Introduction

Something that has surprised us in H1 2025 is how comprehensive the Donald filter is for professionals who have experience analyzing all kinds of phenomena. When you hear the word Donald, the analyst day job switches off, and you go into a kind of autopilot. And yes, we as private individuals see many of these reasons, but good analyses of what's happening are not made. Distinguishing smoke (rhetoric) from signals is always difficult with political processes, and Donald & Co have introduced a new level to this. A signal (our interpretation) that made us turn around and start working on this perspective note is the following statement from Donald in June:

"We just signed with China… we are starting to open up China, things that never could have happened"

Market access to China, and for China? Nearly 30 years ago, I sat as Norway's technical representative in our negotiating delegation at WTO/GATS in Geneva on deregulation of telecommunications services. Market access to regional and national markets was the topic discussed bilaterally over many weeks. Without market access, various national rules become uninteresting. Those discussions come later. The significance of understanding the concept of "market access" in connection with Donald's quote is no less than it was during negotiations 30 years ago. If what Donald says is correct, it's a powerful signal that neither can nor should be overlooked as smoke (rhetoric) in an analysis of what he's saying.

Finance and investment analyses require analyzing numerous variables. The unit of analysis for us portfolio managers must always be the stock. Some are more concerned with the past of what companies have achieved historically and assume they will maintain a similar position in the future. Our analyses and perspective notes often play, speculate, and analyze scenarios for powerful changes. The disruptive iron triangle that creates, reduces, strengthens, and destroys business models consists of regulations, market structure, and technology. Without understanding the consequences of changes in our disruptive iron triangle, one can hardly analyze companies either historically or in the future.

The Disruptive Iron Triangle

Three forces shape, create, and destroy business models: Regulations, Market Structure, and Technology. China is a large market and a major exporter that has created and continues to create disruptions in many industries and regions. Changes in their trade policy will therefore be very important to have a relationship with.

Let's assume this is correct. The implications are large because it assumes something very few have now taken into consideration in their analyses. An opening of the Chinese market. It probably also assumes a leadership change or a reorientation of policy by the current leadership. And why not public, is it secret? Is it Donald or China that wants to keep the agreement secret? If it's China that wants to keep it secret, it could reinforce the notion of changes in policy and perhaps leadership.

Analysis of the Process Toward a Potential Change

Political Context and Process for Leadership Change

China's political system is centralized around the Chinese Communist Party (CCP), where leadership changes at the top level usually occur through carefully controlled processes, such as during party congresses (next expected in 2027). An early departure for Xi Jinping in 2025 would be unusual and could be triggered by internal factors such as power struggles within the party, economic crisis, or external pressure (e.g., trade conflicts with the USA).

A replacement would likely occur through an emergency in the Politburo or an extraordinary party congress. Potential candidates may include members of the Politburo Standing Committee, such as Li Qiang (Prime Minister) or Cai Qi, but none have a clear profile as Xi's "rival" today. The process would be hidden from the public, with official announcements only when a new leader is chosen.

Two Scenarios for New Policy and Potential Leadership

Scenario 1: Reform-Oriented Policy and Leader

A new leader or policy that prioritizes economic reforms and market opening, in line with Trump's statements, takes over.

Scenario 2: Conservative Policy and Leader

An unchanged leadership situation or a new leader who continues Xi's policy with strong state control and limited market opening takes over.

Trade Policy Crash Course: Market Access and Reciprocity

The Concept of Market Access

Market access refers to the degree to which a country's goods, services, or investments gain access to another country's market without discriminatory barriers. This includes reduction or removal of tariffs, quotas, technical trade barriers, and other regulations that limit trade. Within the World Trade Organization (WTO), market access is a core principle that ensures member countries provide equal competitive conditions for trading partners through commitments in agreements such as GATT, GATS, and TRIPS.

The principle of market access originated with the establishment of GATT in 1947, which aimed to promote free trade by reducing tariffs and non-tariff trade barriers. After World War II, there was a need to rebuild global economies and prevent protectionism, which had contributed to economic instability in the 1930s. When the WTO was established in 1995, the organization continued and expanded this framework, including new areas such as services and intellectual property rights.

Definition of Reciprocity

Reciprocity (from Latin reciprocus, meaning "to give and take back" or "mutual") refers to a mutual exchange of benefits, duties, or actions between two or more parties, where one party's actions condition or mirror the other's. The concept implies an expectation of equal treatment, where both sides give and receive something of equivalent value.

In a trade policy context, reciprocity refers to the principle that countries give each other mutual benefits, such as reduced tariffs, market access, or removal of trade barriers, based on equivalent concessions. It means that one party only provides benefits if the other party offers something of comparable value, and can be symmetric (equal benefits) or asymmetric (adjusted for economic differences, such as between developed and developing countries).

Market Access and Reciprocity Framework

To create a 2x2 matrix with market access and reciprocity as axes, we must first define how these concepts can be categorized. Market access deals with the degree to which a country's goods, services, or investments gain access to another country's market, while reciprocity refers to mutuality in trade benefits, where countries give each other equal or equivalent benefits.

Consequences of a Reciprocity-Based Trade Agreement Between USA and China

To analyze the consequences of a hypothetical new trade agreement between USA and China based on reciprocity in market access, and its impact on American and Chinese technology stocks, we build on the earlier analysis about Xi Jinping's potential replacement or policy change (reform-friendly) in 2025.

