Defensive Investing

Defensive Investing Strategies from Two Economic Superpowers with One Warning. China and the United States sit at opposite ends of many economic and political debates. One is still heavily influenced by state planning and manufacturing. The other is built around consumption, financial markets and private enterprise.

Yet look beneath the headline economic numbers and something interesting is happening. In both economies, capital is becoming more defensive. The symptoms are different.

China continues to struggle with the consequences of a property downturn that has now lasted for years. Households remain cautious, domestic demand is weak and China has continued reducing its holdings of US Treasury securities.

In the United States, employment data is proving weaker on revision while the government continues to finance substantial levels of debt and the US Treasury prepares to increase its own bond-buyback operations.

None of these developments individually tells us that an economic crisis is imminent.

Taken together, however, they raise a more interesting observation – Where does capital feel safe enough to sit?

Key Takeaways

• China and the United States are showing different symptoms of the same underlying issue: capital is becoming increasingly defensive as confidence, liquidity and economic growth come under pressure.
• China’s property downturn remains a major economic drag. Years after the Evergrande crisis began, falling property investment and weaker household confidence continue to affect spending and domestic demand.
• Chinese households are prioritising security over consumption. Higher savings and weaker borrowing suggest consumers remain cautious despite government efforts to stimulate domestic spending.
• China continues to reduce its holdings of US Treasury securities. This doesn’t mean China is abandoning the dollar, but it provides another signal that major pools of capital are reconsidering where and how they hold reserves.
• The US labour market appears weaker than previously reported. Employment benchmark revisions don’t indicate a sudden collapse, but they reinforce the importance of watching trends rather than relying on individual headline numbers.
• The US Treasury is increasing liquidity-support buybacks of longer-dated government bonds. This isn’t the same as reducing government debt; it is designed to improve liquidity and functioning within the Treasury market.
• The important signal is behaviour rather than prediction. Households saving, governments adjusting reserves, businesses changing investment decisions and authorities supporting market liquidity can reveal changing conditions before they become obvious in headline economic data.
• For investors and business owners, defensive investing doesn’t mean panic. It means reviewing liquidity, diversification, debt exposure and cash flow while maintaining the flexibility to respond when opportunities emerge.

The bigger lesson is capital often changes behaviour before economic headlines change their story. Observation, interpretation and action can help investors and business owners recognise those changes and prepare rather than react.

China: The Long Shadow of Property

China’s property problems are no longer a short-term correction. The current downturn traces back to the regulatory crackdown on highly leveraged property developers beginning around 2020–21, followed by the default of Evergrande in 2021. Years later, the adjustment continues.

A recent Reuters poll of analysts expects Chinese home prices to fall another 3.4% during 2026. More significantly, property investment is now expected to decline around 20% this year, while property sales measured by floor area are forecast to fall around 10%.

In some smaller Chinese cities, property prices have fallen approximately 25% from 2020 levels. Millions of unfinished homes, struggling developers and falling land sales remain part of the economic landscape.

This matters because property has historically been much more than somewhere to live. It has been an important store of household wealth, a major source of economic activity and an important source of revenue for local government.

When property values rise, households often feel wealthier and more confident. When they fall for several years, the reverse can happen. Consumers become cautious. Saving becomes more attractive than spending. Businesses see weaker domestic demand. Investment decisions become more conservative.

The ripple effects spread far beyond construction.

Beijing Has Another Problem: Rebuilding Confidence

China has been attempting to rebalance its economy towards advanced manufacturing, technology and domestic consumption.

There is evidence of strength in areas such as AI, high-tech and equipment manufacturing. But the latest official PMI figures also illustrate the imbalance: China’s manufacturing PMI improved to 49.8 in August but remained below the 50 level associated with expansion, while the non-manufacturing PMI remained at 49.0. High-tech and equipment manufacturing performed considerably better than consumer-related sectors.

That creates a difficult transition. New industries can grow rapidly without yet being large enough to replace the economic activity lost elsewhere.

Meanwhile, policymakers are still trying to stabilise property. New rules announced at the end of August significantly change China’s property presale model. Mortgages will generally no longer be issued before residential projects are completed.

The objective is understandable: protect purchasers and rebuild confidence after years in which buyers could find themselves paying mortgages on unfinished properties.

But there is another side. Presales accounted for 68% of new-home sales by floor area in 2025. Removing that source of funding means developers will increasingly have to finance construction themselves or obtain other lending. That could improve the quality of the surviving property sector while simultaneously putting further pressure on weaker developers.

China is therefore attempting something extremely difficult to reduce financial risk without removing so much liquidity that economic activity weakens further.

Defensive Investing – Follow the Money

Another signal can be found outside China’s property market. China has continued reducing its holdings of US government debt.

US Treasury data for June showed Chinese holdings of US Treasuries falling 4% in one month to approximately $633.4 billion. That was the lowest level since September 2008 and around 13% lower than a year earlier.

China wasn’t alone. Japan and the United Kingdom also reduced their holdings during June, contributing to an overall monthly decline in foreign holdings of US Treasury securities.

This doesn’t mean foreign investors have suddenly abandoned the United States. Total foreign Treasury holdings were still higher than a year earlier. But changes in where major pools of capital are being allocated are worth watching. Especially when something interesting is happening at the other end of the transaction.

America: Treasury Is Buying Treasuries

The US Treasury operates a buyback programme in which it purchases outstanding Treasury securities. That statement can easily be misunderstood. It does not mean the US government is simply paying off the national debt.

Treasury continues issuing securities to refinance maturing debt and finance government expenditure. The buyback programme has another purpose, including improving liquidity in parts of the Treasury market.

