(Bloomberg) -- Investors must reassess their allocations to China amid rising geopolitical tensions with the US and a slowing economy, according to BlackRock Inc. Vice Chairman Philipp Hildebrand.

China’s growth could slow to just 3% by the end of the decade partly to demographic changes, he said in an interview with Bloomberg Television on Thursday. Its shifting relationship with the US is also forcing investors to price in additional risks that could lower allocations.

“What might have been an obvious kind of play to say ‘we need to increase allocation to China’ now has a different calculus driving it,” he said. “We have to reassess how to allocate in China.”

Investors around the world are struggling to process how to deploy capital as recession risks and geopolitical tensions shake global markets. Expectations that a spending rebound in China would act as a counterbalance to slowing US consumption have not played out.

Global companies and funds find it increasingly difficult to navigate the two markets across the Pacific. Sequoia Capital broke up into three firms this week, hiving off China into a standalone entity. 

Read More: BlackRock’s China Head Resigns Just as Competition Heats Up 

“China is slowing down both cyclically and structurally,” Hildebrand said. “You have this sort of short-term fragmentation problem to reckon with, and on top of it you have a very significant demographic challenge that invariably leads to much lower growth in China over the next years to come.”

Hildebrand warned that central banks around the world still had more work to do before core inflation fell to target levels, with the US Federal Reserve requiring less effort compared with its European peers.

“Any expectation of central banks easing is just not realistic. Central banks still have more to go,” he said. “I would expect that we probably will see a shallow recession if we’re going to get inflation down.”

--With assistance from Sheryl Tian Tong Lee, Rishaad Salamat and Yvonne Man.

©2023 Bloomberg L.P.