Editor's note: The China-U.S. economic and trade relationship has always been a focal point, and recently, there seems to be a warming trend in their economic ties. At the same time, the upcoming Fourth Plenary Session is also drawing attention. What new measures can we expect during this period?
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. The China-U.S. economic and trade relationship has always been a focal point, and recently, there seems to be a warming trend in their economic ties. At the same time, the upcoming Fourth Plenary Session is also drawing attention. What new measures can we expect during this period? To discuss these topics, we have invited renowned economist Song Qinghui, Pan Yuanyuan, associate researcher at the Institute of World Economics and Politics, Chinese Academy of Social Sciences, and Wu Zhuoyin, senior economist for Asia-Pacific at Natixis, to provide their commentary and analysis.
Hello everyone! First, I would like to ask Mr. Song what the fundamental reason is for the rapid escalation of this round of economic and trade disputes.
【Song】The fundamental reason for the rapid escalation of this round of tariff wars is China's implementation of export controls on rare earths, which the U.S. perceives as hostile and a direct threat to its supply chain security. This is the root cause. For the U.S., the goal is to use this extreme economic threat to force China to make comprehensive concessions regarding rare earth controls and to prevent China from gaining a counteraction advantage in strategic resource areas. On one hand, this is about increasing leverage for negotiations at the upcoming APEC meeting at the end of the month. On the other hand, attributing all this to merely bargaining leverage is overly simplistic. Ultimately, it reflects the long-term competition between China and the U.S. regarding technology and supply chain security, which is expected to become increasingly intense in the future.
【Anchor】OK. After several days of adjustment, many in the market believe that the upcoming APEC Leaders' Summit will be an important milestone, and new developments are expected. What do you think about this, Mr. Song?
【Song】Currently, I believe there is a high likelihood that a meeting between China and the U.S. will occur during the conference, but the outlook may be pessimistic. The outcomes are likely to focus on risk management and a short-term easing of tensions, rather than a comprehensive agreement. The structural differences between China and the U.S. on rare earths, key software, and strategic technology cannot be resolved in this meeting. I believe the most probable outcome is reaching a strategic ceasefire through negotiations. For instance, the U.S. may reduce or delay the implementation scope of 100% tariffs or find other compromise solutions. Meanwhile, China may make clearer commitments regarding exemptions on rare earth permits to stabilize market expectations.
【Anchor】Ms. Pan, how do you see the nature of this stage of the game compared to the past?
【Pan】The biggest difference in the China-U.S. game is the perception of competition. First, it is important to acknowledge that competition is inevitable; the key is how to view and respond to it. If competition is seen as a zero-sum game, where one party's gain is the other's loss, the relevant policies tend to be less rational. U.S. foreign policy now exhibits a stronger "America First" orientation and a protectionist tone. In this regard, China offers friendly reminders to the U.S. while also placing great importance on cooperation with such a significant country. On the other hand, China will also have sufficient estimates and responses to the irrationality of U.S. policies. China tends to view competition as a driving force and a method to enhance its own capabilities.
【Anchor】Yes. Mr. Song, what is your perspective on this?
【Song】I believe there are some differences. In the past, economic and trade frictions were primarily centered around traditional issues like tariffs, market access, and industrial subsidies. However, this round includes key elements of the industrial chain, such as rare earths, directly into export controls. This links trade, national security, military industry, and high technology more closely. The tools have expanded from traditional tariffs and quotas to more complex measures based on long-term jurisdiction, such as export controls and entity lists. Therefore, in my view, a strategic competition encompasses economics, security, and governance rules.
【Anchor】Recently, some opinions suggested that, amid the market fluctuations triggered by the latest round of tariff wars, the A-shares may be more resilient than the Hong Kong stocks. How do you evaluate this viewpoint, Mr. Song?
【Song】I partially agree with this viewpoint. After all, the liquidity of A-shares is mainly controlled by domestic investors, and there are expectations for the "national team" to stabilize the market. In contrast, the liquidity of Hong Kong stocks is highly reliant on foreign capital. Under external shocks, foreign capital withdrawal can lead to a short-term liquidity crunch in the Hong Kong market, with selling pressure far exceeding that of A-shares. This is a short-term phenomenon. However, in the long run, it depends on whether the China-U.S. conflict evolves into a systemic and ongoing technological and trade blockade. If it does, any market, including A-shares, will face deeper and fundamental impacts.
