Investors have plenty of reasons to be bullish about China’s financial markets in 2025, according to one of the country’s top economists, as tech stocks continue to rally and expectations grow that the central government will soon shift to a looser macroeconomic policy stance.
The Hang Seng tech index, which tracks the 30 largest tech companies listed in Hong Kong, has gained 35 per cent since the beginning of the year while Nasdaq 100 dropped 2 per cent. This stellar run came after Chinese start-up DeepSeek stunned the world by unveiling how it trained an advanced AI model at a fraction of the cost of its US competitors.
Yao Yang, who is professor and director at Peking University’s China Center for Economic Research, is hopeful the boom will spur IPOs and attract more investments into Chinese tech companies, which would be a welcome development for a sector dealing with waning levels of funding and strict regulation in recent years.
“The high-tech sector is going to become quite vibrant this year or in the years to come,” Yao says in an interview with Top1000funds.com. While it is unlikely to become a growth engine for China’s economy like real estate, as tech would not employ nearly as many people, Yao says it is still “very investible”.
“Before 2018, we were not talking about the seven tech companies in the US, we were talking about the three in China,” he says. This was the trio collectively known as BAT – Baidu, Alibaba and Tencent, and are companies touted to reap the most benefits from rising online consumption.
For Chinese tech companies to return to these “glory days”, Yao says there needs to be more private investment and the government, which accounts for 90 per cent of the venture capital market in China, needs to step back.
Yao’s comments come as Beijing is seemingly shifting to a more favourable attitude towards the private sector, after Chinese president Xi Jinping held a workshop with the nation’s prominent business leaders this month. He promised to “remove obstacles” to fairer market competition and make financing easier and less expensive for private companies, according to state media.
There was a notable appearance at the workshop by Alibaba’s Jack Ma, who has retreated from public life, widely believed to be because of his criticism in 2020 that Chinese regulators and banks are stifling the financial markets. Other entrepreneurs attending included Xiaomi chief Lei Jun, DeepSeek founder Liang Wenfeng and Huawei founder Ren Zhengfei.
“The workshop sends a strong signal [to support the private sector], but it’s just a signal,” Yao said. “To make a credible commitment, the government has to put money on the table.
“It mentioned the local governments need to pay the debts owed to private enterprises – private enterprises have done a lot of projects for local governments, but they haven’t got paid.
“But they [local governments] don’t have money. Central government has to bail them out – that’s real money.
“[Local government debt is] a bigger problem in the Chinese economy, and that number is huge.”
All eyes on the Two Sessions
Yao is one of the most prolific academics and authors in China and has attended government forums to present socio-economic opinions to the Communist Party’s senior leadership, including Xi.
While Yao is bullish on Chinese financial markets’ performance, he is neutral on the broader economy’s outlook. The upcoming annual meetings of the Chinese People’s Political Consultative Conference and National People’s Congress – dubbed the Two Sessions – is an important timestamp for investors.
Yao, alongside many other economists, is hoping that the Two Sessions will allow for more aggressive stimulus to shore up demands in the economy. Yao believes monetary policies will be “progressive”, as the central government announced last December it will shift from a “prudent” to “appropriately loose” stance, but the fiscal policy support has come up short to date.
“When people don’t have confidence, and you only use monetary policy to boost the economy, the effects are going to be quite small,” he says.
“Then we’re going to end up with money circulating within the financial sector, so we have to use more aggressive fiscal policy to stimulate the economy.”
Yao is critical of the stimulus package the Chinese government released in November last year, whose centrepiece was a debt-swap program aimed to reduce the “hidden debt” of local governments by 12 trillion yuan ($1.65 trillion) in the next three years. Hidden debts are off-balance-sheet debt related to Local Government Financing Vehicles (LGFVs) which invest on behalf of provinces and cities.
The debt swap means local governments issue long-term bonds to repay their LGFV debts, Yao says; however, the repayment of long-term government bonds is mandatory.
“This means the local governments’ repayment burden has been increased, not reduced,” he says.
“We are talking about expanding China’s domestic demand, but what Ministry of Finance actually is doing has this contractionary merit.
“I don’t understand. The only explanation is the Ministry of Finance really doesn’t have any economists who understand the macroeconomic consequence of debts,” he quips.
US-China future
The future of US-China trade relations is still uncertain in Yao’s view, but he believes it is too early to declare a trade war. This month, US President Donald Trump directed the US foreign investment committee to restrict investments from “foreign adversaries” like China in critical sectors such as technology, critical infrastructure, and healthcare.
This came after the US slapped a 10 per cent tariff on Chinese goods and ended the de minimis exemption, which allowed for packages valued less than $800 to enter the US duty-free. China has responded with reciprocal tariffs on selected US-originated resources and machinery.
Yao says the best agreement in his view is China would tolerate the tariff and import more agriculture products, while the US would agree to open up its market for investment and potentially call upon China to help with peace talks in Ukraine.
The worst-case scenario is both sides fail to reach an agreement and the US might increase tariffs on certain Chinese products to 80 or even 100 per cent, he says.
“The time window is between now and April, because in April the US is going to finish the 301 review on China,” he says.
“In the Trump administration, probably Trump is the only China friend. If you look at the other guys, they’re all China hawks.
“[If an agreement is reached] Trump then becomes kind of a peace president. I think this scenario is what he wants.”
