HSBC CEO: 'Asia Buys Asia' New Trade Trend | The China Show 11/19/2025

Key Concepts

Bloomberg New Economy Forum: An event bringing together world leaders and policymakers to discuss global economic and geopolitical issues.
The Great Realignment: A central theme referring to significant shifts in global trade, geopolitics, and economic structures.
Thriving in Extremes: The forum's overarching theme, emphasizing adaptation and performance under challenging conditions.
Foundational Changes: Long-term, profound shifts driven by AI, geopolitics, and climate change.
K-shaped Divergence: An economic trend where large, tech-enabled entities grow significantly, while others lag.
Zero-Sum Game: A situation where one party's gain is another's loss, contrasted with "making the pie bigger" through innovation.
Renewable Energy: Emphasized as a fundamental, unlimited resource crucial for AI development and localized manufacturing.
Autonomous Factory: A highly automated manufacturing plant, exemplified by a Korean company's facility in Singapore.
National Security Assets: Specific technologies and resources (e.g., code, chips, semiconductors, data, cloud) deemed critical and subject to fragmentation and national boundaries.
Weaponization of Financial Institutions: The concern that financial systems could be used as tools in geopolitical conflicts.
De-dollarization: The potential shift away from the US dollar as the dominant global reserve currency.
Base Effect: An economic concept where current growth rates are influenced by the low or high starting point of a previous period.
America-First Policies: US policies prioritizing domestic interests, potentially alienating international partners.
Cross-Border E-commerce: The global flow of goods and services facilitated by online platforms.
Fast Payment: A financial product designed to accelerate merchant repayments and improve cash flow.
LLM (Large Language Model): A type of artificial intelligence model used for natural language processing, also applied to e-commerce risk assessment.
Multilateral Trading System: International agreements and institutions governing global trade, facing challenges and shifts towards regional/bilateral frameworks.
China Plus One Strategy: Companies diversifying manufacturing and supply chains away from China to other countries.
Overcapacity: The production of goods beyond market demand, particularly in China, leading to increased exports and trade imbalances.
Hyperscalers: Large cloud service providers (e.g., Amazon, Microsoft, Google) that require massive data center infrastructure.
Digital Infrastructure: The foundational physical and software components necessary for digital operations, including data centers, fiber networks, and cell towers.
Digital Power: A strategy focused on accumulating and managing energy resources for data centers, including microgrids and renewable integration.
Data Sovereignty: The concept that data is subject to the laws and governance structures of the country in which it is collected or stored.
Tactical Pause: A temporary cessation of hostilities or tensions, particularly in US-China trade relations, to allow for further negotiations.
Export Controls: Government regulations restricting the export of certain goods or technologies, often for national security reasons.
Hybrid Attacks: A form of warfare combining conventional, irregular, and cyber tactics, referred to as a form of terrorism.
Economic Article 5 Alliance: A proposed alliance where an economic attack on one member is considered an attack on all, mirroring NATO's Article 5.

Introduction: Bloomberg New Economy Forum Context

The Bloomberg New Economy Forum in Singapore serves as a critical platform for world leaders and policymakers to discuss pressing global issues. The overarching theme for this year is "Thriving" rather than "Navigating Uncertainty," reflecting a need for businesses and investors to adapt and outperform under extreme conditions, including geopolitical tensions, economic shifts, and macroeconomic volatility. Discussions are set against a backdrop of recent US-China/Taiwan talks and a China-Japan spat, highlighting the complexity and gravity of the current global landscape.

The Great Realignment: Economic Shifts and Drivers

Global Trade Dynamics

A significant shift in global trade patterns has been observed over the past two decades. Previously, global trade was largely characterized by China manufacturing for the world and the U.S. being the primary buyer. More recently, the trend has evolved to "Asia buys China" and "China manufactures in the world as opposed to for the world." This regional integration has supported substantial trade, direct investment, and employment within Asia, with projections indicating it could add 1.8% to the region's GDP. While U.S. tariffs are acknowledged as a negative factor, greater regional integration is seen as a way to mitigate their impact. The concept of "muscle memory" is introduced as a way for businesses to adapt to these changing configurations.

Foundational Forces of Change

Economic changes are categorized into three levels:

Cyclical: Short-term business cycles.
Structural: Unpredictable, medium-term shifts like demographics.
Foundational: Profound, long-term forces emerging in recent years, primarily AI, geopolitics, and climate change.

These foundational changes have significant implications:

Fragmentation: Affects capital allocation and macroeconomics, leading to higher costs of doing business and inflationary pressures.
Incumbency vs. Start-ups: While incumbents possess advantages like data and existing customer bases in the AI age, their ability to adapt quickly will determine their success.
K-shaped Divergence: A trend where larger, tech-enabled companies are expected to grow bigger, gaining an advantage over non-tech counterparts, necessitating careful capital allocation.

