In this latest edition of LPL Street View, LPL Financial Director of Research Marc Zabicki answers three questions regarding how Xi Jinping may move forward as he considers China’s position among current geopolitical conflicts.

The first question is whether China will provide more direct aid to Russia in an effort to help Russia avoid western sanctions. LPL Research believes that the west’s effort to limit Russia’s access to foreign reserves and effectively shut down its economy reduces the chances of China aiding Russia. This because of China’s long-term strategy of becoming the global frontrunner would be hindered if it risked unified west sanctions, something that Xi Jinping may not take. This may also result in China not offering Russia direct aid.

This brings up the next question: Does western economies’ interdependence on China give China the upper hand, therefore making the economic isolation of China’s economy untenable for the U.S. and other western economies? In LPL Research’s view, it would be much more difficult for the west to economically isolate China compared to Russia. That being said, China’s current support of Russia, increasing humanitarian questions, and China’s current trade practices are weighing heaver on its western trading partners’ minds. It wouldn’t be surprising to see the west attempt to gradually pull back from China as a key trading partner. If that were to occur, a reversal in the decades’ long trend of globalization reliance on China for global supply chain operations could fade as well.

The final question is whether or not China will invade Taiwan. LPL Research believes that the near universal backlash against Russia’s invasion of Ukraine has significantly decreased the chances of China invading Taiwan.  Doing so could put China face-to-face with the west’s combined sanction efforts or a possible civilian uprising comparable to the ones that took place in Moscow. This seems to be too big of a risk and inconsistent with Xi Jinping’s global strategy.

Russia’s invasion of the Ukraine has caused major global backlash for Russia, and, as a result, may make Xi Jinping more cautious moving forward.

 

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All index data is from FactSet.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC. 

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