Implications for U.S. Equities, CapEx, and the Treasury Market
By Christopher Combs, Chief Investment Officer, Silicon Valley Capital Partners
January 15, 2026
Executive Summary
China’s record $1.2 trillion trade surplus marks a structural shift in global capital flows with direct consequences for U.S. equity markets, artificial intelligence–driven capital expenditures, and Treasury market dynamics. Unlike prior cycles in which export earnings were centralized on the balance sheet of the Chinese central bank, the majority of new foreign assets are now held by China’s private sector — including exporters, commercial banks, and institutional investors. This redistribution of liquidity alters both the stability and transmission mechanism of global savings.
At the same time, the global economy is entering a capital-intensive phase dominated by AI infrastructure, data centers, semiconductor fabrication, and cloud computing. U.S. mega-cap technology firms sit at the center of this investment cycle, attracting a disproportionate share of global capital. China’s private foreign-asset accumulation has quietly become a meaningful contributor to the liquidity underpinning these investments.
Consensus economist forecasts suggest the Chinese yuan is likely to appreciate gradually, rather than abruptly, supporting continued outward capital deployment under a base-case scenario. However, the growing role of mobile, non-official capital introduces a new class of risk: liquidity conditions can tighten suddenly if incentives change. The size of these flows means that even modest shifts could have outsized effects on asset prices.
I. From Centralized Reserves to Private Capital
For much of the past three decades, China’s external surplus followed a predictable path. Exporters sold foreign currency earnings to the state, and reserves accumulated on the balance sheet of the People’s Bank of China. Those reserves were then recycled into U.S. Treasuries and other sovereign assets, contributing to global financial stability and suppressing long-term interest rates. That system has changed.
Recent data show that roughly two-thirds of China’s foreign-asset accumulation now bypasses official reserves, instead being held by the non-official sector: exporters retaining dollar earnings, commercial banks accumulating foreign assets, and private investors purchasing overseas securities.¹ This shift reflects deliberate policy choices over many years, including liberalization of foreign-exchange retention, encouragement of outward investment, and lessons drawn from the freezing of foreign reserves during recent geopolitical conflicts.
The result is a decentralized pool of offshore liquidity that is larger, faster-moving, and more sensitive to market incentives than traditional reserves
II. Why the Capital Is Flowing Toward the U.S.
The destination of this capital is not accidental. It coincides with a historically large and persistent investment cycle centered on artificial intelligence.
AI is not a software-only phenomenon. It is an infrastructure cycle requiring massive and sustained capital expenditures: advanced semiconductors, hyperscale data centers, power generation, networking equipment, and cloud platforms. The companies leading this cycle — overwhelmingly U.S.-based mega-cap technology firms — operate at a scale few global peers can match.
This has created a structural demand for global savings. China’s private foreign capital, seeking return, diversification, and currency exposure, has increasingly flowed into:
- U.S. equities with direct AI exposure
- Dollar-denominated funding markets
- Investment vehicles linked to data-center, energy, and digital infrastructure
This flow has helped compress risk premia and support elevated valuations even as nominal interest rates have remained restrictive.
III. CapEx, Valuations, and Financial Conditions
The interaction between AI CapEx and global liquidity has produced three notable market outcomes:
First, the effective cost of capital for mega-cap technology firms has remained lower than policy rates alone would imply. Offshore dollar liquidity has cushioned financial conditions, enabling continued investment despite tighter domestic monetary policy.
Second, equity valuations — particularly for AI-linked firms — reflect not just growth expectations but abundant global savings. Forward P/E multiples have been sustained by liquidity as much as by earnings momentum.
Third, Treasury market dynamics have been indirectly influenced. While much of this capital is not flowing directly into Treasuries, Chinese banks and investors are active in dollar funding and short-duration markets, helping absorb issuance and dampen volatility.²
These effects are supportive — but conditional.
IV. The Yuan Outlook: Consensus and Implications
The durability of this system depends critically on the path of the Chinese yuan.
The consensus among global economists and major financial institutions is that the yuan is likely to appreciate gradually over the medium term, rather than experience a sharp revaluation. Forecasts generally cluster around 2–3% annual appreciation, with USD/CNY expected to drift toward the high-6.8 to low-6.9 range by late 2026.³
This outlook is driven by:
- Expectations of a moderately weaker U.S. dollar as global monetary easing progresses
- China’s persistent current-account surplus
- Policy preferences in Beijing favoring currency stability over rapid adjustment
Crucially, this consensus assumes orderly currency management. A gradual appreciation supports continued outward investment and limits incentives for sudden repatriation of offshore assets.
V. Scenario Analysis: Market Implications
Scenario 1: Gradual Yuan Appreciation and Stable Outflows (Base Case)
Under the consensus outlook, the yuan strengthens slowly and predictably. Exporters and banks maintain offshore exposure, and private capital continues to circulate globally.
Market impact:
- U.S. mega-cap technology remains well supported
- AI CapEx continues largely uninterrupted
- Treasury yields remain contained despite heavy issuance
This scenario effectively represents a structural liquidity tailwind for risk assets.
Scenario 2: Faster-Than-Expected Appreciation or Policy Repricing
If currency appreciation accelerates or relative interest-rate dynamics shift materially, incentives change. Exporters convert foreign earnings, and banks reduce offshore exposure.
Market impact:
- Valuation pressure on AI and growth equities
- Rising Treasury yields and increased volatility
- Tighter financial conditions without explicit Fed tightening
This would represent a liquidity-driven correction, not a collapse in fundamentals.
Scenario 3: Disorderly Repatriation and Liquidity Shock
In an adverse scenario — triggered by policy missteps, geopolitical escalation, or abrupt currency moves — repatriation accelerates rapidly.
Market impact:
- Sharp equity drawdowns, led by duration-sensitive AI stocks
- Stress in dollar funding markets
- Policy intervention required to restore stability
This would resemble a global funding accident, rather than a traditional recession.
VI. Conclusion
China’s trade surplus has evolved into a decentralized, privately held pool of global liquidity that is increasingly intertwined with the AI investment cycle and U.S. financial markets. As long as the yuan appreciates gradually and capital remains deployed abroad, this system supports CapEx, valuations, and financial stability. However, the growing scale and mobility of these flows mean that liquidity conditions are more fragile than in past cycles.
The AI boom is not being financed solely by productivity optimism — it is being underwritten by the redistribution of global savings. Understanding the behavior of that capital will be critical to navigating the next phase of this market cycle.
Footnotes
- Bloomberg News, China’s $1.2 Trillion Windfall Quietly Seeps Into Global Markets, January 15, 2026.
- U.S. Treasury International Capital (TIC) data; Bloomberg calculations.
- Consensus forecasts compiled from Goldman Sachs, S&P Global Ratings, and major global investment banks, January 2026.