What does the US–China “split” mean for investors and supply chains—and which China sectors could still win?

Is China still investable in 2026? A practical guide to “The Split” and where the opportunities are (AI, EVs, green energy)

Understand The Split by Shaun Rein: how US sanctions, semiconductors, rare earths, de-dollarization, and China’s tech crackdown reshape investable opportunities in AI, EVs, and clean energy.

Keep reading for a clear opportunity map (AI chips, NEVs, rare earth supply chains, and clean tech) plus the key risks to watch so decisions aren’t based on headlines.

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To many Western investors and business leaders, investing in China may seem risky, given the growing divide between it and the United States. But consultant Shaun Rein offers an intriguing counter-perspective on China that potential investors might not hear in the US media. While the country is going through a period of disruption and change, the US trade sanctions have triggered innovation. Rein expertly details China’s efforts to position itself as a future leader in AI, electric vehicles, and green energy, as it creates a more competitive landscape in which to drive economic growth.

Take-Aways

• US trade sanctions on China have triggered a “split” between the nations, dividing global markets.
• The Biden administration’s block on semiconductor trade is prompting Chinese companies to innovate in AI.
• Without China’s rare earths, the United States could struggle to maintain national security.
• A move for “de-dollarization” in the Global South weakens US influence over commodity supply chains.
• China’s “tech crackdown” improves long-term investment opportunities by supporting the growth of new start-ups.
• Global companies must diversify supply chains and consider the impact of China’s infrastructure spending.
• Business leaders in China should invest in improved economic relationships with Taiwan and Hong Kong.
• China is getting tough on polluting factories and prioritizing green innovation.

Summary

US trade sanctions on China have triggered a “split” between the nations, dividing global markets.

For American companies, investing in China used to be a no-brainer decision. No country could match China’s unique blend of pro-business policies, rising incomes, and scalability. Under both the Obama and Bush Jr. administrations, US companies seized opportunities to profit from China’s low-cost labor while selling goods to China’s growing middle-income class. However, US investment in the country began to decline when the Trump administration instigated a trade war with China, framed as a response to the prevalence of copyright infringement and exploitative labor practices in China. China’s president Xi Jinping struck back, slashing purchases of US agricultural commodities such as beef and soybeans, a move that reflected the beginning of a great split, or economic and cultural divide, between the two nations.

“Despite the rising tension between the US and China, it must be noted there is a difference between a Split and a complete decoupling.”

China has responded to the split by innovating and shifting its focus away from dated growth areas, such as real estate, toward those needed to usher in a sustainable future, such as New Energy Vehicles (NEVs). Under Xi, China has been working to create an investment-friendly ecosystem through pro-business tax breaks, relaxed visa requirements, and subsidies. Given China’s potential to outpace nations like Vietnam and India as a growth driver — it could soon finance one-third of global growth — investors will likely find that, though the investment risks are higher than usual during this era of change and disruption, the potential rewards are also great.

The Biden administration’s block on semiconductor trade is prompting Chinese companies to innovate in AI.

The Biden administration moved to block China’s access to semiconductors, which are vital to the development of AI technologies. That spurred China to invest more heavily in developing its own advanced chips. While US tech companies such as Nvidia used to sell their top-of-the-line semiconductors to Chinese companies like Huawei, Biden’s trade sanctions leave Chinese companies no choice but to innovate.

“In the short term, Biden’s attacks will bring pain to China’s economy but, in the long term, will strengthen it. The sanctions force China to build up its own technology supply chains.”

Continued enforcement of US sanctions on China will exacerbate the growing disconnect between the two nations and affect US allies like Japan and the Netherlands, which must look outside China when growing their AI sectors. As Chinese companies become less reliant on US AI service from the likes of Google Gemini and OpenAI, firms such as China’s Deyu are rising to fill the vacuum, creating new investment opportunities in China.

Without China’s rare earths, the United States could struggle to maintain national security.

