China’s strategic rebound: Tech investment, policy tailwinds and rare earth leverage

As the World Bank revises down its global growth outlook—trimming expectations for the US, eurozone, and much of the emerging world—investors might want to take a closer look as one outlier remains notably stable: China.

In its June update, the World Bank slashed projected 2025 growth rates across 70% of all economies, primarily due to higher trade uncertainty and the risk of stifled investment activity. The US estimate was downgraded a whopping 90 basis points, to 1.4%, with the EU and Japan seeing 30 and 50 basis points being shaved off of their January estimates, respectively. For the world as a whole, the bank now forecasts growth of 2.3%, which would constitute the lowest in over 20 years with the exceptions of the Global Financial Crisis and COVID recessions.

Amid the gloom, China’s outlook remained stable at 4.5%. While the figure is a far cry from pre-COVID levels, the relative strength reflects the fact that economists—and likely markets—have long priced in a tougher trade environment and weakening external demand, along with the struggling property sector. After all, China has been dealing with many of these issues for a while.

The upside is that the government stimuli rolled out over that past 18 or so months have materially improved sentiment and may still carry over into the second half of the year. Sluggish consumption is a key government concern and has been a target of various fiscal support packages.

Equally important, in our view, have been the developments in technology. Recent negotiations between the US and China have also highlighted that the second-largest economy in the world is not a toothless player on the global stage.

Policy tailwinds: Precision stimulus with a long-term bias

After a prolonged period of wait-and-see, Chinese policymakers have begun to ease with greater intent. In May, the People’s Bank of China cut the reserve requirement ratio (RRR) by 50 basis points—its first adjustment in seven months—and trimmed key lending rates to support liquidity.¹ But unlike the broad monetary easing campaigns of the past, today’s approach is more targeted: alongside financial stimulus, the government is also rolling out comprehensive policies to encourage childbirth, affordable housing, employment and education. This reflects a pivot to structural domestic growth—not just a rebound, but a recalibration. Unlike fiscal injections, few of these measures will have any measurable impact on hard data in the short term, but they can bolster confidence both among consumers and foreign investors. Case in point: during the first five months of 2025, Europeans ploughed some EUR 2.8bn into China-focused ETFs—more than four times the amount of 2H 2024. That compares to EUR 3.9bn that flowed into broad emerging market equity ETFs during the second half last year, with just minimally more net flows—EUR 4bn—year-to-date.³

The same idea of “sentiment trumps data” can be applied to geopolitics; recent US-China trade negotiations have temporarily dialled down tensions. Reciprocal tariffs were reduced—with US levies falling from 145% to 30%, and China responding in kind—signalling room for tactical compromise. While Trump has claimed a break-through, Beijing has been more muted, managing expectations and insulating policy from noise. Tariffs could still snap back after an August 10 deadline for a more comprehensive deal.

Amid the high-level diplomacy, one Chinese advantage looms large: China maintains a near-monopoly in rare earths. The country controls around 60% of known reserves, 90% of refining capacity, and over 90% of global output for certain refined rare earth materials.² These are essential for EV batteries, wind turbines, chips and aerospace components.

Following retaliatory export restrictions in April, global automakers—from Japan to the US—were forced to idle production lines. Only a fraction of license applications for rare earth imports were approved, with temporary six-month clearances granted to select US firms. China’s control over this supply chain offers an enduring leverage in trade negotiations and a hedge against de-risking rhetoric. Even if curbs are eased, the latent power remains in place. We believe that some sort of permanent deal will be struck eventually—out of necessity on both sides.

Tech and AI: Strategic capex rewiring the growth engine

Chinese tech giants are executing large-scale investment plans that rival those of the US and South Korea. Alibaba announced a $53 billion multi-year commitment to expand its AI and cloud infrastructure—one of the largest capex programs in its history.⁴ Tencent followed suit, citing high ROI from its AI infrastructure and development platforms. Instead of simply emulating US tech, China is increasingly building parallel systems.

Hardware progress is just as material. Xiaomi’s new XRING chip—built on an advanced 3nm node—underscores domestic momentum despite US export controls. DRAM manufacturer CXMT, once marginal, now commands 5% of global market share, with analyst forecasts as high as 15% by year-end.⁵ Crucially, Chinese firms are focusing not just on chip speed, but on architecture, including onboard VRAM capacity—a bottleneck that remains critical for training large language models. Traditional DRAM does not require cutting-edge fabs, meaning China can still scale without full access to bleeding-edge lithography.

Robotics also signal deep innovation. Unitree’s humanoid robot—priced at $16,000 and ready for mass production—represents a leap in both affordability and scalability.⁶ Baidu’s robotaxi platform has now completed 11 million rides and is eyeing expansion to Europe.⁷ The industrial implications are clear: China is rapidly advancing in automation, autonomy and applied AI.

IPO pipeline: Reopening the capital market engine

Hong Kong’s capital markets, long subdued by regulatory uncertainty and sentiment shocks, are also staging a comeback. Year-to-date proceeds have surged to $10 billion, led by landmark deals like CATL’s $5bn listing and Hengrui’s $1.25bn raise.⁸ The pipeline remains robust, with names like Foshan Haitian (China’s top condiment maker) and other mainland champions queuing up to access global capital via HKEX. This momentum could well reflect more than just market timing—it fits into the narrative that confidence is returning to the private sector and investor demand is reviving. We believe that broad China exposures, including both A-Shares and offshore-listed securities, provide the most comprehensive opportunity to participate. While A-Shares have fared better during much of the downturn since 2021, the recent rallies have been driven by optimism around tech firms and innovation. Typically, we would expect broad indexes like the FTSE China 30/18 Capped to continue to do well in such an environment. The IPO resurgence also portrays a wider equity story: China’s broad equity benchmarks are being re-rated not just on macro stabilization, but on the return of capital formation— a shift that could create new entry points for long-term positioning.