【Anchor】Overall, Mr. Wu, how do you assess the impact of the new round of trade friction on Hong Kong stocks?
【Ng】I think that, in the past few months, the market seemed somewhat insensitive to changes in tariffs. However, this time, the deterioration of China-U.S. relations may indeed be worse than many in the market had expected. I believe that when tariffs or export controls return to the policies or competition between the two governments, this could lead to significant volatility. There is a good chance that we will see more funds moving from the stock market to assets like gold.
【Anchor】Given the current situation, which specific sectors in Hong Kong stocks do you think investors should focus on?
【Ng】I believe that, for now, both China and the U.S. might have some stable industries that are likely to receive national support. When export controls arise, both countries will support their own enterprises. Therefore, I think that sectors in China, such as semiconductors, AI, and companies involved in other critical materials, will likely benefit from this governmental backing during changes in policy.
【Anchor】Yes. Finally, let's turn our attention to the upcoming Fourth Plenary Session. Based on the previously released information, what policy expectations do you foresee, Ms. Pan?
【Pan】My personal understanding is that the continuous expansion of high-level opening-up will be an important policy focus of this meeting. Opening up includes both "bringing in" and "going out." "Bringing in" means treating foreign openness as a fundamental national policy, creating a first-class business environment, and providing a larger platform for foreign individuals, capital, and goods in China. It also welcomes other countries to share in China's growth dividends and achieve development within China. "Going out" involves mutually beneficial interactions with other countries, sharing China's experiences, and aims to promote the prosperity of international trade and investment, providing public goods and cooperative platforms to stabilize global growth and maintain economic globalization.
【Anchor】Alright, Mr. Song, what are your thoughts?
【Song】I anticipate unprecedented policy support at this Fourth Plenary Session to accelerate the domestic substitution of critical software and core supply chains. At the same time, there should be increased long-term investment in fundamental research and applied sciences to ensure the safety of China's economic operations under external restrictions. Secondly, I expect the introduction of unexpected measures to optimize the business environment and expand market access, particularly targeting partners in Europe, Southeast Asia, and non-U.S. regions. This would help counteract containment efforts and seek support from the international community to avoid a complete breakdown of global supply chains. Thirdly, I expect more targeted reforms to better support private enterprises and technological innovation, unleashing economic vitality to counter external economic pressures.
【Anchor】Given the long-term policy blueprint planned for the Fourth Plenary Session and the short-term market disruptions caused by the tariff wars, what impact do you think this will have on the capital markets, Mr. Song?
【Song】President Trump's threats will amplify short-term market panic. However, I believe that the policy blueprint from the Fourth Plenary Session will shape long-term value. In this context, A-shares may experience significant volatility in the short term, but fortunately, there is policy support. Specifically, sectors related to chips, exports, and software may first come under pressure. Following panic selling, funds will quickly shift toward internal circulation, domestic substitution, and strong policy-driven areas like the military industry and rare earths. For Hong Kong stocks, there may be a systemic shock in the short term, such as foreign capital withdrawal, which could lead to liquidity issues and put pressure on valuations. In the long run, the long-term policy blueprint from the Fourth Plenary Session could be beneficial for core assets. Relevant sectors like hard technology, new energy, and leading consumer companies might receive long-term support from policies and domestic investments. In the case of Hong Kong stocks, there could be structural opportunities for valuation recovery. For example, favorable policies may help gradually repair international investors' risk premiums on Chinese assets. In this context, state-owned enterprises with high dividends and low valuations, as well as large technology companies, may become more attractive.
【Anchor】Alright. Ms. Pan, what impact do you foresee?
【Pan】The fundamentals of the Chinese economy are very robust, including indicators like population, market size, consumer power, inflation rate, and openness to the outside world. China has made significant achievements in these areas. The planning and policies from this meeting will further strengthen the fundamentals of the Chinese economy. In the medium to short term, this year has seen a series of landmark innovative events in China, such as DeepSeek, humanoid robots, and the introduction of the sixth-generation fighter jets. These positive factors, combined with a series of policies encouraging foreign capital inflow, will collectively drive the market to reassess Chinese assets. China's capital market is more resilient and dynamic, with a stronger capacity to withstand short-term disturbances.
【Anchor】Thank you to all our guests. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
Anchor: Laura Cheung | Edited: Kelly Yang, Laura Cheung, Rachel Liu | Translate: Kato Ip | Proofread: Chris Liu
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