comes just over a week after US President Joe Biden’s second appeal to Chinese President Xi Jinping, a 90-minute conversation on September 9. Despite the talks, tensions between the two countries have shown little sign of improvement since Biden took office in January.

Business practices and technological competition remain two points of contention between the two world powers.

The United States blacklisted 168 Chinese companies, excluding Huawei and its dozens of affiliates, between 2018 and April this year, according to previous analysis by Nikkei Asia, most of which are tech-related.

Washington’s crackdown on Chinese tech champion Huawei Technologies, meanwhile, sparked a nationwide effort in China to build a comprehensive national semiconductor supply chain, from chip design and materials to production equipment in China. going through chip manufacturing.

The current global chip shortage has again prompted major economies to create their own supply chains and bring more vital semiconductor production to land for both economic and national security reasons.

New regional supply chains began to appear outside of China less than 1,000 days after Washington imposed its first wave of punitive tariffs on Chinese imports in 2018, as companies began to view decoupling as an irreversible trend. U.S. tech giants like Apple, Google, Amazon, and Microsoft have all called on vendors to build capacity outside of China due to geopolitical uncertainty.

Bain’s Hoecker said the decoupling trend is here to stay, but added that it will be a very long process and supply chains are unlikely to be completely separate.

The report says there are “massive” uncertainties ahead and that business leaders must be able to manage geopolitical risks, plan prudently and invest more resources in strengthening government relations and institutions. global sales teams.

Companies will also need to understand the particular “pinch points” of their supply chains – when they depend on a country or a single source of supplier – and try to qualify new suppliers to build resilience and regularly review. their long-term plans. Hoecker added.