Overcoming Fragmentation: Technology and Renewables

Fragmentation is viewed as a foundational layer for global localization. The solution to a "zero-sum game" mentality in geopolitics is seen through technology innovation, particularly in renewable energy, which can improve productivity and "make the pie bigger." AI development fundamentally relies on energy, and renewable sources (wind, solar) are highlighted as "unlimited, infinite, and supposed to be free." This shift is compared to the steam engine's impact 200 years ago, enabling localized manufacturing and supply chains globally. Despite geopolitical overlays, inclusive development and collaboration are presented as pathways to progress.

Business Adaptation and Supply Chain Resilience

Strategic Shifts for Competitiveness

Companies must fundamentally change their operations to remain competitive in the new environment, especially when facing high tariffs (e.g., 45-50%). This involves:

Supply Chain Realignment: Investing in local markets and diversifying production.
Quality and Productivity: Achieving higher quality and productivity at lower costs, often through the utilization of AI.
Autonomous Factories: A Korean OEM in Singapore operates an almost autonomous factory, demonstrating advanced manufacturing capabilities where only "directing" is not autonomous. This emphasizes the growing importance of manufacturing that cannot rely on pollution recalls or simply passing costs to customers.
Market Diversification: While the U.S. remains important, China is seen as a large, growing opportunity, and Europe also holds significant impact.

Leadership in a Rapidly Changing World

The current environment demands different leadership qualities. Leaders need to be highly "connected" – constantly engaging with shareholders, investors, end-customers, dealers, and politicians. The pace of change is dramatic, requiring rapid adaptation and continuous learning. One CEO humorously advises to "sleep fast" to keep up with the demands, attributing their group's strong performance to this constant adaptation.

Case Study: Investment Commitment Amid Challenges

A Korean company's experience with a raid on a battery plant in Georgia, U.S., illustrates the complexities of international investment. Despite the incident, which led to an apology from the White House, the company's commitment to investing $26 billion in the U.S. over the next four years (following $45 billion in the previous four) remains undented. The challenge highlighted was the availability of specialized labor and issues with immigration systems. The company emphasizes flexibility, adapting plans (e.g., expanding into hybrid vehicles instead of solely EVs) to capitalize on situations, and sticking to fundamental principles of competitiveness, high quality, and safety.

Financial Systems and Geopolitical Intersections

Integrated Global Finance vs. National Security Assets

Despite discussions of decoupling, the global financial system remains highly integrated. Evidence includes 60% of a major bank's largest wholesale customers in mainland China being U.S. companies that manufacture for the Chinese domestic or Asian markets, generating significant revenues and dividends for U.S. shareholders. The resilience of this underlying financial fabric is expected to persist. However, certain "national security assets" such as code, chips, semiconductors, data, and cloud infrastructure are increasingly subject to fragmentation, national boundaries, and specific regulations. Beyond these strategic assets, a "huge ocean of opportunities" for cross-border business still exists.

The Threat of Financial Weaponization

A significant concern is the "weaponization of financial institutions." While there are temptations for decoupling, there's hope that leaders recognize the potential for such actions to backfire. The financial system is viewed as a "public good," and any attempt to rewire it could lead to "unintended consequences" and "significantly higher costs." One speaker jokingly suggested that global financial plumbing institutions should be subject to U.N. Security Council jurisdiction to prevent unilateral actions.

De-dollarization Prospects

The prospect of de-dollarization is frequently discussed. While the U.S. losing its reserve currency status seems a "remote possibility" unless the foundation of the U.S. system cracks, investors are naturally adjusting currency exposures. Statistics show that 50% of global payments are in dollars, and 80-90% of trade is financed in dollars. While some erosion may occur, this dominance is unlikely to change significantly within a career or lifetime. The evolution of payment trades, potentially leveraging blockchain technology for 24/7 capabilities, is seen as a more realistic area of diversification.

The AI Revolution and Digital Infrastructure

AI as a Foundational Technology

AI is seen as a critical driver for future growth, with heavy reliance on its ability to deliver productivity. Companies are positioning themselves as AI companies, applying "physical AI" beyond traditional LLM models to areas like energy systems. The development of an "AI climate foundation model" is mentioned, capable of improving weather prediction accuracy by 60% beyond seven days.

Investing in Data Centers and Digital Power

Investment in digital infrastructure, particularly data centers, is accelerating. One CEO notes that CapEx spending by major hyperscalers is forecasted to increase from $225 billion to $360-380 billion within the year. This investment is for decades, not just quarters. Asia, especially Southeast Asia, is highlighted as an exciting region for investment due to its under-supported infrastructure but front-end technology adoption.

A new strategy called "Digital Power" focuses on accumulating and managing energy for data centers. This involves working with grids and regulators, introducing diverse power sources, and implementing microgrid strategies to trade power (selling surplus, buying off-peak). The company plans to build 12 gigawatts of new power in the next 24 months, investing $60 billion in CapEx alongside $80 billion in data centers.

