(Yicai) March 25 -- As geopolitical competition becomes a long-term trend, the pricing models of global capital markets will undergo significant changes, with the security premium set to become the most important core pricing factor. Given China’s strong supply chain advantages, Chinese assets may become the world’s most certain and largest safe assets.

The conflict between the United States and Iran has not achieved Washington’s expected outcome of leveraging sudden tensions to quickly trigger regime change. Had that happened, oil prices might have quickly returned to fundamental levels, while confidence in the US dollar and the stock market could also have seen a significant recovery.

However, after suffering heavy losses early on, Iran gradually regained its footing and launched an organized counteroffensive, dragging the conflict into a protracted confrontation. Under such circumstances, any blockage of the Strait of Hormuz could trigger an oil supply shock of about 1 billion tons, compared with global excess production capacity of only about 250 million tons before the conflict, making a repricing of oil markets inevitable. This could directly affect the financial fundamentals of the US.

Oil prices have a direct impact on the artificial intelligence and semiconductor supply chains. While US technology giants mainly focus on chip design, AI computing capacity, and core information technology manufacturing capabilities are concentrated in Japan, South Korea, and Taiwan, China. The energy structures of these three regions are highly vulnerable, with 80 percent to 90 percent dependence on natural gas and crude oil from the Gulf region. Moreover, the AI sector is highly energy-intensive, with power consumption far exceeding that of traditional heavy industries such as electrolytic aluminum.

Any major disruption to the semiconductor supply chain could trigger a reassessment of the market valuations of AI companies on Wall Street. Against a backdrop of high interest rates, the US financial system has already shown signs of fragility. The investment structures of major technology firms rely heavily on shadow banking, including complex private credit and leveraged loan markets. If supply chain disruptions trigger chain reactions, companies could face severe liquidity pressures, creating risks that warrant close attention. A sharp decline or collapse in US AI valuations could even push the US into deep stagflation.

Even if the US and Iran were to reach an immediate ceasefire and achieve limited short-term objectives, the conflict could still damage US global credibility.

Security Concerns May Shift Global Capital Toward China

China, by contrast, remains geographically distant from the conflict zone and benefits from a complete supply chain and domestic stability, limiting its exposure to such geopolitical shocks. The recent strength of the yuan and even stronger export performance suggest that China’s supply chain has already gained significant global pricing power.

China was also among the first to integrate security considerations into its development strategy, emphasizing the equal importance of security and development. Since the launch of the country’s 14th Five-Year Plan (2021-2025) for economic and social development, substantial resources have been directed toward security-related sectors.

The US has also begun to recognize this issue. In January this year, it released its national security strategy. The current situation suggests that the world’s two largest economies are both placing greater emphasis on security over efficiency. The era of globalization, defined by low dividends, low costs, and the pursuit of cheaper production locations, is coming to an end. In the future, all assets and industries will need to incorporate security considerations more deeply into their structures.

As a result, the significant supply chain advantages China has accumulated over the past decades may translate into core national strengths that could reshape global asset pricing power. In this context, Chinese assets may represent the world’s most certain and largest safe assets.

The author is the vice chairman of the Shanghai Chief Economist Financial Development Center.

Editor: Emmi Laine