By our staff reporter
In the investing world, China has long been a source of intense debate, often framed as a region of stark contrasts. On one side, Western headlines emphasize the challenges China faces: a softening property market, cautious consumers, and persistent geopolitical tensions. Yet on the ground, investors and industry insiders see a different reality—one of an economy reinventing itself through innovation, sustainability, and strategic growth sectors. As 2025 unfolds, the question for savvy investors is: which story holds more truth, and where does real opportunity lie?
A Resilient Economic Rebound with a Promising Outlook
Far from a temporary spike, China’s equity markets have delivered a robust rebound. The Baillie Gifford China Growth Trust’s nearly 40% return over the twelve months ending March 2025 underscores this positive shift, far surpassing global benchmarks. This resurgence reflects a broader economic recovery confirmed by hard data. According to the World Bank and China’s National Bureau of Statistics, China’s GDP expanded 5.3% year-on-year in the first half of 2025, defying expectations amid a challenging global landscape. The International Monetary Fund (IMF) has similarly boosted its growth forecast for China to 4.8% in 2025, the largest upward revision for any major economy this year.
What stands out is the quality and sustainability of this growth. Unlike the past decade’s reliance on rapid, sometimes unbalanced, property-led development, China has shifted towards a more diversified and innovation-driven economy. Consumption is gradually recovering, buoyed by over $9 trillion in household savings accumulated during the pandemic years, and government stimulus focused on infrastructure and social programs is helping to stabilize the overall outlook. Although challenges remain—such as uneven property market performance in smaller cities and modest consumer confidence—the trend is clear: China is building a foundation for enduring expansion rather than transient rallies.
Innovation at the Core of China’s Economic Transformation
China is rapidly emerging as a global powerhouse in next-generation industries. Accounting for roughly one-third of global manufacturing output, the country’s leadership extends to key sectors like electric vehicles (EV), clean energy, and artificial intelligence (AI). Companies like BYD have overtaken international competitors like Tesla in several markets, notably Europe, while CATL leads the global EV battery market with a commanding 40% share.
On the technological frontier, Chinese firms are pushing boundaries in AI with breakthroughs such as DeepSeek’s advanced large language models, which are widely adopted by giants including Alibaba, Huawei, and ByteDance. In semiconductor development, efforts to reduce dependence on foreign technology—spurred by U.S. export restrictions—have accelerated indigenous innovation, exemplified by Horizon Robotics’ progress in autonomous driving chips.
This pattern reflects more than competition; it reveals a strategic national commitment to self-reliance and leadership in critical technologies. For investors, these sectors represent fertile ground, with many companies trading at significant discounts to global peers, offering the potential for outsized returns as China accelerates its economic transformation.
A New Era of Consumption: From Savings to Experiences
Critics often focus on ongoing caution among Chinese consumers, citing concerns over property wealth and savings rates. However, such views overlook a generational shift underway. While older demographics remain cautious, younger Chinese are redefining consumption preferences, favoring services, experiences, and technology-enabled convenience.
Brands like Luckin Coffee are expanding faster than global competitors—outpacing Starbucks in store numbers in China—while innovative companies such as Pop Mart captivate younger consumers with designer collectibles and cultural appeal. This “experience economy” signals a shift towards sustainable domestic demand, less dependent on asset accumulation and more oriented toward lifestyle and innovation.
It would be incomplete to discuss China’s investment landscape without acknowledging geopolitical risks, including U.S.-China tensions and uncertainties surrounding Taiwan. Baillie Gifford’s approach, as articulated by co-manager Linda Lin, emphasizes prudence combined with a focus on domestic growth drivers. More than 85% of their portfolio revenue is China-derived, providing a natural hedge against external shocks.
The strategy is grounded in a constructive view: political complexities are long-standing and unlikely to derail the broader trajectory of Chinese innovation and economic development. Policy advances—such as President Xi’s engagement with private sector leaders and the enactment of laws to protect the private economy—signal Beijing’s commitment to fostering a vibrant, innovation-led market economy.
No investment is without risk, and China’s dynamic environment requires active risk management. Regulatory fluctuations, capacity adjustments in certain industries, talent retention challenges, and property market normalization are realities investors must navigate. Yet these are challenges well understood and increasingly accounted for by experienced investors who adopt a long-term horizon and deep local insight.
For patient investors willing to engage proactively, China remains one of the few markets offering access to world-class companies at discounted valuations with strong growth potential. Ignoring China’s opportunity amid fears of headline volatility may, in fact, represent the greater risk in a globally competitive investment landscape.