Along with the AI competition between China and the United States, governments are enmeshed in yet another race: access to rare earth minerals. There are 17 types of rare earth elements in the world, many of which are critical components of consumer electronics, electric vehicles, and advanced military weapon systems. China currently dominates the global rare-earth market, producing 85% of the world’s supply of refined rare earths. China’s rare-earth refining technologies are advanced, and the United States is now struggling to catch up. Xi is currently pushing for more state control of private rare-earth facilities, which would give China even more power to wield on the geopolitical stage.

“Like artificial intelligence and semiconductors, rare earth will be the next battleground for control by the world’s governments.”

The US Department of Defense is pushing to secure American control of rare earths, but despite new investments — such as becoming a stakeholder in Lynas, an Australian refinery — the United States has yet to match China when it comes to safeguarding access to rare earths. China demonstrated its mineral dominance following Biden’s trade sanctions by blocking exports of germanium and gallium to the United States without explicit government permission. If the Chinese government refused to send rare earths to the United States, it could send shock waves through the US economy, preventing American companies from meeting consumer demand — slowing the production of goods such as cell phones, for example — and blocking the military from manufacturing its own advanced weapons.

A move for “de-dollarization” in the Global South weakens US influence over commodity supply chains.

While the United States has historically wielded its influence in poorer nations by controlling commodity supply chains, the balance of power is starting to shift. Organizations like the International Monetary Fund and the World Bank have historically coerced commodity-producing nations in the Global South into purchasing American seeds for crops with US dollars. But there’s currently a push in Global South nations for de-dollarization, with countries like Brazil leading the way in seeking new reserve currencies. Likewise, China’s central bank and many business owners in nations like China and Saudi Arabia are aiming to steer business away from the United States and allied nations, thereby reducing reliance on the global banking network SWIFT.

“Like Europeans and Americans who want to de-risk from China and Russia, forces within China want to de-risk from America and Europe.”

Chinese consumers are becoming more nationalistic and boycotting US companies like Nike. China is advancing its own commodities industries, such as cotton.The Biden administration issued sanctions in response to what it described as forced labor practices in the Xinjiang Uyghur Autonomous Region — an assertion some in China viewed as “unfounded” — but these sanctions actually created more difficulties for many laborers in Xinjiang, rather than protecting them. For example, now Xinjiang farmers, many of whom are from China’s Uyghur ethnic group, cannot import American farm equipment and struggle to export cotton internationally. As the trade sanctions exacerbate the everyday struggles of working people, they contribute to rising anti-American sentiment in China.

China’s “tech crackdown” improves long-term investment opportunities by supporting the growth of new start-ups.

The Chinese government initiated a tech clampdown in 2020, taking a number of regulatory actions to boost oversight of its technology industry and to prevent large companies, such as Tencent, from engaging in monopolistic behavior.​​​​​​ The repression — enacted as part of China’s Common Prosperity drive — may have made investing in China more risky in the short term, but for equity investors, the crackdown has created more investment opportunities in the long term. Companies like Alibaba were choking out their competition and engaging in predatory practices that put tech start-ups out of business, but the crackdown has given rise to innovation, allowing new businesses to emerge in China’s tech space.

“The days of monopolistic-like behavior by leading companies like Alibaba is over. Instead of a handful of behemoths, China will see the rise of many small dragons.”

Antitrust regulations in the United States forced Big Tech companies to give start-ups a fair shot. For example, Microsoft had to give users the ability to uninstall its Internet Explorer, enabling them to choose their own home browsing application from a competing company. Similarly, China has also pressured its biggest tech companies to let other businesses compete within their digital umbrellas. Xi’s party hopes to strengthen China’s middle-income bracket by squeezing the profits of the wealthiest 10% of China’s population to better serve the vast majority of Chinese people. Companies such as Red, Douyin, and Pinduoduo have emerged in China’s e-commerce space, as the crackdown has given start-ups — China’s “small dragons” — more chances to fuel innovation and growth.

Global companies must diversify supply chains and consider the impact of China’s infrastructure spending.

