Joe Biden and Xi Jinping face great challenges bridging the divide between their countries. Photo: AFP/Frederic J Brown

The Chinese premier’s recent calls for more communication and cooperation between China and the US are broadly welcomed as a positive step in the relationship between the world’s two largest economies. 

However, significant obstacles remain before the “reset” button on Sino-US relations can be hit. As such, investors must act cautiously to seize key opportunities and sidestep the risks.

After fraught diplomatic talks in Alaska earlier this year, in which the US and China clashed on issues including Beijing’s policies in Xinjiang, Hong Kong and Taiwan, comments made on Tuesday by Chinese Premier Li Keqiang offer a new glimmer of hope.

“We need to step up dialogue and communication, and expand practical cooperation, properly manage differences and push Sino-US relations towards the direction of overall stability,” Li was quoted as saying by state television.

He was speaking in a virtual conference with top-level executives from more than 20 US firms including Boeing, Honeywell, Qualcomm, General Motors, Pfizer, Abbott, Corning and General Electric.

Normalizing relations between the US and China is in both countries’ interests. Improved ties will help drive global economic growth, foster investment, secure jobs, keep prices lower for consumers, tackle unfair or illegal economic, commercial and technological practices, reduce poverty and environmental problems, and contribute to stopping human rights abuses and military interventions.

As the pandemic has shown only too well, industrial and supply chains are fragile. Therefore, corporations around the world will applaud this new positive sentiment between China and US business.

But investors must also be aware that much of the current goodwill could be undone in the coming months as Washington looks set to take a tough line with Beijing.  

There is cross-party backing for the Strategic Competition Act of 2021, which is likely to spark retaliation from Beijing. Indeed, from a broad perspective, it appears that US President Joe Biden’s administration is likely to continue with many of the anti-China policies introduced by his predecessor Donald Trump.  

In addition, US intelligence agency leaders said on Wednesday that China is an “unparalleled” threat, citing Beijing’s cyber capabilities among other issues as they testified at a public congressional hearing on worldwide threats.

This will all further exacerbate tensions between the superpowers.

“My fear for the last several years is that what started out as a trade war would turn into a tech war, and then eventually morph into a Cold War. Those fears have come to pass. Just this week, there are significant developments that lead me to underscore that risk,” Morgan Stanley economist Stephen Roach said on CNBC recently.

Clearly, there are US-China headwinds on the horizon and these could potentially impact financial markets and investor returns worldwide.

But despite this, markets will still be robust due to US monetary and fiscal stimulus, pent-up cash and demand, and strong corporate earnings.  

This, combined with ultra-low interest rates and poorly performing bonds, means investors will likely continue to pile into stocks – and rightly so. But perhaps more than ever – because of growing optimism amid the headwinds – they must do so judiciously to build and protect wealth.

Nigel Green founded deVere Group in 2002 from a single office in Hong Kong after discovering a niche market for expatriates in the financial services sector. Since then, it has grown to become one of the largest independent financial advisory organizations in the world with offices and clients across the globe.