As Lunar New Year celebrations continue this week, it presents an opportunity to reassess the Chinese market. The Snake, whose symbols include wisdom, transformation, and strategy, serves as a hopeful emblem for China as it navigates ongoing structural challenges this year.
The economy remains under pressure, grappling with a property sector crisis, weak consumer sentiment, and deflation. In response, Beijing has signaled plans for further stimulus measures beyond those introduced late last year, including a $1.4 trillion plan to address hidden local debt and monetary policy easing. These are certainly positive steps but have so far provided only short-term relief. Given the depth of China’s economic challenges, which we believe will take years to resolve, more strategic and decisive action appears to be the wise course for Beijing in 2025. The upcoming annual CPPCC National Committee meetings in early March will be a key event to monitor for further announcements of potential stimulus and domestic support measures.
Beyond the New Year, there is limited cause for celebration this week as today an additional 10% tariff on Chinese imports to the US will take effect indefinitely. While this increase is lower than many anticipated, especially compared to Trump’s threats on the campaign trail, it is likely to spur market volatility as speculation grows over further tariff increases and their timing.
Beijing has said it will legally challenge the tariffs as they violate World Trade Organization rules and today announced it will impose additional tariffs between 10-15% on a basket of US imports, including, but not limited to, oil, gas, and farming equipment.
Overall, while the Year of the Snake represents transformation, we maintain our cautious outlook and underweight position in the Chinese market given the significant domestic and global challenges the country faces. Instead, we prefer indirect exposure to the country through Korean and Taiwanese companies that have better corporate governance and operate in a more stable macroeconomic and regulatory environment. However, China remains the world’s second-largest economy, with its 2024 GDP growth having meet its 5% target, outpacing most developed and even emerging markets growth. Therefore, amidst caution, we still search for exciting investment opportunities that meet our quality investment criteria.
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