Can China’s New Playbook Power Global Growth?

China is rewriting its growth story – shifting from real estate reliance to innovation, AI, and green tech. In this episode, Xiaolin Chen of KraneShares joins host Andrew Wilkinson to break down China’s latest policy shifts, trade dynamics, and the upcoming Five-Year Plan shaping the global economy.

Summary – IBKR Podcasts Ep. 299

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Andrew Wilkinson 

Welcome to this week’s podcast. My name’s Andrew Wilkinson with Interactive Brokers. Now, the new world order has changed abruptly in the months since Donald Trump took office. Global political leaders and economists are trying to deal with the rapid changes, not least in China. Helping us understand the response and reaction from within the world’s second-largest economy is Xiaolin Chen, Head of International at KraneShares in London. 
Xiaolin, welcome back to the program. 

Xiaolin Chen 

Thank you for having me. 

Andrew Wilkinson 

So tell us, how has China’s recent macroeconomic policy shift impacted both domestic growth and global economic dynamics? 

Xiaolin Chen 

I think that’s a great question. China has been an emerging country for years. That means policies in those countries matter the most. They really give the directions of sectors and industries, investment trends, and also impact a lot of direct household disposable income. 

In the last two or three years, it’s become very apparent that China has been heavily focusing on its domestic consumption. All the policies centered around monetary and fiscal measures — cutting rates, helping mortgages, reducing even saving rates and borrowing rates for corporates — all those are centered around the question: how can we create liquidity for corporates? How can we create more wealth for households? Clearly, it’s a very domestic consumption-focused policy. 

They have been designed, or they have continued, to support the market on seeking high-quality growth. It used to be, in the early 2000s, if you remember, that everything was “Made in China.” They didn’t care what you ordered — they manufactured anything. But over the last 20 years, it has been very steadily shifting towards high-quality exports and manufacturing. They also want to focus on achieving high-quality growth domestically as well. That includes, you know, in the old industrial manufacturing sectors — wanting to automate them, to replace them with robotics, and also, at the other end of the economy, asking: how can we rebalance it to a more resilient model, one that relies less on industry building things, and more on services — like the United States, like the United Kingdom, like other developed countries. So obviously, these are big trends happening. Policy also rebalances the economy. 

And the other thing I would mention — and I’ll pause there — is all the efforts they’ve put into reducing reliance on the property sector. You’ve heard about China’s correction in real estate. Everyone says, “Oh, their real estate is going down the hill.” Yes, I agree. I’ve been a long-term bear on real estate. But there is a bottom to it. The policies being active, I’d say, mean the fall for the real estate sector is going to be more moderate, more settled. You will see a lot of rebounds in certain sectors going forward. 

But it’s a good thing — they are now less reliant on property sectors and more encouraged toward innovation and technology. This year, who would have expected deep sea exploration to happen? Who would have expected China suddenly introducing all these robotic automations? Who would have expected Alibaba to say, “You know what? I’m going to solely rely on my own developed chip for AI development”? So I think all these headwinds and challenges, actually, China has navigated through them already, and now it’s facing a new chapter. 

Andrew Wilkinson 

You mentioned technology and innovation there. What are the key drivers behind China’s rapid advancements in technology and innovation, and how do they compare to those in other major economies? 

Xiaolin Chen 

Another great question. This is, excuse me, almost a topic in any conferences or interactions you have — people are always asking what is happening. And to be fair to China’s government, at least those policymakers, they quickly recognized, “You know what? We are behind. Okay? We are way behind the United States. We’re way behind big companies in Europe designing the IP of the chip. We’re way behind that.” And then over the last, I’d say, four or five years, they said, “You know what? We are going to catch up. We have to catch up as a matter of national security for the next development of the next generation.” 

So they have significantly — I mean, in a big way, billions if not trillions of dollars — invested from the government into R&D and tech infrastructure, period. The end. They’re recruiting the talent. If you look around, they actually have the talent. It’s really about how they use them, how they leverage them. If you look at the big tech companies, how many — let’s call them Asian faces — are there? So intellectually, they’re not short. It’s about how they’re going to focus on it, how they’re going to encourage and subsidize all the proper investments allocated to R&D in those sectors. They’re going to encourage them — which they did. For instance, China also has a separate equity board. Like the U.S. has the S&P, NASDAQ, all these — they have another board under their main board of the Shanghai Stock Exchange called STAR Market. That is a science and technology innovation board. That’s China’s own NASDAQ — they don’t like it to be called that way, but it’s true. 