Companies that hope to remain competitive today will need to develop contingency supply chains. A failure to do so can result in unnecessary challenges or difficulty withstanding disruptions. For example, Apple relied heavily on its relationship with the Foxconn factory in Zhengzhou, but it encountered supply chain disruptions in 2022, when COVID-19 containment policies triggered the factory’s closure, cutting production of the iPhone 14 Pro. Today, Apple diversifies its supply chain, investing in factories in both Vietnam and India to prevent a similar breakdown in the future. As the breakdown between the United States and China deepens and geopolitical tensions rise, both American and Chinese companies will need to invest in setting up new, diversified supply chains. While this is costly, it will reduce supply-chain risk in the long run.

“China’s infrastructure spending will enable it to maintain its dominance in manufacturing and increasingly allow it to grab a share in global services.”

Increased infrastructure spending in China has improved the quality of life in poorer provinces and less wealthy cities, while connecting the nation via improved road systems. China’s investment in infrastructure has prompted big companies to relocate manufacturing to smaller cities and poorer regions. These locales are benefiting from a revitalization and an influx of workers — many of whom had left to pursue jobs in more affluent areas but who can now return home, part of the government’s push to reverse migration. For example, Foxconn has relocated iPhone manufacturing operations from China’s third-most populous city, Shenzen, to Henan Province, while Intel has erected factories in Chengdu, Sichuan. The biggest growth areas in China are no longer wealthy “Tier 1 cities,” but rather “lower-tier cities,” like Baotou, Inner Mongolia, where consumer spending is on the rise.

Business leaders in China should invest in improved economic relationships with Taiwan and Hong Kong.

Companies with operations in China must familiarize themselves with the tensions between Hong Kong and the mainland. A separation of powers exists between the two regions as part of the “One Country Two Systems” policy. In fact, cultural and political differences resulted in a violent uprising in 2019, during which Hong Kong protestors stormed the legislature. China is taking a number of steps to better integrate Hong Kong, which existed until 1997 under British rule. For example, China gives Hong Kong residents the opportunity to buy homes and retire in China’s Greater Bay Area, and it has created tax incentives to attract Hong Kong investment. Businesses with operations in China should invest in promoting healthy relations between Hong Kong and the mainland, while supporting poverty alleviation initiatives in Hong Kong.

“It is clear Xi wants to formally take control of Taiwan and won’t rule out using military force — no president will ever rule that out — but it is also clear Xi does not plan to use force anytime soon.”

Likewise, companies with operations in China must recognize the unique dynamics surrounding Taiwan. Although Taiwan operates as a self-governing entity and Beijing lacks control over Taipei, Xi’s government is working toward reunification. Western media outlets warn of a potential war between China and Taiwan, but armed conflict doesn’t seem like a realistic possibility. While Xi hasn’t promised to avoid using the military to regain control of Taiwan, he appears poised to use the same strategy deployed when “peacefully” annexing Tibet. For example, Xi’s government plans to simplify the flow of Taiwanese investments into Fujian Province, and it has streamlined Taiwanese application processes into Fujian universities.

China is getting tough on polluting factories and prioritizing green innovation.

While China has a global reputation for its high levels of industrial pollution, it’s important to note that some of the biggest pollution culprits in its manufacturing sector were international companies that were exploiting China’s economic difficulties in the early 2010s. In 2014, Xi launched an anti-corruption campaign to keep factory owners accountable, putting tough pollution controls in place and forcing companies to adhere to high environmental standards.

“Over the last ten years, China has made remarkable strides in protecting the environment.”

Today, China has a 2060 net-zero emissions target. It is investing in renewable energy and creating subsidies and tax breaks that promote NEVs. China’s sustainability focus is creating opportunities to invest in renewable energy and clean technology innovation in China. Businesses hoping to sell products in China would be wise to carefully consider the changing preferences of Chinese consumers. According to research, Chinese parents are most concerned about “pollution and product quality” when buying products, while many express anger about the negative impact of pollution on their children’s wellbeing.

About the Author

Shaun Rein is the author of The War for China’s Wallet, The End of Copycat China, and The End of Cheap China. He is the founder and managing director of the China Market Research Group.