Enodo Economics

Technology competition between the US and China has entered a new, more dangerous phase. What began as a fight over advanced semiconductors and AI has evolved into full-spectrum industrial warfare, with China now willing to leverage its dominance in critical materials and key supply chains as offensive weapons. Companies caught in the crossfire face a stark choice: maintain access to the Chinese market and risk US restrictions, or align with US policy and risk Chinese retaliation. There is no safe middle ground. The economic consequences will reverberate well beyond tech. As companies scramble to build parallel supply chains and duplicate manufacturing capabilities, the era of efficient globalization is giving way to a more expensive, fractured industrial landscape. This isn't just about higher costs - it's about a fundamental rewiring of global production networks. For investors, the winners will be those who can navigate both the technological and geopolitical dimensions of this new reality. But one thing is clear: the price of strategic security is sustained structural inflation. #China #US #USChinaRelations #TechWar #TheGreatDecoupling

Last week China deployed its largest navy fleet in regional waters in nearly three decades, posing a threat to Taiwan that is more pronounced than previous Chinese war games, said the Taiwanese defence ministry. While Beijing didn’t confirm it was carrying out exercises, the scale of deployment from the southern Japanese islands down into the South China Sea was the biggest since Chinese war games ahead of 1996 Taiwanese presidential elections, said a spokesperson in Taipei. The military moves followed Taiwanese leader Lai Ching-te’s trip to visit Pacific Island allies and transit through US territory. Regardless of whether or not exercises are held, the PLA “will not be absent and will not be soft in its fight against independence and for reunification,” warned China’s defence ministry. China’s navy is building two “walls” in the Pacific, one at the eastern end of Taiwan’s Air Defence Identification Zone and the other further out in the Pacific, according to Taiwan’s defence ministry. “They are sending a very simple message with these two walls: trying to make the Taiwan Strait an internal sea” of China, said a senior ministry intelligence officer. #China #Taiwan #MilitaryExercises #WarGames

Following the 2023 CEWC, Enodo Economics wrote that “big bang stimulus is certainly not on the cards” and “neither are the reforms…needed to buoy depressed consumers and private entrepreneurs in order to elevate the economy on a sustainable growth path.” However, a year later, the government has signalled a major policy shift—the strongest since the 2008 financial crisis. Despite this, our overall optimism is tempered by challenges, as liquidity from initial measures has yet to effectively permeate the financial system. Furthermore, structural barriers, like banks’ preference for state-owned companies, require more than funding to overcome. Nonetheless, the CEWC confirms Beijing’s commitment to the monetary, fiscal, and ideological changes needed to drive meaningful progress. #China #ChinaEconomy #ChinaPolicy #CEWC

The CEWC pledged to increase the issuance of ultra-long special treasury bonds and local government special purpose bonds, and optimise the structure of fiscal expenditure. A moderately loose monetary policy should be implemented, with reductions in the reserve requirement ratio and interest rates at an appropriate timing to ensure ample liquidity. The expansion of domestic demand was highlighted as a top priority, with policymakers pledging to roll out more initiatives to boost consumption, including greater strides in equipment upgrading and consumer goods trade-in programs. The country should formulate pro-childbirth policies, develop community-supported at-home elderly care, and expand elderly care services. The burgeoning “ice and snow economy” also earned a shout out. The policy stance emerging from this year’s CEWC unsurprisingly aligns with signals from the Politburo’s tone-setting meeting earlier last week, and consolidated the broader shift in economic policy making announced in September. The signals are positive - the placement of boosting demand and consumption as 2025's top priority over technological development indicates some recognition of that serious structural issues have festered over the last two years. And pledges to increase the budget deficit, issue more debt and loosen monetary policy to maintain a stable economic growth rate indicate a real shift towards a 'whatever it takes' mindset, especially as China girds for more trade tensions with the US once Donald Trump resumes the presidency. China’s top leadership has thereby signalled its strongest commitment to economic stimulus in a decade. All eyes will be on the Two Sessions in early March to see if they follow through with the necessary steps to revive growth and market confidence in 2025. #China #ChinaEconomy #ChinaPolicy #CEWC

Beijing has focused on indirect measures to boost consumer spending through wealth effects in equity and housing markets, notably holding back on direct consumer transfers for now. The strategic restraint is likely a combination of long-standing resistance to direct one-off consumer handouts, and a desire to keep policy ammunition in reserve to counter Trump’s threatened 60% import tariffs. Beijing is carefully sequencing stimulus measures while maintaining flexibility to respond to external shocks. But failure to follow through on boosting consumption could lead China trapped in its old growth model. This remains a serious risk going forward, and one we will closely monitor as the impact of the stimulus becomes known. #China #ChinaEconomy #ChineseConsumer

China’s unexpected resilience in tech development will mean an intensified tech war. The NPC raised ‘new productive forces’ as one of the country’s priorities, and Xi Jinping has doubled down on its importance since. The likelihood of Trump intensifying restrictions on US technology imports will only accelerate China’s attempts to achieve self-sufficiency. The outcome of this battle defies easy forecasts, but it is safe to say that China is developing a critical mass of advanced technology capabilities to the point where absolute advantage may not be that significant. #China #US #Technology #TechWar #Trump

Beijing's comprehensive policy pivot represents a decisive turning point in China's economic strategy. From 2015 onwards, despite the Covid hit to growth, the authorities focused almost exclusively on supply-side transformation – a painful but necessary process given the excesses created by the 2008 stimulus. Now, for the first time, they are seriously addressing demand-side weaknesses, particularly the structural obstacles to consumer spending, rather than applying temporary band-aids. While risks remain, particularly regarding US-China tensions and Taiwan, we believe markets are underestimating both the scale of Beijing's commitment and its likely effectiveness. #China #ChinaEconomy #GovernmentPolicy #Stimulus

China’s military drills in response to Taiwanese President Lai Ching-te’s Taiwan national day speech were much more of a damp squib than media reports suggested, lasting only a day and involving no live-fire drills in Taiwanese waters. Meanwhile, Trump’s erratic behaviour during his previous term reportedly left Xi and his senior officials exhausted, and his re-election, along with the early appointment of China hawks to key roles, signals tense times ahead for cross-strait relations. #China #Taiwan #US #Trump

Donald Trump’s decisive victory has created a more focused adversary for China, with his administration likely to ratchet up tariffs, export controls and other measures intended to contain China’s rise. For investors, this necessitates a fundamental reassessment of China exposure, with particular attention to sectors most vulnerable to US economic pressure. On the Chinese side, the intensified decoupling will favour and accelerate China’s drive for self-sufficiency. The challenge will be maintaining stability in the relationship while protecting core interests, as Trump’s more muscular and unpredictable foreign policy will create obstacles that are more difficult to anticipate. #China #US #USChinaRelations #Trump

Enodo Economics is thrilled to announce that we are supporting partners of Logimotion Dubai 2024! Our Chief Economist, Diana Choyleva, will deliver a compelling session titled, "Tectonics of Trade: How Geopolitics and Tech are Rewiring Global Commerce, Logistics and Dubai's Future." She’ll explore The Great Decoupling - the US-China rivalry, and how it is shattering traditional trade routes, upending supply chains, and forcing a radical rethink of global logistics. Amidst this chaos lies opportunity - especially for nimble players like Dubai. Can Dubai thrive in the fault lines between these colliding tech titans? 🔗 Register to attend: https://bit.ly/3Z2uKUw #GlobalTrade #SupplyChains #Geopolitics