Even as China’s markets wobble, they will view The Afghan Skedaddle as an opportunity to pressure the US.  

China’s markets are under pressure from the widening Chinese Communist Party’s regulatory crackdown – which is likely as much about imposing party discipline and control as much as it was ever about consumer protection. But as investors fret about crashing China stocks, rising global uncertainty and the destabilisation caused by the Afghan debacle, the Chinese are likely to up the pressure and further test a distracted US administration. “Interesting times” lie ahead for global markets as the tension threatens to escalate.

Blain’s Morning Porridge – August 20th 2021: Even as China’s markets wobble, they will view The Afghan Skedaddle as an opportunity to pressure the US.  

“When I have learnt what progress has been made in modern gunnery, when I know more of tactics than a novice in a nunnery, and when I’ve a smattering of elemental strategy, I am the very model of a modern Major-General.”

This Morning – China’s markets are under pressure from the widening Chinese Communist Party’s regulatory crackdown – which is likely as much about imposing party discipline and control as much as it was ever about consumer protection. But as investors fret about crashing China stocks, rising global uncertainty and the destabilisation caused by the Afghan debacle, the Chinese are likely to up the pressure and further test a distracted US administration. “Interesting times” lie ahead for global markets as the tension threatens to escalate.

China has not been good for me this year.

This morning, yet again, the front page of the FT is about China Tech stocks being thumped – this time it’s a new data privacy law that’s caused the big names to spiral down another 5%. My personal portfolio has taken a spanking after I switched a modest portion of my personal assets into China late last year. Alibaba is down 48% while Tencent is 44% lower. The basket of China focused funds I also bought into are doing equally not well. None of this has been very helpful – China stock shenanigans are not accelerating my retirement planning.

It was only 10 months ago – soon after the Ant Financial IPO cancellation bombshell and regulatory defenestration of Jack Ma – that I decided to make a modest pivot into China, eventually raising my allocation to nearly 5%. Soon after I wrote an article for Master Investor comparing East vs West investment possibilities: China vs USA: Which Economy Would You Bet On? I referenced how China is still only 3% of global investment portfolios, but 14% of global market cap, and why investors like Ray Dalio of Bridgewater favoured China.

I made the bet back then the Chinese – well, let’s be honest, President Xi – had made their point by hammering down the sticky-out-nail Jack Ma, and expected China would resume its seduction of western investors, encouraging them to invest into China as having better long-term valuation and demographic metrics than the overpriced US market and stagnant European stocks.

Er.. that wasn’t quite the script they’ve followed.

After a succession of clampdowns on “regulatory grounds” the whole China market has become increasingly tortuous. There is a lot of noise about imposing market discipline, regulatory oversight, customer protection, but it’s equally apparent the Party is taking a far more active role in managing the economy directly by managing entrepreneurs and reminding them whose interests they would do well to serve. The spooks analysing China politics believe Xi is using the clampdown to relieve billionaires of their cash burdens and ability to fund internal political opposition within the party. He’s redirecting control to reward his own supporters.

Rather than being a capitalist state with communist characteristics, China is looking increasing Stalinist. It’s difficult to remain enthusiastic when China is clearly an economy focused on serving the state first, and shareholders a very distant second.

This week, we’ve seen big-tech data collectors thumped, health-care apps knocked down 15% due to “social concerns”, drinks companies drenched as part of a regulatory attempt to stem heavy drinking at work, and the wealthy have been put on notice that “common prosperity” should outweigh their propensity for western luxury goods. Hermes bags are out. Mao suits are in.

The bottom line is we just don’t know what China will decide to attack next. Just a few weeks ago one of my chums, Will Nutting, was warning how European luxury good makers were all at long-term highs, but that no one on Wall Street was even pondering the sustainability of China luxury demand in the face of a likely government pogrom. Go figure what it means for Tesla.

It’s all terribly confusing for global investors….. China and South-East Asia are driving global growth, have expanding middle classes looking to consume, and are showing themselves to be more resilient economies than the tired old occidental economies of the West… In a simple world, the choice between tired, bureaucratic, red-tape bound Europe or thriving Asia would be a no-brainer. Instead, we are struggling to reconcile Xi’s apparent wholesale destruction of China market value.

