Conversations with companies from China and further afield revealed evidence of innovation, growing potential and increasing consumer confidence – signals that the region can stand up to the latest global economic challenges.

Tech restrictions aren’t holding China back

I visited Beijing before Trump was formally back in the White House. But even prior to his punitive "Liberation Day" tariffs, firms were already anticipating a harsher business relationship with the US.

While Trump’s policies pose challenges, Asian companies are robust. For me, one notable example was that US technology restrictions already imposed on China haven’t stifled progress. Instead, they’ve triggered innovation.

This was most evident in China’s development of self-driving cars. Even though Chinese firms don’t have access to US-manufactured advanced semiconductors and components (for example, Nvidia’s leading-edge graphic processing units), they have nevertheless made significant advancements. During my trip, I took two journeys in autonomous vehicles. In the first, operated by start-up Pony AI, there was no driver involved. On the second, with portfolio holding Li Auto, a driver accompanied me but never needed to intervene.

As I travelled through residential areas, a busy Beijing downtown and on larger highways (at speeds of up to 80mph), the lack of a driver was unsettling for the first 30 seconds or so. After that, I was soon thinking I was probably safer than if there was a human at the wheel (and the autonomous parking was far better than I could have hoped to achieve on my own). Autonomous driving is essentially a giant computational problem solved by artificial intelligence (AI) – with masses of data points including road conditions, other road users and potential hazards. Currently, the AI systems in these vehicles are estimated to be about seven times better than a driver – developers are aiming for 10 times.

Advances in AI

While US firms are focusing on a ‘Holy Grail’ where AI becomes superior to human intelligence, China is adopting a different approach. What I saw in China confirmed that developers are creating demand first, building an ecosystem of capability and then taking the next steps up the ladder.

I was amazed at the progress and speed at which companies and consumers are adopting the tech. Companies have government and regulatory support and this points towards rapid adoption.

A variety of companies are exploring AI’s uses elsewhere. For example, NetEase, an online games developer, is using generative AI in areas of game development including planning, design and coding to help make production more cost effective. We believe NetEase has the business scale to capitalise on this opportunity thanks to a rich pool of developer talent and large platform of game titles.

Stabilisation and recovery

For several years, discussion around China has centred on its transition from the ‘old’ economy – based on manufacturing, construction and infrastructure – to the ‘new’, led by services and consumption-related businesses. There is a growing feeling the country is moving closer to a transition point where the new economy more than offsets the decline of the old.

While China’s property, infrastructure and capacity excesses have held this transition back, my conversations with Chinese companies and firms doing business in China (in the semiconductor supply chain and consumer industries, for example), indicated hopes that improving consumer confidence would translate into a long-term economic recovery.

How much has this view changed since I was there? Government stimulus (including cutting the reserve requirement ratio, reducing lending rates and providing a surprise pay increase for millions of government workers) has helped kickstart the economy. GDP for the first quarter of 2025 was up 5.4% year on year. But current US policy will surely have an impact. China’s Premier Li Qiang has warned exporters they will have to cope with “profound” external changes, and has pledged to support more domestic consumption [1].  

Further afield – India’s recovery

The theme of stabilisation and recovery was also evident elsewhere in Asia. In India, after a long period of high interest rates, there were signs the economy is finally coming to the end of its monetary tightening.

How are businesses responding? Many banks were cautious and not ready to accelerate lending. However, our core holding HDFC Bank evidenced it hasn’t seen much deterioration in its own customers’ credit quality. This should put the bank in a good position to accelerate lending into the next economic cycle.

Our view on India’s productive lending and investment opportunities resonated. The message that we got from companies is that the recent economic slowdown is unlikely to be a deep one and there are structural reasons for us to take a positive view over the medium term.

What happens after "Liberation Day"

The 2 April tariffs – including up to 145% charges for Chinese exports to the US – will clearly have an impact. This will be felt more keenly by manufacturers that competed on cost advantage.

However more broadly, China’s economic exposure to the US has reduced following Trump’s first-term tariffs and China’s decisions to localise key industries such as semiconductors and find alternative trading partners. Today it is estimated that only 2% of China’s GDP comes from exports to the US economy.

From a portfolio perspective, this is creating opportunities. Within China, we continue to prioritise domestic consumption and services industries, which have healthy cash flows and better growth and return prospects than financials, real estate, exporters and infrastructure. Overall, the portfolio preference is still towards countries with robust balance sheets and solid cash flows where stocks meet our bottom-up criteria and reflect a focus on balance sheet strength, cash flow and shareholder returns.

Companies are selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.