As China unveils its latest Five-Year Plan this week, investors will be watching closely for signals on how policymakers intend to navigate what has increasingly become a two-speed economy.
On one hand, the country continues to demonstrate formidable strength in advanced manufacturing, electric vehicles and artificial intelligence. On the other, domestic property weakness, softer consumer sentiment and a rapidly ageing population present structural headwinds. The direction of travel set out in this plan will matter not just for China, but for global capital markets.
From an investment perspective, China’s leadership appears focused on reinforcing its ‘dual circulation’ strategy – building greater domestic self-reliance while continuing to move up the global manufacturing value chain. Its dominance in electric vehicles and battery technology, supported by scale, supply chain control and strategic resource investment, is unlikely to be accidental. Meanwhile, the prioritisation of AI as a national strategic industry reflects a broader push toward productivity gains that may help offset demographic pressures. These themes point toward continued opportunity in advanced industrials, automation and technology, particularly where valuations remain more attractive than Western peers.
At the same time, the prolonged property downturn and weaker consumer backdrop suggest a more selective approach is required. The traditional drivers of Chinese household wealth are under strain, but this is also accelerating structural change.
Since 2024, China has rolled out a series of fiscal and monetary measures to stabilise its economy and markets: cutting key policy rates, lowering the reserve‑requirement ratio to around 6.6%, injecting liquidity into equities, easing mortgage rules, and introducing regulatory steps to attract long‑term capital.
In 2025, support was strengthened further through higher government spending, expanded bond issuance, targeted investment programmes, and continued monetary easing. These policies have helped steady markets and prevent a deeper slowdown, but their overall effectiveness has been moderate, with limited success in restoring confidence or reviving domestic demand. Looking ahead, China’s new five‑year plan will require larger‑scale action to produce stronger results—an increasingly difficult task given the local governments’ debt burden.
Chinese equities continue to trade at a discount to many developed market peers, reflecting geopolitical concerns and domestic economic uncertainty. For long-term investors, this raises the question of whether parts of the market represent a relative value opportunity. While risks remain, particularly around trade tensions and the path of domestic recovery, structural themes such as AI diffusion, automation and high value-added manufacturing suggest that China’s growth model is evolving rather than stalling. As the new Five-Year Plan sets out Beijing’s priorities, investors will be assessing where policy backing and structural tailwinds align – because that combination is often where long-term opportunities emerge.”
We remain constructive on Emerging Market equities, including China, supported by attractive valuations, ongoing policy stimulus, and gradually improving earnings from a low base. As our investment approach is anchored in a long‑term outlook, and given that structural improvements may take time to be reflected in market outcomes, we are comfortable being patient.
By Preksha Shah, Investment Specialist, St. James’s Place