AI's Global Trajectory and Open Source Models

While China is a difficult place for direct investment, Hong Kong data centers facilitate safe access for U.S. hyperscalers. There's a hope that AI will not be politicized, becoming "commoditized, globalized, and eventually without the politics and without the boundaries." China's adoption of open-source AI models is noted for driving massive adaptation and cost reduction, similar to past technological advancements (e.g., 3G/4G/5G, public cloud).

The future of AI is envisioned as primarily machine-to-machine connections and robotics, with industrial and enterprise use cases dominating (consumer use cases less than 10%). Data sovereignty is identified as a major area of AI innovation. The "aperture for AI is widening, not narrowing," representing a multi-decade opportunity.

Investor Patience and Long-term Vision

Investors are urged to exercise patience, as AI infrastructure is monetizing 24 times quicker than public cloud (three years into the journey compared to six years for public cloud to show demonstrable earnings). This represents a "complete tectonic shift" in networks, applications, and use cases, requiring a long-term perspective.

Trade Realities and Geopolitical Tensions

Evolution of Multilateral Trade

The multilateral trading system is described as "more unpredictable than ever before." Disappointment with the WTO's inability to modernize rules by consensus has led to a shift towards more regional and bilateral frameworks, often with "softer" rules. Trade continues to expand, but the reliance on hard-law multilateral frameworks is diminishing.

US-China Relations: Tariffs, Truces, and Overcapacity

The U.S. "America-First" policies, particularly tariffs, have not led to a 1930s-style trade war as initially feared. Instead, many U.S. allies have chosen to pay the higher price for market access while integrating trade amongst themselves. China, however, has "bucked that trend," ending up in a stronger position with lower trade barriers. This has led to a "technical pause" in U.S.-China tensions, with a one-year truce in place.

China's "overcapacity" is a significant issue, driven by the philosophy that "anything worth doing is worth overdoing." This leads to excessive production, which is then exported, causing U.S. exports to be down 20% and creating imbalances that other countries may not tolerate. Local governments in China contribute to this by relying on value-added tax from overcapacity for funding.

The current trade truce is seen as a "tactical pause" where both sides are getting on with "real work." Trump's need for a "big deal" with China to justify the trade war gives China a negotiating advantage. Potential elements of a future deal could include Chinese investment in the U.S. and joint ventures with technology transfer to help the U.S. catch up in certain manufacturing and technology areas.

China's Role in Global Conflicts and Economic Practices

China's role as a "key enabler" of Russia's war in Ukraine is a major concern for the European Union. Without China's support, the war would likely be over due to sanctions. The EU also raises concerns about China's economic practices against European companies. A lack of unity among EU member states is perceived as hindering their ability to be taken seriously by China. The EU's dependence on China for critical raw materials and chemicals (over 50% of chemicals) highlights vulnerabilities. The idea of an "Economic Article 5 Alliance" is proposed to foster unity and strength in addressing these issues.

Market Insights and Company Performance

Global Market Derisking Factors

The primary driver for global market derisking is the U.S. Federal Reserve's decisions, particularly the prospect of rate cuts diminishing. This leads to a firmer U.S. dollar, higher global capital costs, and reduced appetite for foreign equities. Investors are taking profits but continue to hold companies with strong innovation and upgrade potential, adopting a "bottom-up" approach.

Chinese Equities Outlook

Chinese equities have outperformed, with expectations of taking over U.S. equities by 2025. For 2026, the outlook is cautiously positive, with estimated 10% earnings growth broadly, and double-digit growth for internet and tech-driven industries. Multiples for MSCI China are low (around 4x forward P/E compared to S&P 500's 22x), suggesting potential for recovery if non-fundamental factors (U.S. Fed policy, U.S.-China trade relations) stabilize. The "base effect" from several weak years for consumer and emerging markets is expected to make recovery easier.

Tech Sector Spotlights: Baidu, Xiaomi, CATL

Baidu: Revenue was in line with expectations. Its core search engine revenue was down, but its AI-related sector saw a 50% gain, laying a foundation for longer-term growth despite sustained pressure on advertising business.
Xiaomi: The EV division achieved profitability for the first time, a significant milestone. However, the smartphone business faces challenges from higher memory chip prices and a projected supply crunch in 2026, impacting revenue growth.
CATL: Shares of the battery giant have rallied 92% since its Hong Kong debut, trading at a 20% premium. Despite short-term volatility, its market dominance supports long-term growth.

Conclusion: Main Takeaways

The Bloomberg New Economy Forum highlights a world undergoing a "Great Realignment" driven by foundational shifts in AI, geopolitics, and climate change. While the global financial system remains largely integrated, national security assets are increasingly fragmented. Businesses must embrace rapid adaptation, supply chain diversification, and AI-driven innovation to thrive. Geopolitical tensions, particularly between the U.S. and China, are managed through "tactical pauses" but underscore underlying issues like China's overcapacity and its role in global conflicts. Despite these challenges, opportunities abound in digital infrastructure, renewable energy, and emerging markets, demanding a long-term, patient, and adaptable approach from leaders and investors alike. The forum underscores the critical need for collaboration and inclusive development to navigate these complex and rapidly evolving global dynamics.