Liu Yuhui: The Coming Week is Crucial; China's Asset Premium Must Be the Largest Safety Premium in the World

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Source: Chief Economist Forum

Liu Yuhui is the Deputy Director of the Shanghai Chief Economist Financial Development Center and a Director of the China Chief Economist Forum.

The greatest safety premium in the world must be the premium on Chinese assets—buy China, buy safety.

In the current era of intertwined warfare and strategic competition, Liu Bo pointed out in his latest speech: The fundamental logic of global capital markets has undergone a profound reversal—“safety” has replaced “efficiency” as the world’s most scarce asset, and “safety premium” will be the largest factor in future asset pricing.

The old US-led governance system centered on oil dollars is collapsing systemically due to war, while China’s carefully planned supply chain power is becoming the foundation of a new order.

“The current focus is definitely on war, because the pricing of war in capital markets has caused huge volatility,” Liu Bo emphasized. Through the smoke of war, safety has become the most important scarce resource globally.

China has long prioritized security over development in its 14th Five-Year Plan, emphasizing “safety and development in tandem,” and has allocated significant resources to its industrial system and global supply chain status. This farsighted strategy is now transforming into a strategic advantage for the country.

Interestingly, this logic is also beginning to be replicated by the West.

In January this year, the US released its National Security Strategy, which is essentially a “reprint” of China’s 14th Five-Year Plan. “The era of globalization, low costs, and seeking cost advantages is over. All future industry returns will be deeply embedded with a ‘safety premium’.”

Whether it’s America’s “industrial revival,” “technological independence,” or “supply chain security,” they all fundamentally affirm the global consensus of “safety first, efficiency second.” War is just a catalyst.

As future conflicts become clearer, the valuation models of global capital markets will undergo significant changes, with the safety premium becoming a key weight in future market pricing models.

Regarding current geopolitical conflicts, Liu Bo revisited his March 2 forecast, noting that the war has almost unfolded exactly as scripted:

Scenario 1: The US initially aimed for a quick victory through a “decapitation operation,” copying the Venezuela model, quickly overthrowing Iran’s regime, and ending the war. The US would then gain the greatest geopolitical dividends, bringing Iran’s vast oil and gas resources into its fold to repair the fragile US dollar and US debt system.

If this scenario materializes, oil prices would rapidly fall back to the fundamental level of about 250 million tons of excess capacity globally, and the US dollar, US bonds, and US stocks would recover well.

Scenario 2: The ongoing situation, where Iran, after taking hits, gradually stabilizes and shifts strategy toward a prolonged conflict.

The core leverage is the Strait of Hormuz—cutting off this choke point would cause a sudden impact of 1 billion tons of annual capacity, overshadowing the entire oil industry’s fundamentals. The 25 million tons of redundant capacity would be immediately absorbed, and oil prices would be priced accordingly. Currently, crude oil is around $100, but spot prices in Dubai have surged above $150, reflecting this initial pricing of the gap.

Iran’s strategy is clear: using oil prices to influence the US’s core—financial variables.

In practical terms, both sides have now entered a third scenario: a direct confrontation—red line crossing, a game of chicken.

It’s like two cars racing toward each other on a one-way street—who yields first loses; who doesn’t, risks mutual destruction. Iran has begun threatening indiscriminate attacks on Gulf oil facilities and even civilian infrastructure. The US is preparing for the next phase of military action.

“Neither side has an escape route, especially Trump,” said Liu Bo. The Western world is currently in a “Cultural Revolution” state of ideological showdown. For Trump, the 2028 election is not just about re-election but also about whether the right-wing conservative forces can avoid political purge by the left.

Since there’s no retreat, given Trump’s personality, the only option is to go all in.

More critically, there’s the physical “storage risk”: If oil cannot be exported, tanks will fill up, forcing production to physically halt. This is a time-dependent issue: Iraq can only sustain three days, Kuwait 14 days, and Saudi Arabia, as the region’s largest country, about 25 days.

Therefore, the next week is crucial. If oil flows remain zero, we must accept a harsh reality: the region’s 1 billion tons of capacity will be completely shut down, and the world must price in a 750 million-ton annual shortfall.

This extreme scenario would trigger chain reactions: not only could oil prices break through expectations, but it would also directly impact the US AI supply chain. The US’s AI backbone is in Asia (Japan, Korea, Taiwan), where high-energy-consuming industries like chip manufacturing and storage rely over 90% on Gulf natural gas.

A supply cutoff could cause the valuation of trillion-dollar AI innovation assets to collapse. The US’s problem is that once this shock propagates into the financial dimension, it could trigger high volatility in AI capital, pulling US macro conditions into a classic “deep stagflation” model.

Over the past three years, the US’s all-in AI strategy has created massive monetary supply (M), but AI asset pools have locked in funds as a “water reservoir,” keeping the velocity of money (V) low, and inflation (P) under control. However, if tech stocks collapse and capital flows out, combined with the Fed’s forced rate cuts and liquidity injections, V will spike sharply; at the same time, slowing AI infrastructure will cause economic growth (Y) to stagnate, leading to a surge in active money in the real economy and a sharp rise in prices (P).

This is the core logic behind the recent mainstream “HALO trading strategy” (heavy assets, light software): stagflation.

“From this war, we see one fact: the old order is over,” Liu Bo believes that regardless of the war’s outcome, the US’s damage is primarily to its “inner core”—its ability to provide security globally as the big brother.

Iran’s counterattack targets not only oil facilities but also freshwater ecosystems and even underwater cables. If the Gulf internet is disrupted for months, those relying on cheap natural gas to build intelligent computing centers and AI infrastructure, as well as global financial hubs like Abu Dhabi and Dubai, will face a “golden land collapse.”

The core logic behind these losses is the complete destabilization of US financial variables.

Once the pillar of the petrodollar collapses, US geopolitical dominance will face enormous centrifugal forces, and allies will reassess the value of “protection fees.” In stark contrast, China’s rise is accelerating. “Weaponizing supply chains” has become China’s most important strategic card.

“You see major countries’ exchange rates appreciating, but exports remain strong—at its core, this is the power of supply chains,” China’s manufacturing, through extreme “competition,” has gained absolute pricing power with low costs and high efficiency.

“I can raise prices, I can decide the supply-demand balance,” said Liu Bo. While the West faces “high inflation, high interest rates, and high valuations,” China’s supply chain resilience helps mitigate external shocks. “In a sense, we also hope to keep high oil prices because our supply chains can help offset inflationary pressures.”

Ultimately, we return to the fundamental narrative: today’s era is a script—a contest between China and the US’s national fortunes. The Western stance, represented by “Wood Sister,” bets on the US continuing to dominate the AI second half, using productivity dividends to offset inflation and maintain dollar hegemony.

Liu Bo’s position, however, firmly bets on the east prevailing: “My conclusion is clear: the second half of AI will transform into a re-pricing of China’s supply chains, fundamentally changing the global order and reshaping global currency sovereignty.”

When the old big brother becomes unstable and the system collapses, where will the new order emerge?

The answer lies in the word “safety.” “Safety first, efficiency second”—the world economy is becoming fortress-like, which is already a fact… Regardless of the process, the era of low-cost globalization is over, and the safety premium is now and will be the largest asset premium in the future.

“The greatest safety premium in the world must be the premium on Chinese assets—buy China, buy safety.”