The question is why is China apparently running such risks with its economy? There are multiple possible answers to with the party demonstrating its control, encouraging domestic consumption, and because low foreign investment is not a problem. China can afford to do without and is relatively indifferent to investor opinion. They don’t particularly care – knowing western legal institutions will protect their overseas investments, while making their own rules domestically. They know the global economy will recover, and they want to ensure they grab and hold the largest possible slice of it. They will do that by replacing the USA.

And if they secure borders in the South China Seas and can grab back Taiwan while the West is distracted – then even better.

An all-out war with the USA is not in China’s interest. They know that and the Americans know that… But…. this is definitely the time for China to challenge a befuddled America.

America remains, on paper, the most powerful nation on the planet. The conventional wisdom is its 10 Nuclear Powered Aircraft Carriers could each take out a mid-sized nation’s entire airforce. Its 157 B-52, B-1 and B-2 strategic bombers are effectively unstoppable. Over 3500 tactical aircraft ensure its armies are likely to hold air-superiority over any theatre, allowing the well equipped army to puts boots on any ground they care to. The US spends as much on defence as the next 7 nations combined (China, Saudi, Russia, UK, France, India and Japan, in that order).

America’s service men and women are undoubtedly well-motivated, extremely well-trained and superbly equipped. But, are they as well led?

Perfect preparation counts for little when the political leadership and state agencies that manage the US look dysfunctional. There is much written about how America’s Generals and Admirals spend more time on Woke agendas than war-planning.. (which I don’t believe for a millisecond.)

China will be weighing up the opportunity presented in the wake of the Afghan debacle. America carries a mighty big stick, but can it actually hit anything with it…? Political gridlock between the Reds and Blues guarantees nothing happens, the parties themselves are riven by factionalism and can barely present coherent strategy, while the agencies of state covering security, defence and intelligence services have been politicised, and become bureaucratic and sclerotic.

On the advice of a friend and mentor I watched President Eisenhower’s end-of-office televised speech from Jan 1961 as he stepped down to make way for JFK to usher in the new Camelot. The speech is famous due to Ike’s warning about the growth and rising influence of the “Military Industrial Complex” – and how more and more defence spending may ultimately deliver less and less defence for an ever higher cost, but he also makes prophetic comments about his role working with Congress as a facilitator to deliver a Better America to the nation.

Ike’s farewell message is only 15 minutes long – but the intervening 61 years demonstrates we did not listen, how the world has changed, and changed utterly. You can watch it on YouTube.

The US spends twice as much on its forces than China, but China only needs one of multiple ballistic missiles to take out a carrier. US aircraft are mission capable – but the Chinese know their purloined engine tech means their aircraft break sooner. Not a problem. Build ‘em cheap and stack ‘em high.

Following the Afghan Skedaddle the Kommentariat has variously blamed Biden, said it’s all Trump’s fault, and that Obama should have stopped it after Bush Jr never should have started it. It’s been easy to pour scorn on the successive administrations for a cataclysm of cascading policy mistakes and errors in Afghanistan.

But give Joe credit. He made a decision.

Often the most courageous thing to do is not the hopeless last stand and death before dishonour nonsense, but knowing when to give up. Biden has received zero credit for his spot-on comment that Afghanistan was bound to end chaotically – but he is right, chaos was inevitable. There was no easy way to step out. Its nasty, it’s tough and it hurts – but what was the alternative? 20 more years juicing Afghan corruption?

Now America faces the backlash from the optics of defeat in Afghanistan; the impression of a people abandoned by American troops slinking away at midnight, which sits uneasy alongside the earlier betrayal of the Kurds in Syria by Trump. Who will now trust America? Ukraine? The Baltic republics? Europe? Taiwan?

The Chinese will be placing its bets now – testing how far they can they push, and how much more can they do to destabilise America? How can they maximise the political impasse and when should they make their plays..? They will push, push and push some more, and probably step back as often. Meanwhile the Gangster Tsar in Moscow will be looking for opportunities to not only increase the value of his own considerable portfolio of assets, but to snipe and take advantage of the weakened global credibility of the USA.

