This year, the country continues to grapple with significant macroeconomic headwinds, including muted domestic demand and persistent trade tensions with the U.S. However, the business leaders we met are quite confident and expect Beijing or local governments to step in, should the trade tensions deteriorate.

In addition to attending Goldman Sachs’ Technet Conference in Shanghai and UBS’s Asian Investment Conference (AIC) in Hong Kong, we conducted field trips in five cities (Shanghai, Hangzhou, Shaoxing, Shenzhen, and Guangzhou). Over the course of the trip, we met over fifty companies across a broad range of sectors (20 in their respective offices, 33 at conference venues). In Hong Kong, we also met over a dozen Asian ex China companies: regional leaders from Korea (KB Financial, HD Hyundai Electric, KT), Malaysia (Gamuda), Singapore (DBS, Jardine Matheson), Philippines (BDO Unibank, Bank of Philippines Islands), and Indonesia (Bank Syariah Indonesia, Merdeka Copper).

Macro: The challenges persist, but the trade war is weighing more heavily on sentiment than on the underlying economy

In recent months, trade tensions between the U.S. and China have remained unsettled, characterized by abrupt shifts in tone and policy yet their impact on the broader economy has, so far, been contained. Following a 5.4% yoy GDP expansion in Q1, growth is expected to remain broadly on track at around 5% in Q2. Over the first five months, China’s exports rose by 6% yoy, broadly in line with the previous year. A 10% decline in direct exports to the U.S. was largely offset by a 9% increase to other countries, reflecting continued trade diversion. While some deceleration is likely in 2025, driven by elevated tariffs (including a 30% blanket rate on top of the existing 25% on selected goods) and a softer global backdrop, the outcome may still be more resilient than feared, given that the Trump administration had raised total U.S. tariffs on Chinese goods to nearly 145% in early April. Also, it is widely expected that policymakers in Beijing will remain ready to introduce incremental stimulus if needed, albeit cautiously, with the aim of supporting growth without overshooting the official 5% GDP target. At this stage, however, the most pressing concern lies in persistently weak domestic demand. While targeted consumption stimulus programs, totaling approx. $21bn in 2024 and $42bn in 2025, have yielded positive results in specific categories such as home appliances, EVs, and smartphones, overall demand remains subdued. Elevated precautionary savings, shaped by lingering pandemic-related uncertainties and a protracted property market downturn, continue to weigh on consumer sentiment. In our view, restoring a positive wealth effect (stable property prices, better employment prospects) would be instrumental in addressing the cyclical drag created by the property crisis, especially given that housing represents roughly 70% of household wealth. Over the longer term, correcting the structural imbalance in China’s economic model, where consumption accounts for only 38% of GDP versus 59% in OECD countries, will require comprehensive reforms. Hukou includes raising household incomes and expanding the social safety net through improved public healthcare and pension coverage, more affordable childcare and elderly care, unemployment insurance reform, and modernization of the hukou system, all of which are essential to lowering precautionary savings and supporting sustained consumption growth.

Micro: Broad pessimism observed in 2023-2024 is fading.

• New consumption

While overall consumption in China remains subdued, bright spots are emerging in several new consumer segments. Management teams at companies such as Mao Geping (cosmetics), Miniso (specialty retail), and Yantai China Pet Foods point to a shift from “consumption downgrading” towards a more nuanced trend of “tiered consumption.” Consumers are increasingly focused on finding the right balance between quality and price and are willing to pay modest premiums for products and services that offer emotional or experiential value. Within this evolving landscape, Gen Z consumers (born between 1995 and 2009) are playing an increasingly influential role. Their strong spending intent, rising purchasing power, and preference for emotionally resonant, high-quality products at reasonable prices are driving momentum across these new consumer sectors. While international luxury brands face softer demand in China, heritage domestic players are gaining ground. Laopu Gold, a traditional Chinese gold brand, has seen a sharp rise in sales, a momentum that is also benefiting jeweler Chow Tai Fook (2% of GemChina), particularly through its high-end Hua collection

