China: Balancing economic challenges with opportunities
The outlook for investing in China is viewed as complex, driven by strategic factors and technology developments, forcing long-term investors to look beyond the headlines.
China's economic transition challenges
Property sector issues are seen as signaling deeper structural challenges in the country’s transition from investment-led growth, and private sector confidence is seen as weak despite stimulus measures. Political/regulatory risks are creating allocation hesitancy, with many institutions maintaining limited strategic presence while monitoring reforms. However, some investors are reporting increased confidence in the long-term direction.
“Our solution (in China) is maintaining minimal strategic exposure while watching for reforms and buying opportunities” — Sovereign Wealth Fund, North America
Pockets of positives
China’s leading position in strategic sectors such as electric vehicles, batteries, and artificial intelligence create unavoidable investment considerations. Meanwhile sovereign investors are paying close attention to China’s growing AI capabilities which could create a potential challenge to US tech dominance. Manufacturing competitiveness is seen as persisting despite higher costs and geopolitical tensions. Long-term institutional investors are reassessing the "China discount" as valuations become attractive, and some investors are using current challenges to build long-term strategic positions, especially in private markets.
"China's advancements in key sectors like EVs and batteries present competitive challenges that can't be ignored" — Sovereign Wealth Fund, Middle East
Yuan internationalization
Regional settlement mechanisms are evolving and leading to growing use of the yuan, but impact on central bank reserves remains limited. Central banks remain hesitant due to convertibility and political alliance concerns, with increased Russia ties boosting yuan settlements but creating political complications. Most institutions are maintaining USD dominance in portfolios as China’s financial market depth and transparency develop to meet major reserve currency requirements.
"We do not see a strong challenger to the dollar. At the moment, euro and sterling are not doing very well. Japan is in moderate position and China still has to fix the real estate issues." — Central Bank, Asia