U.S. - China Balancing Act
The U.S.-China balancing act took center stage last week when President Xi Jinping emerged from the Communist Party congress for a precedent-breaking third term as General Secretary.
For background, the party congress convenes 2,300 party leaders every five years to tout accomplishments, set plans and goals, and reveal new leadership. The meeting usually follows a tight script; however, there was some palace intrigue when aides escorted former leader Hu Jintao from the stage during the closing session. Whether he left for medical or symbolic reasons remains unclear.
Markets reacted strongly to the congress, as Chinese stocks sold off on fears the leadership may be more concerned with Communist ideology than economic growth. Hong Kong’s Hang Seng Index suffered its largest one-day decline since the financial crisis, and the Nasdaq Golden Dragon China Index dropped 14%. Chinese internet and tech stocks took the heaviest beating.
And what a coincidence! The U.S. released the declassified version of its National Defense Strategy last week, naming China as the “most consequential and systemic challenge” to U.S. national security.
Buckle up. We expect the U.S. and China rivalry to shape the world for the next decade or more.