Reciprocity in market access means that USA and China give each other equal conditions for access to their markets, including reduction of tariffs, removal of non-tariff barriers (such as data localization or technology transfer requirements), and increased access for technology companies to operate in both countries.

American Technology Stocks

Chinese Technology Stocks

Analysis of Social Media Stocks Under Reciprocity-Based Trade Agreement

American Social Media Stocks

American social media companies currently have limited or no access to the Chinese market. A reciprocity-based agreement could fundamentally change this dynamic.

• Meta (Facebook/Instagram): Could re-enter China after years of being blocked. With 1.4 billion potential users, this represents enormous growth potential. Stock could see 20-25% upside.
• X (Twitter): Could gain access to Chinese users, though would need to navigate content moderation requirements. Potential for significant user growth.
• Snap: Snapchat could compete with Chinese apps for younger demographics. AR features could find new market.
• Pinterest: E-commerce integration opportunities with Chinese merchants could drive revenue growth.

Chinese Social Media Stocks

Chinese social media companies could finally compete on equal footing in Western markets.

• Weibo: China's Twitter equivalent could expand globally, competing directly with X.
• WeChat (Tencent): The super-app model could revolutionize Western social media and payments.
• Douyin/TikTok: Full integration of Chinese and international versions could create synergies.
• Bilibili: Youth-focused platform could expand internationally with gaming and anime content.

Analysis of Mobile Industry Under Reciprocity-Based Trade Agreement

Hardware Players

Analysis of Automotive Industry Under Reciprocity-Based Trade Agreement

Electric Vehicle Revolution

The automotive industry would see dramatic shifts under a reciprocity-based agreement, particularly in the electric vehicle (EV) segment where both countries have strong players.

Analysis of Semiconductor Industry Under Reciprocity-Based Trade Agreement

The semiconductor industry sits at the heart of US-China tech tensions. A reciprocity agreement would dramatically reshape this landscape.

Key Players and Impact

Analysis of Platform Economy Under Reciprocity

Amazon and E-commerce

Amazon's entry into China under a reciprocity agreement would reshape global e-commerce:

• Marketplace: Direct competition with Alibaba and JD.com in China
• AWS: Unrestricted cloud services to Chinese enterprises
• Prime: Subscription services including video streaming in China
• Logistics: Full deployment of Amazon's logistics network
• Stock Impact: 20-25% upside from China expansion

Chinese E-commerce Giants

Chinese platforms could finally compete in Western markets without restrictions:

• Alibaba: Taobao and Tmall could enter US market directly
• JD.com: Logistics expertise could challenge Amazon's delivery
• Pinduoduo/Temu: Group buying model could disrupt US retail
• Meituan: Super-app model for food delivery and services

Analysis of EU Industries Under US-China Reciprocity Agreement

A US-China reciprocity agreement would have significant spillover effects on European industries, creating both opportunities and challenges.

Winners and Losers in Europe

Strategic Considerations for EU

The EU would need to recalibrate its approach:

• Push for inclusion in reciprocity frameworks to avoid being sidelined
• Accelerate digital sovereignty initiatives to maintain competitiveness
• Leverage regulatory expertise (GDPR, AI Act) as competitive advantage
• Strengthen intra-EU cooperation to compete with US-China axis
• Focus on areas of European strength: green tech, industrial IoT, privacy tech

Disruptive Investment Strategies in China 2.0

Our analysis unit is not politics, but stocks. Politics and regulations are variables that are often strong but constant. But if China and USA enter an agreement to "open their markets like never before," this has the power of disruption on regions, countries, industries, and individual companies. Stock markets will definitely move.

Our Investment Framework

DNB Disruptive Opportunities owns no Chinese stocks at the time of this note (beginning of July), but this can change the next day. There are numerous Chinese companies that we view as innovative and leading within our five investment categories. However, we consider the risk to be asymmetric due to regulatory conditions. A potential change to more reform-friendly policies could reduce regulatory risk and make Chinese stocks investable for us.

Watchlist for Relevant Chinese Stocks

Investment Triggers to Watch

Three Relevant Quotes About Chinese Politics and Economy

Summary and Conclusion

A hypothetical policy change or replacement of Xi Jinping in 2025 would require a significant internal or external crisis, such as economic stagnation or pressure from trade negotiations with the USA. A reform-oriented leader could lead to economic growth, increased market opening, and stock market gains, especially in technology and consumer sectors, but with risk of social unrest. A conservative leader would maintain status quo, with continued economic pressure and stock market decline, particularly for private companies.

The quote from Donald indicates that opening market access to China and the USA is the very core of a new trade agreement. In a trade policy toolbox, market access and the concept of reciprocity are two related concepts that create understanding for the process and outcome of talks between China and USA.

Very many experts and financial people will explain to you why such a policy change eventually happened, why it was completely obvious that it had to happen, and all the consequences after it has eventually happened. Very few have taken Donald's comment seriously, therefore it will surprise the market if it happens. If a shift in policy comes in a reform-friendly direction (e.g., market access), we assume the market will first react with uncertainty, and it will create many disruptive opportunities for those who are prepared.

As always: We manage no truths, only stocks. We share our perspectives to increase a collective understanding of what we perceive as important at the time it's written. This is not an academic exercise nor an entry to a lexicon. If for some reason you get the urge to buy something based on what you read, we hope you buy something for someone you care about. This is not investment advice.