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Increasing geopolitical tensions tend to trigger flight-to-safety capital flows, often moving away from emerging markets like China. This capital flight can weaken the Chinese yuan, strain the nation’s foreign reserves, and exacerbate existing debt issues. Given China's recent economic slowdown and property sector struggles, such external shocks threaten to push China into a deeper economic meltdown.
Impact on Belt and Road Initiative (BRI)
China’s ambitious BRI project, which aims to expand its influence through infrastructure investments across Eurasia, Africa, and beyond, could face setbacks in light of intensified geopolitical instability. Increased tensions in the Middle East could lead to disruptions in trade routes and investment flows, undermining years of strategic planning.