• Innovation & technology upgrade

Although corporate sentiment remains measured amid a weakish macro environment, we have seen a clear improvement from last year and from 2023, underpinned by a more supportive government stance towards the private sector and renewed optimism in the technology sector. The breakthrough by DeepSeek, one of China’s most disruptive AI startups, has drawn global attention for its remarkable cost-performance tradeoff. Notably this progress has been achieved despite ongoing U.S. technological restrictions, underscoring China’s determination to advance its own innovation frontier. Beyond its technical merits, DeepSeek represents a significant milestone for China’s AI ambitions, symbolizing the country’s growing capacity to drive foundational innovation, rather than merely scaling existing technologies. More importantly, it has helped revive market confidence in the broader potential of China’s homegrown tech ecosystem, serving as both a signal and a catalyst for renewed investor interest. We were amazed by the application of new technologies and rapid development of new economies. In the case of robotaxis, we met with Pony.ai and WeRide, China’s leading players and two of the global top three companies in the field. With major Chinese cities now introducing clear development roadmaps, the industry expects the national fleet to expand from around 1,000 vehicles this year to over 500,000 by 2030. We did a test flight at EHang, the pioneer eVTOL aircraft manufacturer (see our company focus). EHang’s dominant market position, reinforced by its CAAC commercial certification (the first and only globally), positions it as a key beneficiary of China’s rapidly expanding “low-altitude economy,” a strategic priority actively promoted by the central and local governments. We also visited leading domestic robotic and industrial automation innovators, including BrainCo, Pudu Robotics, SenseTime, and Dobot. There is a broad consensus that scalable deployment of humanoid robots will require generalizable AI with real-world applications. While China already holds a strong advantage in hardware and component supply chains, an increasing number of startups are now shifting focus toward developing branded humanoid robots, marking a strategic move from hardware manufacturing to integrated product innovation. While hardware companies such as Envicool (liquid cooling), Megmeet (power management), and Zhongji Innolight (optical transceivers) expressed strong confidence in the growth of domestic AI data center demand in the coming years, software players like Meitu and Kingdee are equally optimistic about the monetization potential of AI-driven features.

• Localization vs. overseas expansion

Domestic localization remains a core pillar of China’s strategic agenda, aimed at reducing reliance on foreign technology and achieving self-sufficiency in critical sectors such as semiconductors, AI, industrial software, and core components. Initiated with Made in China 2025 and reinforced by the Dual Circulation strategy and the 14th Five-Year Plan, this push is backed by large-scale funding (such as the $100bn Big Fund for semiconductor manufacturing) alongside strong policy incentives.

Progress has been notable in areas like EVs, automation, and chipmaking, with targets including 100% self-reliance in mature-node chips by 2025, 82% localized GPU supply by 2027–28, and full domestic-chip adoption in AI infrastructure by 2027. Looking ahead, China aims for broader technological autonomy across strategic sectors including biotech, quantum computing, and aerospace by 2035. While the rapid investment in semiconductor equipment ($44bn in 2024) and mature-node capacity has raised concerns about sustainability, leading equipment makers like NAURA and AMEC view localization as a long-term secular trend, driven not only by economic ambition but also by supply chain security in the face of ongoing U.S. technology restrictions. Software companies such as Kingdee and Hundsun Technologies have also confirmed their commitment to domestic localization, amid rising demand for ERP systems and financial software.

On the other hand, we noticed a growing number of Chinese companies have been accelerating their international expansion to offset intense local competition. Expanding abroad allows them to access new markets, diversify revenue streams, and hedge against geopolitical and regulatory risks at home. With strengthened capabilities in manufacturing, innovation, and cost efficiency, particularly in sectors like EVs, consumer tech, and software, Chinese firms see internationalization not just as an opportunity, but as a strategic necessity for long-term growth and resilience. While at varying stages of international development, companies such as Miniso, Xiaomi, Shenzhen New Industries (MedTech), China Pet Foods, Dobot, Envicool, Sunny Optical (optical lenses and camera modules), and Meitu have all expressed clear ambitions to expand their global footprint.

