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Podcasts from Confluence Investment Management LLC, featuring the periodic Confluence of Ideas series, two bi-weekly series: the Asset Allocation Bi-Weekly and the Bi-Weekly Geopolitical Report (new episodes posted on alternating Mondays), and a new monthly Q&A format called the Confluence Mailbag.
Welcome to the Confluence Investment Management Bi-Weekly Geopolitical Report for 07/13/2026. I'm Phil Adler. China's use of soft power to create a favorable public perception can reveal goals and tendencies useful for investors. Confluence chief market strategist Patrick Fearon Hernandez joins us today to share what he learned from a recent visit to the Chinese embassy in Washington. Patrick, tell us about this event.
Phil Adler:What was it, and why were you there?
Patrick Fearon-Hernandez:Well, hi, Phil, and thanks for having me on the program. The event was a reception and cultural celebration hosted by the Chinese Embassy in Washington in honor of the traditional dragon boat festival. On the surface, it was exactly what you might expect, a pleasant evening featuring Chinese food, music, dancing, cultural exhibits, networking. But beneath the cultural facade, it was also a classic example of public diplomacy. I wanted to attend because part of my job as a geopolitical analyst is to understand not just what government say in official statements, but also how they attempt to influence foreign audiences.
Patrick Fearon-Hernandez:Events like this provide a firsthand look at how countries present themselves, what narratives they emphasize, and what relationships they're trying to build. Those observations can provide useful context for investors trying to understand the evolving international environment.
Phil Adler:Well, your background includes a stint with the CIA. With that in mind, what were you watching for in particular as you attended this gathering?
Patrick Fearon-Hernandez:Well, former intelligence officers are indeed trained to observe environments, motivations, and behavior patterns. I wasn't there looking for secrets. Instead, I was trying to understand the message that China is trying to send and what priorities would be reflected in their actual behavior. I paid attention to who attended, how embassy staff interacted with guests, what topics were emphasized, and what topics were absent. One thing that stood out was that the event mostly focused on culture, history, education, tourism, and friendship.
Patrick Fearon-Hernandez:The main Chinese public diplomacy officer there did say a few words emphasizing Beijing's standard line about win win competition and shared goals, but there was no detailed discussion of trade disputes, Taiwan, the South China Sea, technology restrictions, or other areas where The US and China currently disagree. Those topics were essentially swept under the rug. Of course, that's not surprising. Public diplomacy is designed to shape perceptions. Every major power does it.
Patrick Fearon-Hernandez:The US has been doing it for decades, though through educational exchanges, cultural programs, and international broadcasting. China is increasingly doing the same now.
Phil Adler:You were struck, Patrick, even before the event began by the setting itself. How did the architecture and the overall atmosphere impress you?
Patrick Fearon-Hernandez:Well, the embassy itself was clearly part of the message. China's embassy complex in Washington is enormous, consisting of several buildings. This event was held in the main building, which is enormous and imposing. It's constructed of light colored stone, and it projects a sense of permanence and strength and confidence. Standing outside, I couldn't help thinking that the structure was communicating something beyond architecture.
Patrick Fearon-Hernandez:It seemed intended to symbolize China's emergence as a major global power. What struck me was how different it felt from many of the other embassies that I've seen in Washington. The facility is modern, well maintained, relatively new, and clearly designed to make an impression. In some respects, it resembles a hybrid between a modern government complex and a fortress. Diplomacy is often conducted through symbols and buildings or symbols.
Patrick Fearon-Hernandez:Before any conversations began, visitors already had a visual reminder that modern China wants to be viewed as powerful, sophisticated, and globally significant.
Phil Adler:And what about the cultural presentation itself? What stood out to you?
Patrick Fearon-Hernandez:Well, the event was very professionally executed. Guests could visit information booths covering tourism, study abroad opportunities, and Chinese culture. There were demonstrations of Chinese calligraphy and displays highlighting China's ethnic diversity. Traditional music and dance performances were presented throughout the evening, and there was even a dancing dragon. My favorite might have been the giant panda mascot.
Patrick Fearon-Hernandez:China has a long history of what observers called panda diplomacy, using one of its most recognizable cultural symbols to build goodwill. The embassy clearly understands that such symbols are memorable and effective. More broadly, the evening presented China as a civilization with deep cultural roots, rich traditions, and a welcoming national identity. Whether one agrees with all aspects of Beijing's policies or not, it was an effective example of cultural outreach.
Phil Adler:Talk a little bit more, Patrick, about what China hopes to gain from an event like this.
Patrick Fearon-Hernandez:Well, it's relationships and goodwill. I think that's the simplest answer. Governments increasingly recognize that influence extends beyond official negotiations. In democratic countries, especially, public opinion matters. Business leaders, academics, journalists, students, investors, and voters can all influence policy outcomes.
Patrick Fearon-Hernandez:Events like this help China establish familiarity and goodwill among those audiences. They create opportunities for personal connections and future conversations. China hopes that when attendees think about the country later, they'll remember positive experience rather than only headlines about strategic competition. The goal isn't necessarily to persuade people to agree with every Chinese policy. Often, the objective is simply to encourage a more nuanced or sympathetic view of China over the long term.
Patrick Fearon-Hernandez:And incidentally, I'll also mention that China clearly gains a lot of useful intelligence from these kind of events. I don't address this issue in my report, but perhaps because of my experience at CIA, I could tell that the embassy staff were trying very hard to photograph all the attendees and were siphoning up information from the cell phones of attendees who hadn't turned off their Wi Fi, Bluetooth, and Internet data. I have no doubt that every American who attended is now in a database in Beijing if they weren't already.
