China continues to demonstrate robust economic growth, despite global uncertainty. Ygal Sebban, Investment Director, Emerging Markets Equities, highlights the country’s resilience and its potential to benefit significantly from advancements in artificial intelligence (AI) and technology.
21 November 2025
China’s market moves beyond the “uninvestible” label
China’s scale, dynamism and policy agility make it one of the most compelling opportunities in EMs. While governance, geopolitics deserve attention, they should not overshadow the structural strengths driving China’s long-term potential. Investors must move beyond outdated labels and avoid common missteps: dismissing China as “uninvestible,” relying on anecdotal evidence or overlooking the need for flexibility. A thoughtful approach – anchored in local insight, operational agility and a clear exit strategy – can unlock meaningful value.
China’s equity market is currently supported by coordinated policy across monetary, fiscal, property and capital markets. The anti-involution policy, designed to reduce excessive competition and restore margins, is already showing positive results in material and industrial sectors as well as food delivery and e-commerce. Valuations remain compelling. While markets like India have grown expensive, China offers deep value and improving sentiment. Governance signals are turning positive, and recent reforms suggest a more stable investment environment.
In the coming years, we believe China is not just investible, it is pivotal. As the economy transitions from industrial production to high-value technology, China stands out as a cornerstone of our EM strategy.
Our China exposure focuses on two themes: the transition to a consumption-led economy and industry leaders who can survive, and thrive, in China’s highly competitive environment. Retail sales have rebounded, and boosting consumption (by tapping excess savings) remains a key policy focus. We expect this to take centre stage in the new five-year plan to be introduced next year.
Upside potential for Chinese consumption and equity markets
China’s household consumption remains structurally under-penetrated, accounting for just 38% of GDP1, well below levels seen in the US, Germany or India. This gap highlights significant room for expansion as China pivots towards a more consumption-driven economy. We see compelling opportunities in retail, consumer finance and digital platforms. Combined with India’s demographic tailwinds, these trends reinforce our conviction in consumer-focused sectors as a core part of our EM strategy.
Chinese households have accumulated substantial deposits, as illustrated in Chart 1. Since the start of the pandemic, household bank deposits have risen by 98%, representing a net increase of approximately USD 11.3 trillion. We believe these savings should flow into consumption or stock markets once confidence improves. With high shareholder returns (close to 10% for many Chinese large caps), and low current deposit interest rate (around 1%), we believe the Chinese stock market offers an attractive alternative for household wealth allocation.
Chart 1: Surge in Chinese household bank deposits since the pandemic
Source: Sinology, CEIC, as at August 2025.
We believe China’s consumer discretionary sector could offer significant upside, supported by robust retail sales growth and attractive valuations. As mentioned earlier, leading internet platforms such as Alibaba and Tencent are well positioned to benefit from AI integration in their business models, supporting growth and margin expansion in an environment of easing regulatory and competitive pressure.
Policy support is likely to remain strong, with further stimulus expected through lower interest rates, fiscal spending and potential property market measures. While 2025 is viewed as an investment year, resulting in some earnings downgrades, key names remain attractively valued and are well-positioned to benefit from continued consumption momentum.
Anti-involution policy
What makes China particularly exciting is its capacity to act decisively. Unlike many developed economies constrained by political gridlock, China retains the flexibility and authority to implement sweeping reforms. The anti-involution program is a good example. In response to excess investment, overcapacity and deflationary pricing pressures, policymakers have announced measures to rationalise activity across sectors. In the case of industrial/material sectors, this has involved ensuring rational capex spend and, in some cases like solar, provide funding to remove excess inventory from the market. In the case of service industries, authorities are focused on the prevention of predatory pricing and unfair competitive practises.
Chart 2: Key sector measures
Source: GAM, JP Morgan, as at October 2025.
AI-powered software: Policy-driven digitalisation and localisation
We favour AI-related companies, particularly leaders in their fields, including software companies with exposure to rising domestic demand, where valuations remain attractive and momentum is strong. These sectors are supported by national strategies like “Digital China” and proactive technology localisation.