All of which begs the question: What’s the right investment strategy in a world of deepening cold war between the USA and China?

Perversely… I will go with the buy America argument… In a fracturing and uncertain world, then the assets with the greatest safety will remain the liquid US stock market and US Treasuries as the flight to quality argument.

And at the back of my mind I’ll remember the old adage: “The Americans will always do the right thing, after first exhausting every other possibility.”

 Five Things to Read This Morning

WSJ – Internal State Department Cable Warned of Kabul Collapse

FT – Economists trim forecasts and investors feel jitters over Delta variant

FT – How America found itself fighting the last war – again.

BBerg – What happens when China’s Bling Bling Binge comes to an end?

BBerg – UK Budget Deficit Narrows to Almost Half of Pandemic Level

Out of time, have a great weekend, and I am off to do the day job!

Bill Blain

Strategist, Shard Capital


  1. Lots of commentary from various news outlets talking about the end of the American empire and it’s latest defeat. Step back though and look at the profit many have made from the war. https://theintercept.com/2021/08/16/afghanistan-war-defense-stocks/
    I doubt those who have profited give one flying fig about the plight of the ordinary Afghan or women’s rights. Furthermore, they’re probably only too happy to see China decide to take up the reins. An opportunity to make more money by selling weapons to the Taleban to chip away at the Chinese? God I’m cynical.

    • Jason
      Thanks for that link – great article… which is why I urge readers to view the Eisenhower Video warning about the Military Industrial Complex…
      Otherwise, its pretty easy to draw the conclusion that it was the US funding of the Taliban predecessors in the Mujahadeen versus Russia in the 1980s which radicalised Islamic Militants into terror.. Consequences.. Consequences


    • Spot on – real mission: SUCCESS; public narrative mission: WHO CARES?

      The ensuing chaos they hope will create a bad actor on the Chinese border (the Taliban have already reached out to China to assure them otherwise) and will be used to generate the fear needed to originate the next great public>private purse scheme.

  2. China acting like a totalitarian dictatorship? Shocking.

    Completely agree with you that Biden will ultimately be given credit for making the tough choice. I wonder what was going through his mind when Obama called it “the right war” (2008)? The alacrity with which the Taliban swept the field shows how little anything anyone has done has changed the culture. For me the key to this little spot is to watch Pakistan, and guess who has a shiny new port there?

    • I’ve taken a bit of abuse today for my comment that a chaotic Afghan collapse was inevitable.
      I’ve been told its insulting to the millions of women who will now lose their jobs, their freedom and their agency. I agree that is absolutely heinous – if, as expected, the Taliban enfore it..
      But, the reality is we are not solely to blame for Afghanistans crisis. While I am sure there are millions of decent Afghans who want a better, fairer, modern life, the reality is its tribal, misogynistic, patriarchial society that trends towards kleptocracy or radicalism.
      How do you fix that..

      • I guess you fix it one person at a time. A couple I know spent years in Kabul trying to help widows and divorced women (quite reviled and rejected) to have work. They helped establish rug manufacturing (by hand) and tried to set up markets in America at the other end. Ultimately it fell apart due to lack of follow through on both ends. I haven’t contacted them about this latest event, but you are correct: it’s tribal; it’s cultural. No amount of military hardware will result a lasting influence towards civilization. All the “answers” are glib. We weep until overcome by sleep, then wake to resolve to step up again in the best way we can. I have no answers.

  3. I don’t think most Americans fault Biden for pulling out of Afghanistan. They do blame him for the manner in which he did it.

  4. Afghanistan’s ranking in the Subcontinent has climbed to the very top. No South Asian nation has defeated America in war, let alone a 20-year war. India maybe the largest member and Pakistan maybe a nuclear power among Muslim nations. But Afghanistan wins the day.

    With barely an army to speak of Afghani men defeated the mighty coalition forces In a region that prides itself of Martial races. Martial Race was a designation created by the British Empire for traditional warriors such as the Rajputs, Sikhs , Marathas and Gurkhas,.. the Afghanis beat them all.

  5. Equally, understand that this is China’s moment in history. It will not be assuaged, whether that means waiting another 5,10 or 20 years. One thing is certain- China will
    not let this moment pass.

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