It’s for all those Chinese unicorns that come forward and say, “You know what? We are doing something special. We’re doing something different.” And then the government says, “Come forward, list your company publicly, and I will reimburse your R&D expenses.” How about that? So a lot of those programs have been happening for nearly, I’d say, about 10 years already, with those efforts in place for those companies to go forward. This is one thing. And second is really, from top down, a strategic focus — to say, “We are going to focus on AI. We’re going to focus on 5G. We’re going to focus on green tech.” That is a top-down instruction. It’s probably one good thing about a country led by one party — the instruction gets delivered from the top down, and they go and implement.  So the whole country was like, “You know what? We’ve got to focus on this.” What they’ve really achieved is truly remarkable — for any country to be able to achieve in such a short period of time. I think if they’re compared to other economies, China obviously benefited from the scale the country offers, and also the coordinated policy within the country. 

But of course, they face challenges in core technology like semiconductors. The design continues to be the case for them to catch up. 

Andrew Wilkinson 

Let’s turn to U.S.–China trade tensions and the evolving global supply chain influencing China’s economic outlook and its role in the global market. 

Xiaolin Chen 

Again, you know, the U.S. and China — world’s number one and number two. Okay. We don’t want them to be best buddies. As long as they talk to each other constructively, finding a very constructive way, beneficial for both nations to move things forward — that is important. We need a number one and a number two for the world order, for this to continue to work. Both sides are talking, which is very encouraging to see. 

They have had four rounds of talks in four months — in Geneva, in Europe, in Madrid last week. All the streets are talking, which is important. I’m, you know, a lot of investors feel very encouraged to see both sides putting that effort forward. 

But domestically, behind closed doors, China is increasingly now pushing for technology self-resilience. Okay — self-sufficiency — because they know the challenge they face externally. They know this is not a one-off, and they know they have to build up domestic sourcing. 

So this kind of push actually helps them to mature — to be more resilient, more able to come up with more of the sectors that they can be all self-resilient in. And some foreign companies are also, you know, relocating manufacturing from China to somewhere else. That’s the low-value chain industries. China is no longer manufacturing cheap T-shirts. They are manufacturing robots. They are manufacturing electric cars. They are the number one in the solar panel industries. Those are huge takes for them — leading in the green tech space — which is a good achievement for them to have done in the last few years. At the end of the day, I think China will have to create more opportunities to work together with global companies — not just themselves winning, of course, but it should be a win-win situation. 

But China remains, I think, integral — it is a central part of overall global manufacturing. 

Andrew Wilkinson 

What sectors or industries are expected to lead China’s next phase of economic growth — especially in light of what you just said, its focus on tech self-sufficiency? 

Xiaolin Chen 

A great question. That is what all these sectors are booming in China today. Some we already touched base on, like renewable energy. This will continue to be the case, and they’re very determined to achieve their carbon goal and continue to roll out. Like the EVs now in Shenzhen — like a Silicon Valley equivalent in the United States, a city in China — Shenzhen and Guangzhou are almost one hundred percent new cars sold in those cities are EVs, electric vehicles. Okay? One hundred percent. The adoption is really quick in China, so that is very encouraging. They continue to push forward in that instance. I think renewable energy — namely solar, EV, batteries — those will continue to be the sectors they focus on. I think they will continue to be dominant and lead. Their own domestic market is sufficient enough for companies to continue to supply there. 

But I do say the industry, such as electric vehicles in China, does require consolidation. They are growing. We don’t need hundreds and hundreds of EV brands. Okay? We need EVs, but we don’t need hundreds of Chinese EV brands. Some of the manufacturers are making products at a loss, which is not making any economic sense, but they are gaining market share. I think some consolidation would be needed at some point in that industry, but that’s going to continue to grow to a certain extent. 

And also, I’d say advanced manufacturing and automation in China. A lot of the low labor cost manufacturers are using robots. Robots are everywhere. I mentioned or shared with your audience last time — when I was in Guangzhou, in the hotel — a normal hotel, not five-star, not a big chain — they’re already using robots in the lobby, okay? 

To serve clients, to welcome you to the hotel, to deliver food. Little tummy can be opened — the food gets stored into their tummy, okay? And then they go to your floor — “Here you go, Andrew, this is your order.” It’s actually good. If you order some food in the middle of the night, you don’t want to put your clothes on or pajamas and open the door — you open the door, the robot gives you your food and says bye-bye. You don’t want to see them, right? It’s already happening in China in those industries. Some petrol stations even use robots — they work 24 hours. They don’t need rest. They work and they pump petrol for clients, for customers. It’s very automated. I think you’re going to continue to see that happening — that they advance from low labor cost and continue to climb up the high-value chain. 

