Understanding China: an economic and investment perspective, part III

December 2022

In our series “Understanding China,” we have laid out the structures of China’s political economy (Part I) and capital markets (Part II). This third installment in our China series will lay out how investors may want to consider their portfolio exposure to China, and how these allocations may be impacted by China’s political and economic transitions.

Rising US-China trade tensions, recent military drills around Taiwan, and Xi’s total control of the Chinese Communist Party (CCP) have some investors reconsidering their allocation to Chinese assets. This paper examines current political, policy, economic, and geopolitical headwinds that China is facing. The trade-offs between economic gains and policy risks are changing – former market-friendly pragmatism and openness is waning, while party ideology and nationalism are growing. These trends have been spearheaded by President Xi Jinping, who now dominates China’s Communist Party, and hence, China. Not since Mao has China’s party ethos and political & economic future been so dominated by a single person.

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