After massive U.S. hedge funds bets on China’s assets, the celebration of the Chinese Spring Festival – the Lunar New Year – moved uptown last Friday to the 86th Floor Observatory of the Empire State Building, with lanterns, blossoms, floral urns and traditional Chinese treats.

A far cry from what China sees as a hostile move of an impressive Nimitz air carrier strike group operating in the South China Sea.

But for the U.S., that’s all part of its clearly communicated China policy: Cooperation where possible and competition (i.e., confrontation) where necessary.

That, however, is a no-win with China, because Beijing wants respect of its core interests and a “win-win cooperation.”

Do Wall Street and the rest of the U.S. business community understand the volatility of such a flammable mix? Or do they still think that the estimated risk-adjusted profit returns warrant their asset and joint venture investments in China?

Irresistible China trades?

Hedge funds latest bets on China assets have been richly rewarded. MSCI China Index soared 54% since early November. U.S. nonfinancial companies also seem strongly committed to Chinese markets. The survey of the American Chamber of Commerce in China finds that their members consider business operations in China as a “top global priority.”

Optimism about China investments reflects the country’s good growth outlook and sound economic fundamentals. This year’s GDP growth is forecast in the 4.5% to 5% range, a strong rebound from a 2.9% growth in 2022, and nearly double the estimated pace of global economic demand and output.

China’s inflation of about 2%, its large external trade surplus on goods and services (2.7% of GDP) and reasonably balanced public finance accounts allow plenty of monetary and fiscal support to vast domestic markets of 800 million middle-income earners.

Most of the growth is expected in household consumption and infrastructure investments.

A 40-day Spring Festival is a strong start to consumer spending. More than two billion passenger trips are forecast, double the amount seen last year, with soaring outlays on transportation, hotel and restaurant services, shopping and entertainment.

Last year’s 9.4% increase in infrastructure investments is a testimony to China’s commitment to modernization, connectivity and development of urban communities with improved access to education and healthcare services. That effort will continue, with particular attention to hi-tech and smart manufacturing.

In view of all that information about China’s economy, it is interesting to see why the U.S. Treasury Secretary Janet Yellen would make a trip to Zurich, Switzerland, last Wednesday, January 18, to meet China’s Vice Premier Liu He before heading off to Senegal on her three-country African tour, where, according to China’s government media, she will be badmouthing China and trying to contain Chinese business dealings in Africa.

All we know at this point is that they discussed economy, finance and trade.

China is a trade winner

What we do know, however, is that the most important, and pressing, issue here is the U.S.-China trade, where Beijing ran a huge $359.4 billion surplus during the first eleven months of last year. That was a 13% increase from the year earlier, as Chinese exports to U.S. grew 10% to hit $500 billion.

Over the same period, the U.S. goods exports to China rose a pitiful 1.4% to $140 billion.

Why is the U.S. tolerating that while Beijing complains about trade discrimination?

And why – under those circumstances -- is the U.S. taking with apparent equanimity China’s dumping $210 billion of Treasury debt during the January-November interval of 2022? Indeed, the least the U.S. should have done is to ask China to recycle most of its trade surplus in net purchases of America’s IOUs.

That would have been in accordance with the rules of international trade adjustment.

All that covers the key issues of economic management and bilateral flows of trade and finance. And there was no need for a special trip and three hours of talks in Zurich on U.S. taxpayers’ money to transact that business.

Meanwhile, China will pocket $400 billion in net income on its U.S. goods trade for 2022, while, most probably, dumping some more Treasury paper. And there is nothing the U.S. will do about that Beijing style “win-win cooperation.”

The issue here is that the U.S. is deadlocked with China in a hostile relationship, with no peaceful solutions to (a) China’s contested maritime borders, (b) the status of Taiwan, (c) the armistice on the Korean Peninsula and (d) the U.S. world order – aka Pax Americana.

Hedge funds are after quick in and out trades, with no message for the U.S.-China peaceful modus vivendi. But the question is whether the deeply committed American and German corporations are correctly reading the east Asian security architecture.