Private View Blog: Biden presidency will be defined by Chinese challenge
The new president has a bulging in-tray, but the relationship between Washington and Beijing is arguably the most important
“Being president is like running a cemetery,” joked president Bill Clinton in a 1995 Illinois speech. “You’ve got a lot of people under you and nobody’s listening.”
The US electoral soap opera has long polarised the country’s citizens. But the unprecedented events of January 6, 2021, the Christian festival of Epiphany, led to a great revelation both inside US borders and beyond.
Live TV footage of the Capitol building, overrun by a motley crew of white supremacists, QAnon conspiracists and self-professed ‘patriots’, was watched even more intently outside the US.
Weak response
Russia and China will leverage any chinks in the American armour. When the US voices its disaffection about detentions, disappearances and dispersion of demonstrators, its own feeble handling of an attempted coup d’état will be keenly highlighted by trade rivals.
Emerging from the suboptimal stewardship of Donald Trump, the US was already on the back foot, having lost the geopolitical soft power struggle of 2020.
“Chinese TV images show the authorities in control, quickly putting anti-Covid measures into place,” says Francois Savary, chief investment officer at Swiss wealth manager Prime Partners. “When you switch on the TV in the US, you see 4,000 deaths per day.”
The latest era of eastern exuberance dates back more than a decade. China has demonstrated a relative robustness since the global financial crisis of 2008. Significantly, this mood of self-congratulation has lasted until 2021, the centenary of the country’s Communist Party. And it will likely embrace the next stage of a Cold War with the US, centred on finance, trade and technology.
China’s strategy for the latest stand-off combines its global Belt and Road Initiative (BRI) with a Greater Bay Area (GBA) project, linking together a “megalopolis” of nine eastern cities including Hong Kong and mainland tech hub Shenzen.
“Hong Kong is an integral part of this combination,” explains Sharmila Whelan, deputy chief economist of Aletheia Capital, a Hong Kong-based research house advising institutional investors and family offices.
Western politicians have condemned president Xi Jinping’s crackdown against pro-democracy dissenters in Hong Kong, which many believe is fated to become a lower-tier Chinese city, bereft of privilege or attraction.
Yet as an entry point to both BRI and GBA projects, and a hub for RMB internationalisation, Hong Kong’s centrality to China’s plans for technological dominance suggests it must remain open to Western influence. “Hong Kong is the beachhead for foreign tech companies who want to be under the protection of British law,” believes Ms Whelan. “It has the role of being a connector.”
A new era of transactional geopolitics, promoted by Mr Trump, appears to have overtaken ideology, loyalty and historic ‘special relationships’ with a potential spin-off for Hong Kong. In the 21st century incarnation of the ‘Great Game’, territories, resources and even human rights are relegated to the role of bargaining chips.
High stakes
How President Biden deals with the Chinese challenge will define his presidency. Unlike the impulsive Mr Trump, his strategic thinking, diplomacy and multilateralism is both admired and feared in Beijing. A fast vaccine rollout could tip the scales in America’s favour, though China is currently better positioned regarding the pandemic.
At current growth rates, says Mr Savary, Asia will represent 50 per cent of world GDP by 2030. The recently signed Regional Comprehensive Economic Partnership, representing “one of the greatest liberalisations of trade, commodities, goods and services in history”, means “you cannot escape China one way or the other”.
In addition to regional plays, Prime Partners is invested in consumer-led Chinese growth stocks, with the ‘Dual Circulation’ policy balancing domestic consumption against export-led bigtechs. “All roads currently lead to China,” concludes Ms Whelan, highlighting Chinese companies which publish their environmental commitments and those linked to GBA projects, in an often opaque market.
The new era of competition between the West and China is described as an ‘unstoppable trend’ for investors by Citi Private Bank. “All the way back from the 16th century, to the middle of the 19th, China was the world’s dominant economy,” says David Bailin, Citi’s global head of investments, emphasising the historical context of the Chinese narrative. “Now they are rising up again.” Long-term overweighting of US rather than Chinese and Asian assets could damage portfolios, according to Citi.
Mr Biden’s early phone call to Russia’s president Vladimir Putin – condemning cyber-attacks, political poisoning and invasions of neighbouring Ukrainian territory – was a relatively easy move, expected by a Moscow currently plagued by street protests.
An era-defining policy to deal with China will be more challenging for the president, necessitating a combination of competition and co-operation, avoiding the confrontation beloved of his predecessor. The rewards of success and penalties for failure could both prove significant.
Predicting the future
One is reminded of a Russian anecdote told during the Moscow summit of 1972, when president Richard Nixon was hosted at the Kremlin Palace by Leonid Brezhnev, general secretary of the Communist Party of the Soviet Union.
Following intense discussions on limiting nuclear proliferation, runs the story, Mr Nixon was taken on a sightseeing visit to a Russian village, home to a legendary headscarved babushka, renowned for predicting the future by reading tea leaves.
She gazes intently at the remnants in Mr Nixon’s cup, but refuses to say anything. “Can’t you see anything in the American’s cup?” shouts the frustrated head of the Soviet delegation. “I can see it, but I can’t understand it,” replies the wrinkled crone reluctantly. “It’s all written in Chinese.”
Yuri Bender is editor-in-chief of Professional Wealth Management. Follow him on Twitter @YuriBender
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