US officials addressed the heightening tensions with China on Sunday after Secretary of State Antony Blinken met with Beijing’s top diplomat, Wang Yi, in Germany to discuss China’s high-altitude spy balloon and the nation’s approach to sending “lethal aid” to Russia.
The US military shot down what it identified as a Chinese surveillance balloon this month, and according to an official statement, Blinken told Wang that it was an “unacceptable violation of US sovereignty and international law.”
Blinken also warned of the “implications and consequences” if China provides material support to Russia with its war in Ukraine.
The meeting, held on the fringes of the Munich Security Conference, where leaders from around the world gathered to discuss geopolitical challenges, was billed as a chance to soothe the growing rift between the two superpowers, which has been exacerbated by “balloon-gate.”
However, judging by the statements afterward, and the fact that Wang is now even saying it was not a “formal meeting,” it seems the tensions are not waning.
In fact, the officials’ talks in Germany underscore just how far apart the two nations are at this point.
There’s no doubt that the antagonism between the world’s two most powerful nations has become more entrenched, more explicit, and more aggressive in recent times.
The animosity now extends far beyond the tightening of tariffs or restrictions on exports.
As I wrote previously in Asia Times, the two are battling to “control military dominance, security infrastructures, trade, commerce, economic systems, the development and regulation of technology, as well as international norms, practices and values.”
I believe, as I suggested, this does pave the way for a new cold war, which will have a global impact because it is between the world’s two largest economies – together they make up more than 40% of the global economy.
For global investors, the tense meeting between Blinken and Wang – and the fallout from it – has put the spotlight firmly back on the relationship between the US and China and how it affects the world economy and the futures of billions of people around the world.
To my mind, there are three key issues that investors will now be watching in regard to US-China relations.
First, the decoupling of the two nations. Despite their rivalry and the rhetoric on trade, there remains a deep economic interdependence between the United States and China, which has been growing for decades.
But investors are increasingly monitoring signs that this is slowing. We see this in the slowdown of commerce and investment, knowledge-sharing, and smaller global value chains, among other issues.
The deceleration appears to have gained momentum amid the United States’ push to “contain” China in terms of the strategic competition between the two.
In addition, President Xi Jinping recently reasserted in a major speech in Beijing at the Communist Party congress China’s focus away from rapid growth and toward national self-sufficiency.
He hammered home the party’s policy of “dual circulation,” driving growth through domestic demand. This is a nod to decoupling from the West.
Second is China’s response to the US and other nations requiring Chinese citizens to continue complying with Covid testing rules now that the country has reopened.
Beijing has sharply criticized testing requirements imposed on passengers from China and threatened countermeasures.
“We believe that the entry restrictions adopted by some countries targeting China lack scientific basis, and some excessive practices are even more unacceptable,” Foreign Ministry spokeswoman Mao Ning said.
“We are firmly opposed to attempts to manipulate the Covid measures for political purposes and will take countermeasures based on the principle of reciprocity,” she said, but didn’t specify what steps China might pursue.
Third is the divergence from the West of the critical tech sector, as Xi focuses tech self-reliance and state-led initiatives.
As both nations push to become the ultimate global dominant force militarily, politically, culturally and economically, as ever, there will be winners and losers.
Investors will be carefully tracking US-China relations, especially in light of the recent talks between senior diplomats that failed to ease tensions, in order to see which asset classes, sectors and regions will benefit, to readjust their portfolios to seize the opportunities.
Nigel Green is the founder and CEO of deVere Group. Follow him on Twitter @nigeljgreen.