'Tencent is favoured by a diversified business'

Here's what James Maund, Head of Capital Markets at KraneShares, has to say about China's market and economic performance and the impact the dynamics of the Asian country may have on other stock markets.

Tariffs remain an important risk, but their actual economic impact is more nuanced. Although they have triggered volatility in the markets, China's export exposure to the US has decreased and now accounts for less than 2.5% of GDP. Key sectors such as the Internet and consumer goods are largely domestically oriented and therefore insulated from the direct effects of tariffs. Beijing's policy response has been pragmatic: accelerate initiatives to stimulate domestic demand and reduce dependence on foreign markets. Although tensions are likely to remain high throughout the US election cycle, we see room for selective negotiation and cooperation. Meanwhile, China continues to strengthen its position by establishing regional partnerships and modernising its industry.

China reported GDP growth of 5.4% year-on-year in Q1 2025, driven by targeted stimulus measures and a modest recovery in consumption. However, growth for the full year is expected to moderate to around 4.5 %, due to the difficulties in global trade and cautious business sentiment. Real estate continues to be a drag, particularly in second-tier cities, although residential property sales are picking up in the major metropolises. Looking ahead, we expect the divergence between sectors to persist: technology, healthcare and services should perform above average, while traditional manufacturing and real estate may lag behind. Overall, the Chinese economy is shifting from a model based on credit and real estate to one driven by innovation and consumption

Beijing unveiled a comprehensive strategy to stimulate household spending and reduce excess savings. The 'Special Action Plan to Increase Consumption' includes measures to increase income, expand social security, and includes subsidies for the purchase of environmentally friendly cars, electronics and appliances. Housing policy has also been recalibrated to support first-time home buyers and urban migration. Emphasis is being placed on service-related sectors and demographic change (elderly care, childcare, education and domestic services), while maintaining investment in digital infrastructure and renewable energy.

Tech picked up strongly in 2025, particularly e-commerce and the Internet, with the Csi China Internet Index up almost 28% in the past year. Regulatory tightening has given way to policies that support innovation, highlighted by the government's renewed dialogue with tech leaders. The next phase of growth will be driven by the adoption of artificial intelligence, the expansion of cloud computing and the integration of digital platforms into everyday life. These companies are also expanding globally, diversifying revenues. With strong domestic demand and a maturing regulatory environment, leading tech companies are positioned to deliver long-term growth for investors seeking exposure to the sector.