Recent discussions in Busan between President Trump and President Xi have led to steps that ease trade tensions and reduce tariffs between the US and China. Although a comprehensive agreement was not reached, the extension of tariff exemptions, reduction of tariffs imposed to curb fentanyl flows, and suspension of new punitive measures in sectors such as rare earths and shipping signal a constructive shift in US-China relations. Compared to the heightened rhetoric earlier in October, these developments represent a modest but meaningful improvement.
Negotiations are unfolding as China advances its 15th Five-Year Plan, a strategic blueprint for economic and social development from 2026 to 2030. While detailed specifics remain undisclosed, current guidance highlights ambitious goals to modernize the economy and increase self-reliance, particularly in technology. Key initiatives include building a modern industrial system, boosting domestic demand, and creating a unified internal market. These measures aim to reinforce economic resilience, foster sustainable growth, and strengthen China’s leadership in digital innovation. The plan may also offer valuable lessons as to how China will navigate the recent changes in US policies.
That is not to say there are no challenges. Pressure on real estate prices, excess capacity in certain industries, local government debt, and continued US export restrictions are some of the obvious tailwinds. These factors weigh on manufacturing and domestic consumption, influencing business sentiment and investment activity. Many of these issues are structural and likely to persist, shaping market dynamics as China continues its modernization journey. A gradual slowdown in growth is a natural consequence of this transition.
However, looking at the balance, we are optimistic about the future of the Chinese economy. Despite exports to the US remaining below pre-“Liberation Day” levels, overall global export growth has accelerated, reaching 8.3% year over year. This resilience is further supported by targeted fiscal stimulus designed to stabilize domestic demand and encourage continued expansion.
Chinese equities present attractive prospects, supported by robust liquidity (with M2 money supply growth at 8.4% year over year in September), targeted policy support, and increased retail investment. The MSCI China index trades at a notable discount to global peers, while low domestic bond yields are encouraging institutional investors to seek higher returns in dividend-yielding sectors such as financials, telecoms, and utilities. Upcoming policy measures and the new five-year plan are expected to prioritize high-quality growth and strengthen the domestic technology supply chain.
The Hang Seng Tech Index has surged over 30% year-to-date, reflecting China’s strategic focus on technological self-sufficiency and innovation. Technology-related industries now drive much of MSCI China’s performance, with leading companies reporting strong earnings growth fueled by advances in artificial intelligence, cloud computing, and domestic chip development. The tech sector is projected to deliver significant earnings growth in 2026, reinforcing its position as a core area of opportunity within global equities. Recent market pullbacks have created potentially attractive entry points for investors seeking exposure to these trends.
