That said, we also believe that many of these negative views are coloured by preconceived biases, herd instinct and a lack of understanding and appreciation for China’s underlying dynamics. Some of the most vocal critics have not even been to China. We, for one, do not think that China is anti-capitalist. Yes, the Chinese government sets the strategic direction, the growth sector blueprints, enabling policies and guardrails. But the execution is very much private sector-driven in a competitive free market. Indeed, China has a robust private sector. Case in point, its biggest success stories, from Alibaba and Tencent to Huawei, Xiaomi, BYD, UBTech and DeepSeek to name a few, are all founded and led by private sector entrepreneurs (yes, some receive state funding and support) — enterprises that prevailed in an intensely competitive environment, more intense than most free markets in the world. For each successful company, many others have failed, as one would expect in a capitalist system.
Building on the MIC foundation, the next phase of China’s story will be underpinned by a fundamental structural transformation — the transition from an investment (particularly property) and export-led economic model to one that is driven by innovation and sustainable domestic consumption that is supported by rising per capita incomes. We believe that China can, and will, turn prevailing challenges into opportunities. This conviction underpins our recent strategic portfolio shifts into Chinese stocks.
See also: Transparency demands courage, clarity requires discipline — both are needed to build trust
The Chinese solution
(a) Demography and labour supply
To address the low birth rate, ageing population and any labour supply shortage, China has embraced a multifaceted approach. The country, of course, ended its one-child policy in 2016 and since 2021 has removed all limits plus implemented financial incentives for households to have additional children. To increase the working labour force and better matching of jobs, we highlight two recent policies.
The first is the gradual increase in retirement age over the next 15 years, starting from this year. The statutory retirement age for men will be raised from 60 to 63 years, and for women from 50 to 55 years (blue-collar workers) and 55 to 58 years (white-collar workers). This also aligns with the significant increase in life expectancy over the last 25 years, from 70.8 (in 2000) to 79 years today, thanks to improvements in healthcare, living standards and social welfare.
And in 2024, China unveiled plans to gradually overhaul the hukou system, focusing on dismantling previous barriers restricting rural to urban migration, enhancing rural-urban integration and investing in high population centres and people mobility. The reform is aimed at increasing urbanisation, where there are more and higher-paying job opportunities, and enabling these migrants to bring children and elderly dependents — thus improving access to essential services like housing, healthcare and education, and welfare benefits such as pension and unemployment insurance. This will enhance social mobility, reduce social stratification and inequality and, ultimately, raise income levels supportive of growing domestic consumption. (The hukou system, established in 1958, is a household registration that tags every individual to a specific area based on their place of origin and family registration, which then defines their access to essential public services and employment opportunities.)
(b) Production to innovation
China factories are installing robots at a rapid pace. According to a recent report, there are now more than two million factory robots working in the country. Some 300,000 were installed in 2024 alone, more than the rest of the world combined (American factories added 34,000). Automation allows companies to run with fewer workers — to address any labour shortage — and/or make more productive use of existing workers, raising productivity. It also allows the economy to redirect some of the displaced workers to the services sector. As mentioned, domestic consumption has been identified as the key driver for economic growth going forward. Factory automation integrating artificial intelligence (AI) is also part of China’s main thrusts to upgrade its industrial structure. Three birds, one stone.
China’s 15th five-year plan (2026-2030) — to be reviewed and endorsed at the Chinese Communist Party (CCP) session scheduled for Oct 20 to 23 — is expected to focus on policies supporting high-tech and innovation-driven productivity gains (away from the old economic drivers of property and infrastructure). That includes modernisation and upgrading traditional industries such as the marine ecosystem (shipbuilding, fisheries, aquaculture, deep-sea mineral extraction, marine biotech, energy and so on), and existing industrial and development zones by integrating advanced tech and AI.
China’s next five-year strategy intends to be forward looking — not only in terms of “catch up” and import substitution but transformative innovation (such as new manufacturing techniques) to alternative technological pathways, that is, whole new AI-technological road maps. Not surprising then that the five-year plan is expected to focus on expanding research and development and achieving breakthroughs, as well as investments into core, emerging and future industries like AI, advanced manufacturing and new materials, life sciences (biopharma, biomed), humanoid robots, green technologies and clean energy. On the other hand, the government will remove non-competitive subsidies, for instance for land and exports. This will improve pricing transparency and promote fair competition in the domestic market.
Critically, the government has repeatedly emphasised the role of enterprises as the core driver of innovation — for the private sector to take the lead while the state steps back, acting only as the enabler and financier (where necessary). For instance, in the form of tax incentives to boost R&D spending and government funds to support job retention-creation, skills training and specialised education courses to support services sector growth, such as tourism and the silver economy. “The biggest challenge lies in uncovering real demand. Only enterprises, as the closest players to the market, can accurately sense those needs.” In short, companies can commercialise technologies more effectively and faster into real-world products and services. To this end, the government is encouraging tighter collaboration between the private sector and universities, research centres and labs.
