A quiet transformation is underway in China – one that should be squarely on the radar of every wealth and asset manager seeking outperformance at a time of geopolitical and financial instability.
While many headlines continue to focus on China’s demographic challenges, property market weakness and ongoing geopolitical friction, the real investment story lies in the country’s ability to adapt, reform and lead in key sectors that are shaping the global economy of tomorrow.
Chinese equities delivered a clear answer to doubters in 2025, with the MSCI China Index rising 37% over the year, outperforming both US and global peers. This momentum is not accidental. It has been fuelled by a series of targeted policy measures designed, not to only cushion the economy, but to catalyse domestic consumption, modernise the financial system and support a shift towards high-tech, future-facing sectors.
Chinese policymakers often avoid the kinds of blunt, open-ended stimulus seen elsewhere – measures that can risk longer-term instability. Instead, they have opted for more surgical interventions, such as stabilising but not excessively inflating the property market, explicitly supporting equity markets and investing heavily in both digital and green infrastructure.
The next critical step – and one that could unlock a fresh cycle of domestic demand – would be a further strengthening of the country’s social safety net. This would give consumers the confidence to spend rather than save so much, as well as helping address the persistent savings trap that has held back Chinese internal demand.
Tech as a new engine of growth
Anyone who visits China today cannot help but notice the country’s transformation into a genuine high-tech powerhouse. Modern China is defined less by large-scale manufacturing and more by smart cities, advanced technology, renewable energy and an extensive high-speed rail network.
Air quality in leading cities has improved, the cars are increasingly electric and infrastructure appears resolutely 21st Century. China’s commitment to the energy transition is firmly embedded within its industrial policy. The country already enjoys global leadership in electric vehicles, advanced batteries and solar technology and it is investing heavily in next-generation nuclear power, with more than 100 reactors at various stages of planning and construction.
“China is not just participating in critical technology cycles, it is increasingly leading them – a trend investors should watch with interest.
Picks for ‘26 – read more
Artificial intelligence: Stuart Gray, WTW – Potential v FOMO – the two sides of the AI coin
Chinese equities: Mike Willans, Keyridge – Ride the wave of reform and innovation in China
Global growth: Daniel Murray, EFG Bank – Global risks and opportunities for the year ahead
Healthcare: James Douglas, Polar Capital – Is healthcare the smart complement to tech?
Luxury brands: Sean Koung Sun, Thornburg IM – Scarcity is engine of long-term value creation
US smallcaps: Bill Hench, First Eagle Investments – US smallcaps look poised for a comeback
A clear sign of China’s growing dominance can be seen in the rise of BYD, which recently overtook Tesla as the world’s top-selling electric vehicle manufacturer. This shift not only symbolises China’s technological advancement, but also underscores its ability to shape global market dynamics and set the pace of innovation.
This focus on infrastructure and power supply is about more than simply economic housekeeping. It is a conscious strategy to secure dominance in the emerging AI and data-centre race, with cheap energy and access to vast datasets giving China a clear strategic advantage.
Even industry figures such as Nvidia CEO Jensen Huang have noted that China is likely to “win the AI race.” China is not just participating in these critical technology cycles, it is increasingly leading them – a trend investors should watch with interest.
From poverty to prosperity
The data speaks volumes about China’s progress. The country’s per-capita GDP has risen from barely $300 in 1980 to more than $13,000 today, with growth massively outpacing developed economies. The current Five-Year Plan targets further advances in technology and a doubling of GDP per capita by 2035 – an ambition that sits squarely within reach if the current trajectory continues.
Investors should also consider the increasing sophistication and confidence of China’s leadership in the global arena. Whether in trade negotiations, technological development or capital markets, China is now an assertive competitor. Notably, Chinese equities still trade at around 13x earnings – compared with 25x in the US – despite leaders in sectors such as EVs and renewables driving earnings growth.
While acknowledging ongoing risks, such as property sector weaknesses and geopolitical friction, to ignore or underweight China in a global portfolio risks missing out on what could be one of the defining equity stories of the next decade.
The more pressing question for asset allocators is perhaps how to best access China’s evolving equity story. Opportunity does not lie solely in direct Chinese equities, but also in broader Asian and thematic funds, such as those that capture China’s leadership in AI, renewables and infrastructure.
As the world moves to a more multipolar and fragmented order, China’s innovation, self-sufficiency and flexible policy approach put it in a strong position for continued outperformance.
Mike Willans is head of equities at Keyridge Asset Management
