China-US tensions unlikely to balloon — experts explain

The ongoing conflict in Ukraine provides a daily reminder of the relevance of geopolitical risk for investors. We asked a panel of independent experts about the structural factors behind the often uneasy relationship between China and the US and how it may shape our world for years to come. Kerry Brown is Professor of Chinese Studies and Director of the Lau China Institute at King’s College London. Dr Leslie Vinjamuri is Director of the US and the Americas Programme at Chatham House.

Intense competition but no conflict

Leslie Vinjamuri predicted the acceleration in the hawkish approach of the US towards China, which has been building due to the economic competition between the two superpowers. Kerry Brown, however, believes escalation into armed conflict is unlikely. He observed that China seeks strategic space more than global influence and is focused on activities that generate positive returns.

The Chinese consumer keeps the peace

Both experts agreed that despite current tensions and the ongoing lack of cooperation on topics that range from global security to climate change due to mutual distrust, the power of the Chinese consumer has prevented the decoupling of the relationship between the US and China. Kerry Brown observed that Beijing needs to keep the middle class happy to maintain stability. Chinese consumers want US and European products, he said, while Leslie Vinjamuri concurred on the importance of this lucrative market to the US economy.

Corporate China can still thrive in a dual track world

Kerry Brown suggests corporate China can still thrive in a dual-track world and said the performance of companies such as Huawei demonstrates that the markets of Asia, Africa, the Middle East and Latin America can compensate when the US and its allies apply barriers to trade. Indeed, the latest Credit Suisse Market Assumptions forecasts stronger earnings growth for emerging market equities than developed markets . Chinese equities are expected to deliver an annualized return of 8% over the next five years.

China set to overtake the US — but keep an eye on India

Kerry Brown is confident China’s commitment to growth will see it overtake the US as the world’s largest economy by GDP at some point. “The world’s greatest capitalist will be a communist-led country,” he predicted. China has a significant advantage over the US in managing the economy since Beijing has total flexibility on policy, he continued, and observed that China’s ambitious growth targets are a political as well as an economic priority.

Yet China faces significant demographic challenges, Kerry Brown said, and India is on track to surpass it as the most populous country. Leslie Vinjamuri also highlighted India’s growing influence in the world and its significance to both sides as a potential ally. The latest five-year outlook from the Credit Suisse Global CIO Office shows how India is becoming important in its own right. Our forecasts suggest India will outperform the US and China on annual real GDP growth, cash returns and yields from government bonds in 2023-2027.

Could China be first to move on climate change?

Climate change is one of the defining challenges of the 21st century and China and the US are among the biggest polluters. Given the threat of recession and political division within the US, Leslie Vinjamuri does not expect to see more forceful action from the White House on climate change in the near term. We may see acceleration from China though, said Kerry Brown, since the effects of global warming are much harder to ignore and there is growing pressure on the government to act.

Pay attention to investment allocation

These expert views on current China-US relations reflect a world in transition and a coming decade that is likely to be radically different from the previous one. This is a time to pay attention to investment allocation. Our Investment Outlook has insights on the risks and opportunities connected to China, the US and all major economies. If you’d like to review your investment portfolio, please speak to your relationship manager.