Chinese software companies are benefiting from strong policy support for digitalisation and home-grown technology. Leaders like Kingdee – China’s top enterprise resource planning (ERP) provider – and Kingsoft, a major player in office software and gaming, are delivering robust growth at attractive valuations. Kingdee, often called “China’s SAP”, leads the domestic ERP market with a comprehensive suite of cloud-based, AI-enhanced solutions for finance, supply chain, manufacturing, HR and e-commerce. The company is approaching a profitability inflection point, driven by rapid adoption of AI features and supportive government policy.
Kingsoft, headquartered in Beijing, owns 52% of Kingsoft Office (“the Microsoft of China”), 72% of gaming platform Seasun, and significant stakes in cloud and mobile businesses. We think that both firms are well-positioned to benefit from China’s push for efficiency, self-reliance and AI innovation.
Despite a challenging macroeconomic backdrop, Kingdee and Kingsoft continue to post consistent earnings growth and remain undervalued. With ongoing policy support, accelerating AI adoption and a focus on innovation, we believe these companies are well-positioned for sustained profit growth, representing compelling opportunities in China’s evolving tech landscape.
Opportunities in energy transition
An increasingly critical element of the AI theme is the power supply required to implement data intensive processes and operate growing data centre capacity. With 44% market share, the US leads global data centre capacity, and China closely follows with 26% capacity.2 However, when it comes to forward looking spare power capacity to 2030, a divergent trend can be seen.
The majority of US regional power markets are at critical capacity levels, and in stark contrast China is predicated to build out spare power capacity significantly outstripping expected data centre demand. Not only will this abundant power supply give China an edge in the AI race, but it will also be generated from a range of energy sources, positively contributing to net-zero goals.
Chart 3: Peak summer effective power spare capacity from 2025E to 2030E
Source: Goldman Sachs Investment Research, IEA, Wind, EIA, as at 13 November 2025. “E” denotes estimate based on current assumptions and subject to change.
The energy transition remains a compelling long-term investment theme, and we favour selective technological leaders across the value chain, such as electric vehicle (EV) manufacturer BYD and battery producer CATL (Contemporary Amperex).
BYD, China’s EV champion, has rapidly expanded its global EV market share to 22% in 2024, double that of Tesla3, and commands a dominant 58% share within Latin America4. It leads in battery innovation, recently launching world-class charging technology capable of enabling a 400 km of range in just 5 minutes5. Notably, BYD’s gross margins typically surpass Tesla’s6, while its comparable vehicles cost less than half, highlighting a strong competitive edge.
Founded in 1995 and headquartered in Shenzhen, BYD leverages technological innovation across batteries, renewable energy and rail transit, driving both technology leadership and cost advantages. Recent models incorporate its ultra-fast charging capability, reinforcing BYD’s position at the forefront of EV technology. We believe its global deliveries could reach 6 million units by 2026.
Valuations remain attractive, and extended government subsidies for auto trade-ins and purchases provide further near-term support. Regular ESG engagements continue, including recent developments at its Brazil plant. In our view, BYD stands out as a global leader in transport technology and the energy transition.
A stronger case for allocation
Despite persistent headwinds, China’s economy expanded by 5.2% year-on-year (YoY) in Q2 20257, demonstrating resilience amid global trade tensions. The International Monetary Fund (IMF) recently upgraded its 2025 GDP forecast for China to 4.8% from 4.0%8, the largest upward revision among EMs. In contrast, EM growth overall is projected at 4.1%9, highlighting China’s relative strength.
This momentum reflects more than just cyclical recovery; it signals a structural transformation. China is shifting from investment-led growth to a model driven by consumption, innovation and high-value technology. With coordinated policy support and structural reforms underway, we believe China is well positioned to lead the next phase of EM growth.
Ygal Sebban leads the Emerging Markets Equity team and manages the Emerging Markets Equity strategy at GAM Investments.
As at 31 October 2025, Alibaba, Tencent (via a holding in Naspers), Kingdee, Kingsoft, BYD and CATL are held within the strategies managed by the team.