Bo Zhuang, Global Macro Strategist, Asia, for Loomis, Sayles & Company, joined Julie Cooling, Founder and CEO of RIA Channel, to discuss US-China trade relations and the impact of China building manufacturing capacity to offset supply chain risks.
Zhuang predicts that China and the US will be able to reach a deal on trade and tariffs, but it is important to consider the form of the deal. The Chinese may be willing to strike a deal, as they may be encouraged that the US is negotiating with the country directly rather than including them in multilateral trade talks. Zhuang places the probability of a partial or transactional deal at around 60%, a decoupling of the two countries at around 20%, with the remaining probability of a “grand bargain” comprehensive deal.
The Chinese are building a full range of manufacturing capacity in the domestic market, so they won’t have to rely on other countries, especially for technology needs. This new capacity may be less efficient and incur higher costs, but it reduces the risks of issues in global supply chains. China won’t have access to cutting-edge technology but will be able to build technology to meet the country’s needs. In addition to technology, China is seeking independence or security across sectors, including data, energy, and food.
In the medium-to-long term, Chinese GDP growth is likely to continue to slow. A key driver of the slowdown has been a lack of activity and lower prices in the housing sector. The slowing housing sector has reduced the nation’s income from land sales and real estate. Local governments have low fiscal reserves after overspending on COVID-containment policies. While the social welfare system is currently sustainable on a pay-as-you-go basis, fiscal pressures can mount if younger workers have fewer jobs or slower wage growth. Another option would be to increase the contribution rates of younger workers and smaller companies to support the promises made to pensioners. Increasing the social welfare contributions could lead to lower consumer purchasing power and slower small business hiring. Zhuang believes this short-term pain could lead to long-term gain.
The Chinese economy appears to be overstretched in several key areas. China faces a cyclical downturn, as the economy benefited from a record trade surplus in the first half of 2025, due to increased exports before tariffs took effect. The Chinese government has cut interest rates and provided other stimulus measures to cushion the impact of higher tariffs and slowing exports. Zhuang encourages investors to study the significant disconnect between the surging stock market and slowing economic growth. While consumers may be able to support the economy in the short run, long-term macro fundamentals are unlikely to support a sustainable long-term stock market rally.
WEBCAST – Converging Markets, Expanding Opportunities: A Guide for Accessing the Public-Private Debt Continuum
The boundaries between public and private debt markets are rapidly fading, creating new challenges—and exciting opportunities—for investment advisors. Join industry experts for an insightful discussion on how these markets are converging and what it means for advisors and their clients. Learn about the expanded opportunity set and strategies for liquidity, transparency, and diversification. This session is aimed at equipping you with the knowledge to access and navigate the evolving public-private continuum to better serve your clients’ goals.
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Resources:
Is China’s Fiscal Agenda Flying Under the Radar?
China’s Vulnerability to a Potential Trade War 2.0
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