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(c) Global integration, not just exports
Notably, the Chinese government has also stressed on increasing global cooperation and collaboration and further integration into the global economy and financial system. Chinese companies are encouraged to invest overseas. And the government intends to open more of its economy to foreign investors and companies. Some of the sectors that have been identified are telecommunications, medical, education and internet.
China is increasingly promoting the use of the renminbi currency internationally, not only for trade settlement but also capital market transactions. For instance, the Panda bond market has seen significant growth since 2023, on the back of regulatory and forex liberalisation, such as removing restrictions on the use of proceeds. Regulatory frameworks are evolving to also encourage more venture capital, angel investments and so forth. Increasing openness will hasten its capital market development, diversifying from traditional bank lending and broadening investment products for domestic institutions and savers. And naturally, it will strengthen China’s global financial influence.
A more open and vibrant capital ecosystem and market economy will translate into more competition, investments and innovation, leading to higher efficiency, productivity and wages — more jobs and higher income levels for the people. It will also help reduce prevailing high youth unemployment, of around 19% for people aged 16 to 24, according to the National Bureau of Statistics. The youth unemployment rate was significantly higher than the overall jobless rate, which came in at 5.3%.
We think China will gradually allow the renminbi to strengthen over time, in line with the shift from exports to domestic consumption as the key growth driver. A stronger currency will increase domestic spending power and incentivise companies to invest abroad. Plus, while devaluation (weaker currency) will help exporters mitigate the US tariff impact, China understands that it also hurts other nations.
(d) From exports to domestic consumption, especially services
One of the biggest criticisms has been the Chinese government’s consistent rejection of “helicopter money” to stimulate consumer spending, a policy favoured by many developed economies in the West. In this respect, China is less socialist than the capitalist West.
China knows that it must grow domestic consumption. But rather than giving the people “free money” — usually one-off with fading impact over a short period of time — China is focused on sustainable consumption.
We do not think China’s domestic consumption is as weak or bleak as the Western media makes it out to be. Per capita consumption is growing, as are disposable incomes. The low headline inflation is due to goods disinflation, not unlike the environment in the US prior to the Covid-19 pandemic, where inflation was low and falling for years due to cheap goods imports from China. The same is happening in China, where increasingly efficient manufacturing and overcapacity have led to fierce domestic competition and falling prices. Services inflation, on the other hand, is rising, indicating robust demand.
Chinese household consumption of goods is already at the international level — better, more innovative products that are also getting cheaper — and especially following the nationwide consumer trade-in programmes in 2024-2025 (for household appliances, home renovation, auto and digital products). The goal is to pivot from goods to services.
Services have been growing over the past decade, at a faster clip than gross domestic product. Services as a percentage of GDP rose from less than 52% in 2015 to 57% currently but still trails the 80% in the US and 70% in Japan. Higher per capita disposable incomes (more than doubled over the past decade) mean greater discretionary spending power.
What the Chinese consumers want — and are willing to spend on — are experiences and personal fulfilment. That is leisure, tourism, sports and fitness, cultural activities as well as health and education. And we believe there is still much room for growth. For instance, domestic tourism, which has seen rapid growth in recent years, can boost consumption and regional development. China is a vast country with very different geography, weather, scenic areas, food and cultural activities across the nation.
Of course, growing the services sector is also the most efficient way to increase employment, especially of the young, and raise wages.
Interestingly, according to one McKinsey & Co report from late-2024, Chinese consumers are among the most confident in the world — 59% said the economy would rebound within the next two to three months, compared with just 41% of American consumers, 30% of British consumers and 13% of Japanese consumers. In another more recent report in May 2025, McKinsey wrote that Chinese consumers are accepting the “new reality” (depressed property market and negative wealth effect, unemployment and job security concerns), adapting and moving on. This is supported by data (see charts).
Per capita disposable income is continuing to grow — nominal and real compound annual growth rates of 6.4% and 5.6% respectively over the last five years — indeed, outpacing that in the US where real disposable income grew by only 1% (due to high inflation). Yes, the Chinese are more inclined to save, and this is particularly noticeable since 2020. As a result, household debt as a percentage of GDP has been relatively flat at around 60% after rising rapidly over the previous 10 years. Stronger balance sheets translate into greater future spending potential. The unemployment market is more nuanced. While the youth (16 to 24 years old) unemployment rate is high at 18.9%, the overall jobless rate is steady at 5.3%. Unemployment for those aged 25 to 29 stood at 7.2%, while for those aged 30 to 59, it is a low 3.9%. Consumer confidence, while sharply lower from the pre-pandemic level, has stabilised.
