Can you provide an overview of China’s current economic landscape?
Over the last few years, China has faced multiple challenges: the property market bubble bursting, an ageing population, anticipation of US protectionist trade policies leading to a sharp drop in foreign investment, and increasing onshore investment by Chinese companies. Furthermore, consumer confidence remains weak despite high saving rates and continuously growing household income.
The economy has adjusted to these changes. The debt-driven property market now contributes a mid-teen percentage of GDP. Meanwhile, advanced manufacturing and high-tech sectors have taken a dominant share of the economy, potentially surpassing the property market’s contribution in 2025.
Earlier this year, markets expected US tariffs to target China exclusively. However, as time has passed it’s now clear that the US is pursuing a global protectionist policy. As a result, the anticipated supply chain shift and impact on Chinese exports were likely overestimated. This is supported by China’s overall export growth of 5.9% in the first half of 2025, following a record high in 2024.
We are also seeing interest rate divergence between China and the rest of the world. While most markets are battling inflation, China faces deflation. Several rate cuts have occurred over the past two years, with more projected. This low-interest rate environment has led domestic investors to increasingly favour the equity market for superior yield.
A clear policy shift towards easing began in September 2024. The government announced a series of consumption stimulus measures, including subsidies, tax incentives, and low-rate loans. Fiscal loosening has also begun, with more mega projects approved in 2025. There are signs of longer-term social welfare reforms aimed at restoring consumer confidence.
In summary, we believe the risks facing the Chinese economy are well understood and priced in. Chinese equities remain a cheap and under-owned asset class for global investors. Earnings have stabilised, and returns are structurally improving as the equity index mix shifts towards higher-growth, higher-return companies. Many firms have also stepped-up shareholder returns.
What measures has Beijing introduced to support the economy?
We expect favourable policies for high-tech industries, especially in areas where China currently lags global leaders. However, financial support is likely to taper off quickly, as the government prefers a market-driven approach – only the most competitive companies will emerge as winners.
In terms of stimulus, we expect controlled fiscal and monetary loosening to keep the economy afloat during the transition. Large-scale stimulus packages are extremely unlikely, as the current administration is determined not to return to the old debt-driven, low-quality growth model.
There is ongoing discussion around social welfare reform to support long-term consumption growth, alongside near-term measures such as consumption subsidies, tax cuts, and cheap consumer loans.
Given the current market environment, which sectors and types of stocks do you find the most compelling?
We generally favour companies that fall into one of the following four categories:
- Consolidated industries with better pricing discipline
- Niche segments enjoying healthy organic growth
- Market share-gaining companies with globally competitive products and technologies
- Deep value stocks with strong balance sheets and cash flows
