IHS Markit

The consequences of a deteriorating US China relationship under COVID19

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Deteriorating US-China relations and increasingly confrontational diplomatic language and military posturing increase the risk of unintended escalations around disputed regions, increasing the likelihood of business disruptions.

Relations with the United States have deteriorated sharply, with the US introducing measures against mainland Chinese interests in trade, financial services, and technology sectors.

The National People’s Congress approved a 6.6% increase in military spending for 2020 while projecting an aggregate 0.2% drop in government expenditure. This highlights the importance to China of building up its military given the high threat perception around its borders.