A Softer Tone, A Stronger China

Macro Perspectives: Thu 21 Jan 2021

The United States of America has a new President. In his inauguration speech, he mentioned China exactly zero times.

In contrast, the Trump administration (Pompeo) spent the past six months calling the Chinese Communist Party "the greatest threat to democracy and freedom worldwide." That's a very clear statement on a very big issue.

We should expect the Biden administration to walk back on it. Biden has said himself he will "normalise relations with China." This even though his Secretary of State nominee said on Tuesday that "China poses the most significant challenge of any nation to the United States" - the language is softer, and actions will be even (much) softer.

With that, China is positioned to be a big winner, as we discussed earlier this month. China goes back to the business that got them so close (pre-Trump) to becoming the global economic superpower - ramping up the global supply chain and manipulating the currency to ensure they maintain global dominance in exporting. That means as the trillions of dollars in U.S. stimulus becomes U.S. consumption, a lot of those dollars will be sent to China for stuff.

This all puts China back on the path of 7%+ growth. They haven't seen it since the first half of 2017 (when Trump entered office), the IMF expects it (7%+ growth) this year.

That growth is fuel for Chinese stocks, which are bumping up against the Trump-era highs. As U.S. stocks are at record highs and valuations continue to rise, Chinese stocks remain 30% off of 2015 highs.