China and the United States: Investing opportunities amid tense relations

US-China Relationship, Chinese Economy & Investment Outlook - 2026

Key Concepts:

• 15th 5-Year Plan (China): Focuses on domestic consumption and technological self-reliance.
• KWEB: KraneShares CSI China Internet ETF – an ETF tracking offshore Chinese technology companies listed in Hong Kong.
• Central Economic Work Conference: Annual meeting setting economic priorities for China.
• Blackwell (Nvidia): A highly advanced AI chip currently leading in performance compared to Chinese equivalents.
• Large Language Models (LLMs): AI models designed to understand and generate human language. Differing approaches to LLMs exist between the US (enterprise sales) and China (open source).
• Targeted Stimulus: Focused economic support measures, as opposed to broad, “bazooka-style” stimulus.

I. Overview of the US-China Relationship & Economic Priorities

The discussion centers on the evolving US-China relationship and its implications for the Chinese economy and investment opportunities, specifically focusing on the outlook for 2026. Brennan, a guest analyst, emphasizes that the primary focus within China is internal – on the Chinese economy itself, rather than solely on the US. The recently released draft of the 15th 5-Year Plan, coupled with the Central Economic Work Conference and President Xi’s statements, highlight a strategic shift towards bolstering domestic consumption and achieving technological self-reliance. This signals a key area for investors to concentrate on in 2026.

II. Investment Opportunities in Chinese Equities (KWEB)

The KWEB (KraneShares CSI China Internet ETF), comprising offshore Chinese technology companies listed in Hong Kong (Alibaba, Tencent, JD.com, Meituan, Trip.com, etc.), is currently considered undervalued relative to its US counterparts. Investment potential is linked to foreign investor flow, which saw initial growth in 2025 and is expected to continue, potentially driven by a weakening US dollar prompting investors to seek growth opportunities in Hong Kong.

III. Addressing Concerns about China’s Economic “Holes”

A recent Wall Street Journal report highlighted concerns about structural issues within the Chinese economy despite its progress in technological advancement. While acknowledging that China isn’t without its challenges, Brennan counters the narrative of imminent economic collapse, pointing to a 5% GDP growth rate. He urges skepticism towards consistently negative media portrayals and advocates for data-driven analysis, such as that provided by KraneShares. He notes that predictions of China’s downfall, including invasion of Taiwan (which hasn’t occurred in 76 years – 27,740 days), have been repeatedly made without materializing.

IV. Stimulus & Potential for Improved US-China Relations

The expectation is for continued targeted stimulus within China, focusing on domestic consumption and preventing a housing crisis, rather than a large-scale stimulus package like that seen in September 2024. A potentially significant factor for 2026 is the possibility of improved US-China relations, with two key events: a potential Trump-Xi summit in April and the APEC conference hosted in China in the fall. Brennan believes the market may be underestimating the potential for positive developments in the relationship.

V. Trump’s Decision on Nvidia Chip Exports & Corporate Influence

The discussion turns to President Trump’s decision to allow Nvidia to export H200 chips to China. Brennan suggests this decision reflects Trump’s approach as a businessman who values input from corporate leaders – viewing them as a “shadow cabinet.” He cites examples of tariff de-escalation following meetings with CEOs from Walmart, Target, and Home Depot. Furthermore, he posits that allowing Nvidia to sell to China is a logical business decision, recognizing the significant revenue opportunity.

VI. The AI Race: US vs. China

In the AI race, the US, particularly Nvidia, currently holds a substantial lead. Nvidia’s Blackwell chip has no immediate Chinese equivalent. However, the two countries are approaching AI development differently. The US focuses on enterprise sales (Anthropic, OpenAI), while China prioritizes open-source Large Language Models (LLMs), making them widely accessible and free. The primary revenue stream for Chinese AI companies (Alibaba, Tencent, Baidu) is expected to be cloud computing, where they are positioned to benefit significantly.

VII. Notable Quotes

• Brennan: “I think I think no one's going to say that it's all rainbows and unicorns in China today. Uh at the same time, you know, they're growing at 5% GDP growth, so it's not all bad either.”
• Brennan: “At some point investors need to become a little skeptical about some of this always negative media reports and you know basically look to resources more data driven like we tried to provide here at craneshares.”
• Brennan: “I think Jensen Huang you know arguably said you know this is really really critical for for Nvidia but at the same time I also think you know Chinese companies want Nvidia chips. So why why would you why why would you turn your back on that that revenue opportunity?”
• Brennan: “I think the two the two countries and really the ultimately the underlying companies are looking at AI very differently.”

Conclusion:

The outlook for the US-China relationship and the Chinese economy in 2026 is nuanced. While challenges exist, China’s focus on domestic consumption and technological self-reliance presents investment opportunities, particularly within the KWEB. Improved US-China relations are a potential catalyst, and the AI landscape is evolving with distinct strategies in both countries. Investors should prioritize data-driven analysis and avoid solely relying on negative media narratives. The US currently leads in AI hardware, but China is focusing on a different, open-source approach to LLMs and leveraging cloud computing for revenue generation.