Year of the Horse: China finds its stride

China has entered the Year of the Horse, with more momentum than most investors expected a year ago. In 2025, the country delivered another year of 5% GDP growth [1], shrugged off President Trump’s ‘Liberation Day’ tariff shock, and generated a record-high trade surplus. Its equity market – one of the standout global asset classes – also returned over 30% [2]. The question now is: where does China go from here? Let’s take a closer look. 

A quick recap

Despite higher tariffs, China’s growth mix has continued to tilt towards trade. In 2025, almost a third of GDP growth came from net trade (up 2.4 percentage points on the previous year), helping to offset a softer contribution from investment [3]. Firms kept exports competitive by trimming prices, while services spending emerged as the quiet driver of domestic demand.

Consumption’s share of growth also rose, even as headline retail sales stayed subdued. Disposable income growth is still outpacing nominal GDP, supported by larger government transfers and resilient wage and salary growth. This comes despite a sharp slowdown in property‑related income. Stronger stock markets may also be lifting sentiment, even if household equity exposure remains modest.

Policy support and the currency backdrop

In January, the People’s Bank of China (PBOC) announced a raft of measures to support its lending programmes. It also signalled that cuts to its main policy rate could be on the way and opened the door for further renminbi (RMB) appreciation. Officials noted there was still room to cut the reserve requirement ratio, which would inject more liquidity into the banking system. A large stock of maturing time deposits – fixed-term savings accounts rolling into lower rates – is also expected to reset this year.

China’s record $1.2 trillion trade surplus has made the PBOC more comfortable with a stronger currency. But alongside questions over how far the rest of the world will tolerate China expanding its share of global trade, there’s also the risk that RMB strength could embed deflation while excess capacity persists.

A firmer currency would likely boost foreign investor enthusiasm for Chinese assets. The bigger unknown is whether falling house prices and lower-rate time deposits will encourage households to reallocate more meaningfully towards the stock market.

AI innovation: pulling ahead

China’s domestic AI ecosystem is innovating far more quickly than the market gives it credit for. Companies are rapidly working around constraints through architecture choices, open-source diffusion, and an engineering pragmatism that compounds quickly when capital is directed with intent and supported by policy. We would expect to see more examples of firms turning workarounds into products – and of those products being adopted and scaled across the wider ecosystem.

We expect AI and technology to dominate the market narrative. But it’s less about AI as a headline story and more about the ‘plumbing’ – the build-out of data-centre infrastructure, components, industrial automation and the software layers that embed into everyday workflows. These less glamorous parts of the stack often come with better visibility of demand. The winners will be the companies with the scale, data access, and balance sheet strength to monetise this ecosystem sustainably.

What we’re watching

At Aberdeen Investments, we see long-term potential in equipment makers such as Naura and Accotest, and AI players like Cambricon and Montage. Meanwhile, global AI adoption – and the integration into consumer electronics – should boost demand for hardware and data-centre infrastructure through names such as WUS Circuit, Innolight and Envicool.

On the domestic consumption side, offline discounters and quick commerce are gaining market share, favouring brands with strong logistics. Online competition is intense. Rising input costs are squeezing margins, and dairy demand is structurally weaker.

We continue to favour yield-oriented and innovative names in pet food over traditional staples like beer and condiments. Yantai China Pet Food is an example: a leading player with multiple brands in China and a growing pet-snacks export business in overseas markets.

Consumer sector: out with the old, in with the new

In the consumer sector, the ‘new versus old’ divide is likely to persist. Emerging consumption firms are guiding for stronger growth, while traditional staples continue to grapple with destocking. The government has been unequivocal in its aim to rebalance towards domestic demand. In this environment, we see resilience in consumer businesses with pricing power, channel control and cash conversion.

A narrowing US-China yield gap, near-term US dollar weakness, the US Federal Reserve cutting rates ahead of the PBOC, and solid exports are all underpinning RMB strength. A firmer currency usually supports Chinese equities because it signals steadier capital flows and improved risk appetite.

Final thoughts…

While hurdles remain, the momentum behind trade, policy support and China’s fast‑evolving AI ‘plumbing’ suggests the country’s growth mix is shifting. For investors, these themes will be key in judging how durable that shift proves to be. And as China finds its stride in this Year of the Horse, the companies best positioned to harness that momentum may be the ones that pull furthest ahead.

[1] Source: National Bureau of Statistics of China. 2026 January

[2] Source: Aberdeen, Bloomberg. 2025 December

[3] Source: Aberdeen, Haver, January 2026

[4] Source: China's General Administration of Customs. 2026 January.

Nicholas Yeo is director and head of equities, Asian equities at Aberdeen.

Robert Gilhooly is senior emerging markets economist at Aberdeen.

Isaac Thong is lead manager, Aberdeen Asian Income Fund.