(e) Unsold residential properties have bottomed out
The bursting of the residential property bubble in 2021 has unquestionably been the biggest drag on China’s economy — property and related sectors previously accounted for a comparatively high percentage of total economic activities — sentiment and confidence. There was significant overbuilding in the years prior, fuelled by abundant and cheap credit, including from developers and excessive speculation. The bubble burst after the government moved to clamp down on highly leveraged developers in 2020, mitigate bank exposure and curb the steep rise in prices — “Houses are for living in, not for speculation.” Monthly sales fell sharply from a peak of more than RMB2.1 trillion ($381.6 billion) in December 2020 to less than RMB500 billion currently. As a result of the credit tightening and collapse in sales, many developers including some of the largest in the nation went into financial distress and defaults. Construction slowed and unfinished projects piled up, even sparking mortgage boycotts by homebuyers in 2022.
House prices plunged across Tier 1, Tier 2 and Tier 3 cities — with deep negative impact on household wealth and consumer confidence. Property was widely owned in China and was the preferred savings-investment asset for most households. Unsold homes were the highest in Tier 2 cities (understandable since they account for the largest number of cities overall). Conversely, it is far less an issue in Tier 1 cities, where the number of unsold homes and therefore price correction were moderate.
Since then, the number of unsold homes in Tier 2 cities has fallen to 2019 levels on the back of sharply lower new housing starts, which have fallen by more than 70%. Prices are still declining, but the rate of decline is moderating and we think further downside is marginal from hereon. Demand will recover once prices stop falling and current unsold homes are sustainable, especially in Tier 1 cities. In short, we think the residential property market is close to the bottom.
Conclusion: Turning multiple adversities into a well-defined comprehensive solution
There are challenges in China’s economy. But we think overly pessimistic views on its growth prospects, especially by Western-based journalists, analysts and market commentators, are misplaced. China is pragmatic and at heart, capitalistic. It understands that the economy must undertake a fundamental structural transformation.
Policies are now focused on shifting from its previous production-export and investments in basic infrastructure and property to high-quality growth drivers — expanding enterprise-led R&D and innovation to raise productivity-wages in core, emerging and future industries like AI, advanced manufacturing and new materials, life sciences, humanoid robots, green technologies and clean energy.
The government is also prioritising investments into infrastructure and the people to support services sector growth, which will be key to sustainable domestic consumption growth— investing in infrastructure related to culture, tourism, sports and leisure, as well as education-training the people across the services sector, including the silver economy (elderly care and long-term caregiving), healthcare and medical services, childcare and domestic services, catering, education and vocational training. Policy reforms will also support continued urbanisation — to raise overall wages-incomes, create employment and raise the living standards of the people.
Critically, while the strategic direction is centrally planned, the Chinese government has made clear that execution must and will be led by the private sector. The winners are chosen by the global marketplace. To this end, it is focused on greater integration into the global economy and financial systems, liberalising its capital markets and internationalising the renminbi and further opening the domestic market to foreign companies while also encouraging Chinese companies to invest abroad. We believe that China will turn challenges into opportunities. Much like the Chinese character 机(ji) — which denotes both opportunity and threat. The core philosophical view of the Chinese is there is potential for both extreme success and extreme failure; the outcome depends on one’s perception, preparation and action.
And this is why we are hugely positive on Chinese stocks. In fact, China is not only “investable”; not investing in China is only for non-serious investors. In our upcoming article, we will navigate the complex and rapidly evolving landscape and growing number of enterprises in China’s AI ecosystem — names that are leading the charge in the nation’s innovation drive and technological prowess, but far less familiar to many of us — and where the opportunities might lie.
The Malaysian Portfolio fell 1.0% for the week ended Oct 15, mirroring broader market weakness. Kim Loong Resources (+0.4%) was the only gainer for the week, while Southern Cable Group (-4.0%), Hong Leong Industries (-2.7%) and LPI Capital (-1.2%) were the biggest losers. Total portfolio returns now stand at 183.8% since inception. This portfolio is outperforming the benchmark FBM KLCI, which is down 11.9% over the same period, by a long, long way.
Both the global Absolute Returns and AI portfolios fell sharply last week as renewed trade tension between the US and China as well as likelihood of a protracted US government shutdown roiled markets. Volatility was sharply higher as investors vacillated between worries over rising risks and buying the dip for fear of missing out.
The Absolute Returns Portfolio fell 2.7% paring total portfolio returns since inception to 40.9%. The top three gainers were Ping An Insurance - A (+4.8%), SPDR Gold MiniShare Trust (+4.1%) and Ping An Insurance - H (+3.9%). We added China-based Kanzhun, which provides online recruitment services, to the portfolio last week. Its shares closed 11.2% lower from our initial investment. ChinaAMC Hang Seng Biotech ETF (-12.6%) and Alibaba (-8.9%) were the other big losers.
The AI Portfolio fell 5.5% with all stocks in the portfolio finishing in the red. Last week’s loss pared total portfolio returns since inception to 4.4%. The top three losing stocks were RoboSense (-12.4%), Alibaba (-8.9%) and Cadence Design (-7.4%).
Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.
