Companies from China and further afield revealed evidence of innovation, growing potential, and increasing consumer confidence, which we believe signals that the region can withstand the latest global economic challenges.
Tech restrictions aren’t holding China back
Before Trump was formally back in the White House, firms were already anticipating a harsher business relationship with the US. While Trump’s policies pose challenges, we believe Asian companies are robust.
US technology restrictions already imposed on China haven’t stifled progress; instead, they’ve triggered innovation.
Notably, 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, an American company that designs and supplies graphics processing units, application programming interfaces, and system-on-chips for various markets, such as gaming, data science, and automotive), they have nevertheless made significant advancements.
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.1
Advances in AI
While US firms focus on a Holy Grail where AI becomes superior to human intelligence, China adopts a different approach. Developers create demand first, build an ecosystem of capability, and then take the next steps up the ladder.
Support from governments and regulatory bodies has accelerated this adoption [of technology].
The progress and speed at which companies and consumers adopt technology has been remarkable. Support from governments and regulatory bodies has accelerated this adoption, with a variety of companies exploring AI’s uses elsewhere.
For example, a leading internet and game services provider in China and globally uses generative AI in game development, including planning, design, and coding, to help make production more cost-effective. This online games company has the business scale to capitalize on this opportunity thanks to a rich pool of developer talent and a large platform of game titles.
Stabilization and recovery
For several years, discussion around China has centered on its transition from the old economy – based on manufacturing, construction, and infrastructure – to the new economy, led by services and consumption-related businesses. There is a growing feeling that the country is moving closer to a transition point where the new economy more than offsets the decline of the old.
Improving consumer confidence is hoped to translate into [China's] long-term economic recovery.
While China’s property, infrastructure, and capacity excesses have held this transition back, improving consumer confidence is hoped to translate into a long-term economic recovery.
How much has changed in a few short months? 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.2
However, current US policy will surely have an impact. China’s Premier Li Qiang has warned exporters they must cope with “profound” external changes and has pledged to support more domestic consumption.3
Further afield – India’s recovery
The theme of stabilization and recovery was also evident elsewhere in Asia. In India, after a long period of high interest rates, there were signs that the economy is finally ending its monetary tightening. Many banks were cautious and not ready to accelerate lending.
However, India’s HDFC Bank evidenced it hasn’t seen much deterioration in its own customers’ credit quality. We believe 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. We believe the message from companies is that the recent economic slowdown is unlikely to be a deep one and that there are structural reasons to take a positive view over the medium term.
What happens after Liberation Day?
At the time of writing, the April 2 tariffs imposed on China have temporarily been slashed from 145% to 30% (China’s reciprocal tariffs have been cut from 125% to 10%) for 90 days to allow for negotiations. We believe such tariffs will still clearly have an impact and will be felt more keenly by manufacturers that compete 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 localize 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 (Chart 1).4
Chart 1. China’s exports to developed markets have declined (2000–2024)
Final thoughts
From a portfolio perspective, we believe this creates opportunities. Within China, investors should continue prioritizing domestic consumption and services industries with healthy cash flows and better growth and return prospects than financials, real estate, exporters, and infrastructure. Overall, we believe investors’ preference remains for 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.
1 "The life-or-death case for self-driving cars." Vox, May 2025. https://www.vox.com/future-perfect/411522/self-driving-car-artificial-intelligence-autonomous-vehicle-safety-waymo-google.
2 "China Q1 GDP growth tops expectations, but US tariff shock looms large." Reuters, April 2025. https://www.reuters.com/world/china/chinas-q1-economic-growth-likely-slow-tariffs-darkens-outlook-2025-04-15/.
3 "China's premier urges exporters to diversify markets amid 'profound' changes." Reuters, April 2025. https://www.reuters.com/markets/asia/chinas-premier-urges-trade-companies-diversify-markets-amid-drastic-changes-2025-04-15/.
4 World Bank Group, February 2025.
Important information
Companies mentioned for illustrative purposes only and should not be taken as a recommendation to buy or sell any security.
Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.
Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.
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