Where is China headed: turning point or false dawn?
18 SEPT, 2026
I have just returned from two weeks of company meetings in Hong Kong and Shenzhen. The mood music was mixed, a stark difference to last year, when expectations for a broad recovery were quietly ticking up. The picture today is much more nuanced. But I was incredibly excited by how many interesting, under-covered and cheap companies I found in the parts of China that are genuinely performing.
China is, in our view, experiencing a K-shaped recovery with parts of the economy performing very well. Exports rose 25% year-on-year in August, with high-tech goods up over 50%, as Chinese suppliers into the global AI build-out see exceptionally strong demand, supported by government policy. US tariffs are the known risk, but many of these companies are purely domestic and thus relatively resilient.
Consumption, on the other hand, remains the biggest drag. We saw no clear green shoots across the consumer companies we met, and investor appetite for the sector is close to non-existent. The property downturn, whilst less severe than in recent years, continues to weigh on sentiment, and the recent tightening of presale rules looks likely to add further friction to a real estate sector that needs the opposite.
Could policy come to the rescue? We are not overly optimistic, as Beijing appears to have few tools left to stimulate consumption directly. Local governments are cash-strapped, with restricted financing and land sales that the presale ban will only make harder. There is little sense of urgency at the centre, and rising debt levels limit the scope for a genuine "bazooka". Support will likely remain incremental rather than game-changing.
So, false dawn? For the economy as a whole, yes. But it is worth remembering that macro has never translated neatly into market performance in China, and we at Alquity have never invested there purely based on it. What we did discover on this trip is a country producing a new generation of technologically advanced companies in AI hardware, robotics and autonomy, many of them overlooked by the sell-side and investors alike.
Hesai, for example, is a largely uncovered company despite being the world's largest maker of lidar – the laser sensors that give cars and robots three-dimensional vision. It designs its own chips and ships at a scale that gives it a significant moat: a cost advantage competitors cannot close. It also has many years of runway, as we are in the very early stages of the robotics and autonomous-driving growth curve. AAC Technologies is another highly underappreciated name. The company is still valued as a traditional smartphone speaker maker, yet its advanced thermal management business – cooling for AI phones and data centres – grew roughly 400% in the first half of the year. The market has clearly not recognised the new reality of its substantially faster growth trajectory.
China is not turning the corner. But it doesn't need to for these companies to compound. At Alquity, our approach has been to find the next-generation leaders before the crowd does, and right now China is offering many opportunities at prices we rarely see.