And I think healthcare — China’s aging population — healthcare technology, innovation in those sectors are continuing to develop. Private hospitals continue to grow. And I want to mention two last sectors, which are the most important sectors happening in China — they’re going to be valid for decades. One is high-tech — AI, 5G, semiconductors. It’s going to continue to boom. You’re not going to only see one DeepSeek — you’re going to see many DeepSeeks continue to happen, okay? And robotics — if you go to China, you’ll be amazed to see how the robotic humanoid developments are happening. A lot of the robots are being put into home care to help the aging population: “Give me a bottle of water, give me my tablet, give me my pill, I’m going to eat it, chat with me, talk with me, switch on the video.” All those basic care tasks — they already use robotics to talk to them, to socialize, to interact with patients. That’s already in place and implemented. 

And lastly, what China has the most — and all the investors need to access, benefit, and invest in — is people. China has the most population. The benefit from that is e-commerce — the digital economy. That’s going to be the key for you to hold onto almost for another decade. 

The reason I say that is — it used to be only 50% of the Chinese population lived in the city. We call that the urbanization rate. Now it’s approaching 66%. The goal — to achieve U.S. or U.K.-like developed markets — is 80–90%. You do the math. 

There’s another 20–30% of the population — of 1.4 billion people — that need to move to cities. Say 30% — that’s 420 million people moving to cities. That’s more than the United States population — 330 million — moving to cities just in China itself. Imagine the entire United States population having to move to cities. What are they going to spend? What are they going to use? How are they going to serve their modern lives? We need e-commerce platforms like Alibaba, JD — all those companies. You know, China CSI — China Internet Index Fund — we have that index structured. Those names are the names servicing households, servicing individuals, servicing the moment. Eight hundred and eighty million people living in cities today — serving them on a daily basis. Those are the sectors you need to benefit from. 

Andrew Wilkinson 

Wow. Very exciting things going on in China. Xiaolin, talk next about the regulatory changes in China that are affecting the tech sector and also investor sentiment. What’s happening in that space? 

Xiaolin Chen 

It was quite a hurtful situation back in 2020–2021, if everyone still remembers. Those were like a nightmare time. We experienced a pandemic — and nothing to laugh about during the pandemic — and at the same time, they put a lot of regulation on top. 

I’d say if we still remember those dark times — I look back, hindsight — this is really hindsight. When you go through them, we didn’t like them, but in hindsight, they put the framework — like anti-monopoly, data security, all the privacy — all these things like GDPR equivalent in the UK. We have all in place back then. We’re glad they did that because this market is so huge, so massive. We need the regulation to be in place. They did put those all in place back then, which has hurt the market sentiment. But it’s comfortable and confident to say those regulations are behind us now. You see all the regulations clearly outlined — what they’re trying to achieve is to get bad apples out, create long-term aims, long-term goals, and create a stable, sustainable ecosystem for the technology. 

All the regulation introduced thereafter didn’t create any market volatility. People understand why they do it. The communication from the regulator is clearly getting better. Investors understand what they do, why they do it, and when they expect this to be complete — which I’m pleased to see. They’re actually encouraging the technology companies to come forward and do more IPOs. 

Andrew Wilkinson 

Now coming up, we’ve got the 15th Five-Year Plan, which would cover the 2026–2030 time period. What can we expect to be announced next month, in October? 

Xiaolin Chen 

That is a brilliant question — to conclude, or at least to summarize, what is China going on at the moment, or what is China aiming at? This Five-Year Plan is like a New Year’s resolution you and I have for the new year, and the Chinese government has a Five-Year Plan — their every five-year agenda — for the government to achieve for the nation. 

This is, obviously, the last one was the 14th Five-Year Plan, which covers until 2025 — this year. And then the next one is going to be introduced in October, in a few weeks’ time, for the next five years. People are aiming to say: what is your resolution? What is your plan? What is the government focused on? That’s why, you know, probably why you asked me the question — what is their agenda? Their agenda would be very clear on a few things, and they will surprise us with a few other things. But a few things are very clear: technology and innovation, absolutely at front and center. 

Second, it’s the people — the e-commerce, the consumption. How are they going to create more wealth for the people? How are they going to continue to, you know, feed this 1.4 billion people — to increase their disposable income for them to continue, you know, to enjoy the life they have been living? So I think in the next Five-Year Plan, it would very much be centered and focused on technology innovation, AI, and then healthcare technology, and like things we mentioned — and the people, on the job creation, and also the consumer — how they’re going to continue to help the consumer, help the household disposable income. 

Andrew Wilkinson 

Xiaolin Chen, Head of International at KraneShares. As ever, a huge pleasure, and thank you for joining me on today’s episode. 

Xiaolin Chen 

Thank you. 

Andrew Wilkinson 

And to the audience — if you enjoyed this episode, please remember to subscribe to our channel wherever you download your podcasts from. Thanks, everybody.