Phil Adler:So because of this attempt at relationship building, this could be part of an attempt to secure a favorable business environment for future transactions or investment?
Patrick Fearon-Hernandez:Absolutely. One of my conversations during the reception led to an introduction to an embassy official whose responsibilities include promoting investment into China. That's a good illustration of how public diplomacy and economic diplomacy often overlap. And the logic is straightforward. Countries want trade, investment, tourism, students, technological cooperation, and business partnerships.
Patrick Fearon-Hernandez:Creating positive impressions can make those outcomes more likely. And this isn't unique to China. Virtually every major economy engages in some version of this strategy. What makes China's effort especially interesting is that it comes at a time when geopolitical tensions are relatively high. Beijing appears to recognize that improving perceptions abroad could help offset concerns created by trade disputes and strategic rivalries.
Phil Adler:Well, Patrick, what did you learn from this event?
Patrick Fearon-Hernandez:Well, I think the biggest lesson was actually just a reminder rather than a revelation. Geopolitics is ultimately about people and institutions. Analysts can spend all day reading reports and crunching data at the home office, and we certainly do plenty of that here at Confluence. But direct observation remains valuable. I learned that China's public diplomacy apparatus is sophisticated, disciplined, and strategically focused.
Patrick Fearon-Hernandez:The embassy staff were professional and effective. The event reinforced my view that Beijing is investing significant resources in shaping its international image. I also came away reminded of the value of informal conversations. The attendees included diplomats, business professionals, academics, former government officials, and internationally experienced individuals. Those interactions often provide context that's difficult to obtain through written reports alone.
Phil Adler:And, again, how is this useful as you and other professionals at Confluence Investment Management formulate investment strategy?
Patrick Fearon-Hernandez:Well, investment markets increasingly reflect geopolitical realities. Trade policies, sanctions, industrial strategies, supply chains, military competition, and technological rivalry all affect asset prices. So understanding those developments requires understanding the people behind them. Events like this don't generate investment recommendations by themselves. They don't replace quantitative analysis or economic research.
Patrick Fearon-Hernandez:What they can help us identify is emerging trends. It allows us to test assumptions and to better understand how governments are approaching important issues. Think of it as another source of intelligence, not classified intelligence, of course, but information gathered through observation, conversation, and relationship building. The better we understand the geopolitical environment, the better positioned we are to evaluate long term investment risks and opportunities.
Phil Adler:Well, did this event change your investment outlook in any way?
Patrick Fearon-Hernandez:Not materially. The event enriched my understanding, but it did not alter my core outlook. I continue to believe that the defining geopolitical story of our era is the strategic rivalry between The United States and China. That competition is likely to influence trade patterns, technology development, defense spending, supply chains, and international investment flows for many years to come. The reception highlighted Chinese efforts to present a friendly face to the world, but public diplomacy doesn't eliminate fundamental strategic tensions.
Patrick Fearon-Hernandez:Those tensions remain very much alive.
Phil Adler:Do you see China making progress as it seeks to influence trading partners and geopolitical rivals?
Patrick Fearon-Hernandez:In some areas, yes. China has become increasingly capable in the realm of soft power and public diplomacy. In fact, international rankings of soft power have generally shown China improving its global standing over the last several years, reflecting investments in cultural outreach, economic partnerships, education, infrastructure projects, and diplomacy. At the same time, China's success is uneven. While many nations value economic engagement with China, concerns remain over issues such as security, technology, human rights, and territorial disputes.
Patrick Fearon-Hernandez:The US provides an interesting example. China's Confucius Institutes once operated at roughly a 100 American campuses, but federal restrictions and political concerns led to the closure of nearly all of them. Today, only a handful remain. So China's influence efforts are real and often effective, but they also face substantial resistance in some countries.
Phil Adler:Well, as we wrap up, one more question. Where might the next location be where this rivalry might play out in a way that would impact investors?
Patrick Fearon-Hernandez:Well, we think the South China Sea remains one of the most important flashpoints. China continues expanding its influence and asserting its claims throughout the region while neighboring countries, including The Philippines and their security partners resist those efforts. Recent developments suggest that maritime competition remains active and could intensify over time. For investors, the significance extends beyond military issues. The region sits astride some of the world's most important shipping routes and supply chains.
Patrick Fearon-Hernandez:Any disruption could affect global trade, commodity flows, energy markets, manufacturing networks, and inflation. More broadly, I continue to watch the gradual fragmentation
Phil Adler:of
Patrick Fearon-Hernandez:the global economy into competing geopolitical blocs. That's the larger story. The specific flash points may vary from the South China Sea to Taiwan to critical minerals, but the underlying trend is increasingly strategic competition among major powers. And from an investment perspective, that suggests continued support for sectors such as defense, energy, industrials, infrastructure, and strategic resources, while also pointing toward a world characterized by somewhat higher inflation, greater volatility, and more geopolitical risk.
Phil Adler:Thank you, Patrick. The title of this week's report is Dragon Boat Diplomacy China's Outreach to US Citizens. And you could find a link to the written report on the Confluence webpage, confluenceinvestment.com. We might mention that this week's report includes some photos of the event Patrick attended, including Patrick's pose with the giant stuffed panda that he was talking about, I really was impressed by the size of this mascot. Our discussion today is based upon sources and data believed to be accurate and reliable.
Phil Adler:Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an effort to buy or sell any security. Our audio engineer is Dane Stole. I'm Phil Adler.