A stormy global backdrop
As we read the international news from here on the ground in China, the world appears engulfed in a storm leaving few, if any, places to hide. If last week’s widespread selling of the safest investments, U.S. Treasuries, is any indication, faith in the world’s safest harbor seems shaken to its core as the U.S. sweeps the world into the vortex of its own tempest.
In sharp contrast, an air of calm and optimism persists here in China. Last Friday, a few of us at ShoreVest attended a close friend’s IPO at the Shenzhen Stock Exchange, where excitement abounded as the agricultural technology company’s share price shot up. In other conversations with business and government, there is a sense of resilient confidence.
While China has been incorrectly castigated in recent years as “uninvestible,” ShoreVest’s view, as we have repeatedly written, is that many of the misunderstood regulatory moves by Beijing were simply for the sake of long-term stability, even in preparation for this moment. Resilience and stability are what China was seeking, and on the ground that is how it feels today. Only approximately 3% of China’s GDP comes from exports to the U.S., so even U.S. tariffs have limited impact.
China as a strategic anchor
It is heartening for China to be attracting friends and even adversaries, including Japan and South Korea, into its orbit in their quest to hedge their bets in America’s new zero-sum game. This is exactly what we predicted would happen in our China Debt Dynamics: United States of China piece in December. From “China-plus-one,” the sentiment seems rapidly shifting to “America-plus-one,” in search of a large and resourceful ally as a stable trading partner and strategic anchor in a world stormed by erratic pronouncements and unstable actions.
Amidst the upheaval in the global economic order, an ascendant China, already on the path to recovery from its property-sector meltdown, is being recognized once again as a potential safe and uncorrelated harbor the world seeks. The second-largest economy is also the second-largest importer of merchandise, offering a market for global manufacturers, including exporters displaced from the U.S.
As the world’s largest exporter of goods, China is also the source of key inputs, including rare earth minerals and pharmaceutical ingredients, and high-value goods, including robots and electric vehicles, needed by manufacturers and consumers alike. With fraying U.S. trade and military alliances in Europe, many European countries are seeking more respectful cooperation with China.
Trade, development, and innovation
Furthermore, with funding suspended by USAID to many developing countries, China is stepping in as a financier of last resort to help develop the Global South. Just as U.S. tariffs were indiscriminately increased even for many poor African countries, Beijing eliminated tariffs on imports from many of the world’s least-developed countries.
Besides trade, it is becoming increasingly clear that China is an innovation hub second to none. Thriving in the face of adversity is a hallmark of China’s technology innovators, as seen in DeepSeek, Huawei, SMIC, CATL, and others. In contrast to the protectionist tariff approach now used by the U.S. administration to try to spur domestic manufacturing, China instead uses state support and bank lending to encourage technology, biotechnology, green energy, agriculture, and other sectors in recognition of their importance to China’s, and the world’s, future.
China also increasingly appears more friendly for both education and business than the U.S. is becoming, with rising incidents of American detention of foreign-born students and professionals and sudden cancellation of student visas.
Implications for global allocators
It is fair to say that the recent U.S. abdication of its role as a leader of the democratic world paves the way for a multipolar world, where China’s central-government-managed approach to economic prosperity can coexist with a legion of democracies. In this light, China will always remain an important global force that should not be underestimated.
For global allocators, and especially those seeking all-weather strategies such as private credit, ignoring China would be at one’s peril. Not only is China clearly investible, as seen in ShoreVest’s more than 20 years of success in the country, it is likely the least-correlated large market, driven by local idiosyncratic opportunities and affording a safer harbor during tumultuous times.
In virtually every conversation we have had recently in China, from government and business leaders down to taxi drivers, the common refrain is this: “Can’t we just get back to doing win-win (共赢) business?” ShoreVest echoes this sentiment.