The U.S., due to its business-friendly policies and the world\u2019s deepest and most liquid capital markets, has long attracted global investors. But, amid geopolitical turmoil and concern about debt, investors may be increasingly turning to China.<\/p>\n
\u201cWhen there\u2019s a hit to the system, do you want to be with the anti-fragile or the profit-maximizing?\u201d economist Louis-Vincent Gave asked at the Fortune Leaders Forum in Macau on Sept. 8. \u201cThis is where increasingly the markets are starting to diverge, where you\u2019re looking at the U.S. Treasuries delivering horrible returns, and Chinese government bonds delivering very good returns.\u201d<\/p>\n
The yield on the benchmark 10-year Chinese government bond currently sits below 1.7%, far beneath the 4.8% offered by the 10-year U.S. Treasury note. Bond investors are growing wary of debt across the Western world: U.S. national debt now sits at $40 trillion<\/a>.\u00a0<\/p>\n That means Chinese government bonds, buoyed by deflation and a vast pool of domestic savings, are offering investors a safe-haven asset.\u00a0<\/p>\n China is now reaping the fruits of its investments in social stability, says Gave, founding partner and CEO of Hong Kong-based financial services firm Gavekal. \u201cNinety percent of the time, when things go well, you want to be [invested] in the U.S,\u201d he noted. \u201cBut the 10% of times where it goes badly, you want to be in China.\u201d<\/p>\n That may be a tough judgment to make given China\u2019s weak GDP growth, retail sales, and investment. \u201cChina should be going gangbusters, and it\u2019s not,\u201d Gave said, blaming \u201ccrushed\u201d consumer and business confidence<\/a>. \u201cThe match that turns around business and consumer confidence? That\u2019s the key.\u201d<\/p>\n Rising complexity<\/p>\n Even as the world fragments along geopolitical faultlines, business leaders should not fixate solely on geopolitics, argued Ziad Haider, McKinsey\u2019s global director of geopolitics. \u201cIt\u2019s not the only point of transition,\u201d he said. \u201cWe\u2019re seeing changes on the energy, technology, and demographic fronts.\u201d<\/p>\n Governments are also turning to geoeconomics<\/a>, or the strategic use of tariffs, sanctions, and industrial policy, to achieve national security goals. U.S. President Donald Trump has recently launched a new round of tariffs, targeting Canada<\/a> in particular; Canada\u2019s retaliatory tariffs<\/a> kick in on Sept. 8. <\/p>\n \u201cTraditionally, we\u2019ve thought about geopolitics as the contestation of security and political issues,\u201d Haider said, pointing to examples like Russia\u2019s invasion of Ukraine, and the Middle East conflict. \u201cBut that whole world of security has now been complemented by a world of geoeconomics\u2026and the chessboard that boards have to look at on geopolitics has become significantly wider.\u201d<\/p>\n Both speakers pointed to energy as today\u2019s biggest geopolitical stress point<\/a>. \u201cThe lower the cost of energy, the easier it is to produce economic growth,\u201d Gave explained. \u201cWe live in a world where the uncertainty around the energy cost has grown considerably for mostly geopolitical reasons.\u201d<\/p>\n Oil prices have surged since the Iran war began earlier this year, sparking energy shortages<\/a> across much of Asia-Pacific. While prices have come down since the peak in April, they still remain far above where they were at the beginning of the year.<\/p>\n