But on 19 August, the Treasury announced an important change. From 9 September, the maximum size of its liquidity-support buybacks for longer-dated nominal Treasury securities will increase from $2 billion to at least $4 billion per operation. In other words, the size will at least double.

Treasury specifically says the increase is intended to provide greater liquidity support in the longer-dated 10-to-30-year areas of the market.

That doesn’t automatically represent a distress signal. But it is a market signal.

One of the world’s most important financial markets requires liquidity, and the issuer itself is increasing the scale of a programme designed partly to help provide it. At the same time, some major foreign holders have been reducing their exposure. That combination deserves attention.

Then There Is the US Labour Market

Employment has been one of the major arguments supporting the resilience of the US economy. But recent revisions suggest the labour market hasn’t been quite as strong as originally reported.

On 28 August, the US Bureau of Labor Statistics released its preliminary annual benchmark revision. The estimate suggests total nonfarm employment in March 2026 was 79,000 lower than previously estimated, while private employment was 178,000 lower. That is an important distinction.

It does not mean America suddenly lost 79,000 jobs during August. It means the historical employment picture is being revised and appears slightly weaker than previously thought.

Within the private-sector revision there were also substantial differences between industries. Manufacturing was revised down by 67,000, professional and business services by 76,000 and private education and health services by 96,000.

There were positive revisions elsewhere, so this is not a story of universal employment collapse.

But it does reinforce something investors should always remember that economic data is a moving picture. The first number is not necessarily the final number.

Two Superpowers, Different Problems

This is where China and America become interesting together. China’s problem is heavily connected to property, household confidence and domestic demand.

America’s problem increasingly involves government debt, bond-market liquidity and the durability of economic and employment growth.

They look like completely different stories. But underneath them sits a similar behavioural response. Capital becomes cautious when confidence falls.

Chinese households become reluctant to spend. Property developers become constrained. China reduces some of its exposure to US government securities. Foreign Treasury holdings fluctuate.

US Treasury increases liquidity-support operations in longer-dated government bonds. Businesses become more cautious about hiring. Investors demand compensation for taking longer-term risk.

Nobody needs to announce that they are worried. Their behaviour tells us.

The Ripple Effect

This is why I spend so much time looking beyond individual economic headlines. One number rarely changes an investment strategy. A pattern can.

• A falling property market affects household wealth.
• Reduced household confidence affects spending.
• Lower spending affects businesses.
• Businesses adjust investment and employment.
• Governments respond through fiscal, monetary or regulatory policy.
• Those decisions affect currencies and bond markets.
• Bond markets affect borrowing costs.
• Borrowing costs eventually feed back into businesses, households and asset prices.

That is the Ripple Effect.

China’s property crisis and America’s Treasury market might initially appear completely unrelated. Follow the movement of capital, however, and the connection becomes clearer.

Both economies are trying to maintain growth while different parts of their financial systems become more defensive.

Observation, Interpretation, Action

Observation

China’s property downturn continues years after Evergrande’s default. Domestic demand remains weak, property investment continues to contract and China has reduced its holdings of US Treasuries.

At the same time, US employment estimates have been revised slightly lower and the US Treasury is increasing the size of its long-term liquidity-support bond buybacks.

Interpretation

None of those signals independently proves that a major downturn is imminent. But together they suggest something important that capital is becoming increasingly sensitive to risk, liquidity and confidence.

This is often where economic turning points become visible first. Not in dramatic headlines. In behaviour.

Action

For business owners and investors, this isn’t necessarily the moment to make dramatic predictions.

It is the moment to make sure the system is prepared.

• How dependent is the business on debt?
• How vulnerable is cash flow to falling consumer demand?
• Is sufficient liquidity available if opportunities appear?
• Is an investment portfolio dependent upon one asset class, geography or economic outcome?
• Are investment decisions based upon yesterday’s economic assumptions or today’s changing signals?

This is why I repeatedly return to diversification, liquidity and systems. You don’t build resilience after conditions change. You build the system before you need it.

What I’m Watching Next

The next stage isn’t about predicting whether China or the United States will be the first to experience a more significant slowdown. I’m watching behaviour.

• Can China stabilise property sufficiently to rebuild household confidence?
• Will stronger technology and manufacturing sectors become large enough to compensate for property weakness?
• Does Chinese domestic consumption begin responding?
• Do major foreign holders continue reducing US Treasury exposure?
• Does the US Treasury expand its liquidity-support operations further?
• And, importantly, do subsequent US employment figures continue showing a weakening trend?

Any one of those signals can move in either direction. What matters is how they begin moving together.

Because when two of the world’s largest economies start displaying different versions of the same defensive behaviour, it is worth paying attention.

Not because the next crisis has necessarily arrived. But because capital often changes behaviour before the economic headlines change their story.

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Frequently Asked Questions

Follow the Ripple Effect

Economic and investment signals rarely exist in isolation.

A change in property can affect household confidence. A shift in employment can influence spending. Government debt can affect bond markets, interest rates and the movement of capital.

The Strategic Investor Brief – The Ripple Effect looks beyond individual headlines to explore those connections — what is changing, why it matters and where the ripple effects could appear next.

If you prefer to understand the forces shaping markets rather than simply react to the latest headline, the Strategic Investor Brief provides a deeper look at the signals I’m watching and how they may connect across economies, markets and investments.

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Karen Newton

Karen Newton is a Business and Wealth Strategist, 3x #1 International Bestselling Author, Speaker and founder of Karen Newton International. She is known for helping entrepreneurs and investors connect business growth, investment opportunities, and economic trends into practical strategies for building long-term wealth and financial resilience.

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