Geopolitical competition & innovation

Geopolitical competition will continue to intensify, imposing costs – but also creating strong incentives for investment in innovation.

Last week, the Biden Administration issued a formal advisory warning to US firms operating in Hong Kong.  It said developments like the new National Security Law in Hong Kong meant that ‘the risks faced in mainland China are now increasingly present in Hong Kong’.  The ‘one country, two systems’ approach, the formulation agreed for the handover in 1997, is de facto over. 

Developments in Hong Kong often illustrate the state of the US/China economic and political relationship, as I have noted before.  And recent developments suggest three broader insights on the state of the geopolitical environment.

Bearing the cost

First, neither the US or China show any sign of reducing tensions – with both being prepared to absorb the associated costs.  The ongoing extension of mainland Chinese political and legal practices into Hong Kong is leading to an exit of meaningful numbers of Hong Kongers and foreigners, risking its status as a global hub. 

Elsewhere, Chinese regulators unexpectedly restrict…