Company focus: EHang, leader in EVTOL manufacturing (EH US Equity) 

EHang is China’s leading eVTOL (vertical take-off and landing) aircraft manufacturer which specializes in pilotless passenger/cargo-grade eVTOL aircraft. The Chinese government is promoting low altitude since 2021. In addition, in 2024, low altitude economy was designated as a new growth engine in a “Government Work Report” of the National People Congress. The economy is based on drones, helicopters, eVTOLs, civil aircraft applications (usually below 1,000 meters and can be extended to no more than 3,000 meters according to actual needs). Headquartered in Guangzhou, the company has benefited from strong local government support, including favorable leasing terms on its building. EHang has established a strong competitive moat, positioning itself as the most advanced player in China’s eVTOL space both technologically and regulatorily.

In terms of technology, the aircraft has a flying time of ~25 mins, with plans underway to extend this to around 48 minutes. The company has also implemented stringent safety standards, reinforcing its leadership in autonomous aerial mobility. From a regulatory standpoint, eVTOL aircraft in China needs to obtain three certificates from CAAC (Civil Aviation Administration of China) before commercialization, which includes TC, PC and AC. The most difficult certificate to acquire (timeline ~3-5 years) is the TC (Type certificate) as the CAAC needs to approve the aircraft design (aero-engines and propellers) and safety. The PC (Production certificate) which establishes the manufacturers has established a quality system for production (timeline ~3-6 months). The AC (Airworthiness certificate) which allows the aircraft to be put in operation (~1 month). While aircraft operating companies need to obtain OC (operation certificate) to conduct commercial activities. The company is the only player who has obtained the TC, PC, AC and OC. Local competitors of EHang are ~2 years behind in the regulation approval cycle and none of them offer a pilotless solution.

The company has identified three key commercial segments for its eVTOL aircraft:

• Aero sight-seeing (Point A to Point A) : China has ~15,000 spots where commercial operators can deploy eVTOL which is more cost efficient than Helicopter. 
• Public transport services (Point A to Point B) : likely to launch in 2 years’ time - EHang will form a JV with operators to fly from specific routes (such as airport) to a particular point in the city.
• Air-Taxi services (Point X to Point Y), which will require building infrastructure for take-off and landing across cities.

EHang’s eVTOL is selling at RMB 2.4M ($333,333), with a production cost of $120,000 (GPM of 60%). Costs include the bill of materials, labor, and after-sales services, with roughly one-third of materials allocated to the airframe, one-third to power systems (battery, motor, propeller), and one-third to software components (chips, sensors, LiDAR).

According to CFO Conor Yang, a commercial operator of the eVTOL can achieve a payback period in 2 years with OPM of ~50%, assuming the operator is able to do 10 trips a day for 256 days with average cost of RMB 500 per trip (vs. RMB800-1000 for an helicopter). According to CFO Conor Yang, commercial operators can achieve a two-year payback and ~50% operating margin, assuming 10 trips per day across 256 days at RMB 500 per trip significantly cheaper than helicopters (RMB 800-1,000). In 2024, EHang generated $63M in revenue from 216 units, mainly sold to local governments for sightseeing. While still loss-making at the EBITDA level, it posted positive operating cash flow of $16M, thanks to upfront payments (90% before shipment) and supplier payment terms of 4–6 months. For 2025, sales are expected to reach $125M on ~400 units, with less than 10% destined for overseas markets. Although current sales are modest relative to its $1.2bn market cap, the order book is diversifying to include listed companies. The stock remains listed only in New York; a listing in Hong Kong or Shenzhen would be better.