US-China relations are back in focus. US desire to contain Chinese growth in strategic technologies combined with China’s foreign and domestic policy agenda will keep the relationship volatile.

  • Under President Biden, US national security and industrial strategy have become deeply intertwined. Decoupling across strategic sectors is likely to continue as national security and technology blur. 

  • US hawkishness on China is in part driven by the domestic political environment. Democrats are keen to match Republican talking points on China, particularly in the run-up to the next presidential election. Current US policy is unlikely to be substantially altered by future presidents. 

  • China is primarily focused on domestic economic growth in the wake of reopening. But China’s technological self-sufficiency drive, efforts to expand its sphere of influence and its relationship with Russia will keep tensions with the US high. 

  • Periods of calm in US-China relations will be punctuated by volatility, which is likely to increase in the run-up to the US presidential election. This environment will keep risk premia on Chinese assets volatile, but creates opportunities for on-the-ground investors with deep knowledge of China. 

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