Despite property woes, weak consumer sentiment, an ageing population and renewed trade tensions, China’s economy continues to surprise on the upside – powered less by luck and more by long-term policy design.
In a note this week, Sandy Pei, senior portfolio manager for Asia ex-Japan at Federated Hermes, highlighted the latest gross domestic product (GDP) data from the country. China’s GDP has grown by 4.8 per cent year-on-year, indicating it is on track to meet its 5 per cent full-year target.
“Strong exports have helped maintain growth, as this week’s China GDP figure show, which despite being lower than last quarter, surprised us, and analysts on the upside,” Pei said.
Pei added that while macro challenges are significant, they are not new, with the risks facing the Chinese economy 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,” she said.
Appearing on a Global X webinar on 21 October, investment strategist at the firm, Billy Leung agreed, arguing that China’s policies are “really what translates into opportunities in the equity markets”.
“A lot of this is not luck, but actually planned. We have to understand that China is a planned economy,” Leung said.
He pointed to the Made in China 2025 plan, launched 10 years ago, as a blueprint for today’s industrial strength. The policy aimed to establish China as a global leader across various industries, including semiconductors, EVs, robotics, AI, biotech and green technology, with a strong emphasis on self-sufficiency.
As Leung highlighted, both Build Your Dreams (BYD) and Contemporary Amperex Technology Company Limited (CATL) have seen substantial gains on the back of this plan. CATL, now the world’s leading EV battery producer, has experienced a rise in its share price, reflecting BYD’s success.
“They were focused on the areas where they were able to get an edge on, as opposed to really competing head-on,” he said.
He also pointed to China’s significant advancements in the robotics industry compared to other nations, as well as the pace of growth in artificial intelligence, noting chatbot DeepSeek’s success.
While he noted that the US is spending more on cloud computing hyperscalers, he explained that China is increasing spending at the same pace – at a cheaper and potentially higher ROI. Like the US, with increased energy needs, the country is also looking into renewable energy pathways.
Looking forward, Leung said the next stage of policy-driven growth will be defined by a focus on quality, efficiency and sustainability rather than scale. Long-term investment themes will converge on industrial, digital and energy self-reliance across semiconductors, AI and robotics.
One major initiative, he noted, was the current “anti-involution” campaign, aimed at improving China’s corporate profitability and reducing destructive price competition across industries.
“The whole logic of China’s anti-involution is to finally push that earnings growth and potentially mimic what’s happened in the US in the past 20 years,” he said.
Crucially, he explained that China’s automation and robotics push is also a demographic solution. Contrary to the common belief that unemployment is China’s primary challenge, he stressed that the real issue is an ageing population.
“By 2050, a third of China’s population will be over 60. The government has learned from Japan’s experience in the 1980s and is ensuring productivity gains offset demographic decline,” he told the panel.
For investors, Pei said Federated Hermes expects these favourable policies to stimulate the economy, in particular for high-tech industries.
While she noted that financial support is likely to taper off quickly, reflecting Beijing’s preference for a market-driven approach, competitive companies aligned with national priorities are likely to remain in favour.
Leung concluded that looking ahead, the Hang Seng Tech Index is projected to outpace many other indices in growth over the coming three years.
“While valuation is going up, it’s important to understand what’s being priced and what we’re really paying for growth.”
