MacroscopeUS-China relations: two economies linked by financial risk can’t afford to go to war

Name: Angry protest at headquarters of China Evergrande as property giant faces liquidity crunch
Uploaded: 2021-09-19T19:30:23.000Z
Duration: 2 min 28 s
Description: Angry protest at headquarters of China Evergrande as property giant faces liquidity crunch

The interconnected fates of the US and China have become apparent from recent exchanges between George Soros and BlackRock

Financial markets in the US and China have perhaps never looked so fragile, and that is never a good position from which to start a conflict

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Presidents Joe Biden and Xi Jinping spoke by phone recently. The US and China have many differences but one problem they have in common is that of systemic risk crystallising in their financial sectors. Photo: AFP

Anthony Rowley

Published: 3:30am, 20 Sep 2021

What really brought presidents Joe Biden of America and Xi Jinping of China together by phone recently? Was it fear of an unintended confrontation over Taiwan or in the East China Sea, the challenge of dealing with Covid-19 and climate change – or was it fear of a different kind of crisis?

The US and China have many differences but one problem they have in common is that of systemic risk crystallising in their financial sectors. Financial cooperation is the price they may have to pay to avert the threat.

This goes deeper than the fact that US financial markets are behaving skittishly as monetary tapering looms, the risk of a Chinese property or bond market default increases, or even that George Soros is urging Larry Fink’s BlackRock and others to avoid equity exposure to China.

For a decade or more, Washington and Beijing have been able to engage in what might politely be termed highly competitive behaviour on both economic and strategic fronts, safe in the knowledge that accommodative monetary policy would support the financial systems that underpin such competition.

Quite suddenly, those financial and monetary foundations are looking fragile as tremors in equity, bond and real estate markets hint at possible earthquakes to come. So interconnected is the global financial system that a market crisis would be of pandemic proportions.

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Angry protest at headquarters of China Evergrande as property giant faces liquidity crunch

More particularly, the interconnected fates of the US and China have become apparent from the recent exchanges between global investment guru Soros and BlackRock, the world’s biggest asset management firm headed by Fink.