China: Pricing out the ‘uninvestable’ risk?

While it is not the holiday season just yet, investors in Chinese equities have had much reason to celebrate. MSCI China has staged a stunning 38 per cent rally year to date - more than double the gain in the S&P 500.

- Tan Min Lan

For those who recall the market’s past booms and busts, the question at hand is whether this surge can endure, especially as it has been fuelled by price-to-earnings multiple expansion so far, rather than earnings growth.

The answer likely hinges on whether China’s long-term push to become a techno-industrial powerhouse will translate into a more sustainable and higher-quality growth path ahead.

China’s economic model has undergone repeated reinventions over the past quarter-century.

The 2000s were marked by an era of mass, low-cost manufacturing, which powered the country’s rise.

The 2010s were dominated by infrastructure and property investment — a response in part to the aftermath of the 2008 global financial crisis. This period, complemented by a flourishing internet sector, ushered in much prosperity but also rising debt, monopolistic concentration and inequality, sowing the seeds of a sweeping regulatory reset in the early 2020s of the debt-laden growth model.

In fact, post-pandemic, and in the current half decade so far, the economic scarring continues to linger: Property is still stagnating, household sentiment remains subdued and gross domestic product growth is struggling to reach 5 per cent despite steady (albeit moderate) policy support.

Yet with time and grinding efforts, the worst seems to have passed on the property, regulatory, and even US trade fronts. Tellingly, property sales have fallen from 18 per cent of GDP in 2021 to 7 per cent today; new home construction is down 70 per cent. The digital economy has expanded rapidly — new business formation of private internet firms rose nearly 20 per cent in the first quarter of 2025, signalling a cautious revival in animal spirits. Meanwhile, China’s exposure to the US has lessened: Only 10 per cent of exports now head directly there, down from 15 per cent at the start of 2025.