Interview, Other
U.S.-China: more decoupling ahead?
- Geopolitical tensions between the U.S. and China are expected to escalate further due to structural rivalries between a rising and established power, with conflict described as "likely" under historical patterns unless extraordinary diplomatic intervention occurs to construct a "rivalry partnership."
- Bilateral trade is projected to remain elevated relative to recent years but significantly below the trajectory of a "business-as-usual 2015" environment due to ongoing friction.
- Foreign direct investment (FDI) inflows into China are anticipated to stay suppressed below the baseline required for a maturing middle-income economy, with the sector dominated by a few large corporations while excluding most other entities.
- Outbound Chinese FDI into the U.S. is forecast to remain capped at a "low ceiling" of $5 billion or less, a sharp decline from the 2015-2016 peak of $50 billion, driven by capital outflow concerns and security restrictions.
- Two-way portfolio flows are not expected to reach normalized higher levels previously anticipated during the MSCI inclusion phase, hindered by delays in Beijing's financial reforms and U.S. geopolitical headwinds.
- Executive orders on investment are predicted to function primarily as notification regimes targeting specific technologies such as artificial intelligence and quantum computing, described as inherently temporary measures that may evolve to include additional sectors.
- Economic and financial decoupling is considered likely in the future due to systemic differences, even if immediate restrictions do not materially reduce investment flows, alongside an organic hesitance by American companies stemming from reduced commercial due diligence capabilities and a perceived decline in China's marketization since 2015.
- Total decoupling is not viewed as inevitable, with significant portions of economic activity expected to remain permissible and beneficial for both nations, though China faces extremely difficult conditions with productivity heading toward zero.
- A significant policy shift in Beijing is predicted if the current economic model fails to sustain development, based on the historical capacity to course correct to support hundreds of millions of citizens.