China's onshore investors are increasingly optimistic about the outlook for the mainland's economy and financial markets, following an artificial intelligence (AI)-led rally and an official embrace of entrepreneurs, but uncertainties including strained US-China relations could complicate the picture, according to global banks.
Local governments and companies, particularly in China's more developed coastal regions, were prepared to boost AI-related investments and spending, and "animal spirits" in the economy may have recovered to some degree, according to a Goldman Sachs report.
"Following recent AI developments, clients [have] turned slightly less bearish on China's long-term potential growth," said the report, which was based on feedback from clients, including mutual funds and asset managers it met in Beijing, Shanghai, Guangzhou and Shenzhen over the past week.
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The markets have turned bullish since AI start-up DeepSeek released two models built at a fraction of the cost of their Western counterparts, sparking a rally in the shares of mainland Chinese tech companies and the broader market in Hong Kong, as investors expect their integration into their business models to drive earnings higher. The Hang Seng Tech Index has jumped 28 per cent year to date, while the benchmark Hang Seng Index has added 17 per cent.
A meeting last month where President Xi Jinping assured China's top entrepreneurs of sustained government support has also acted as a catalyst. He pledged stronger protection for entrepreneurial interests and broader market access, while calling for greater technological innovation amid intensifying trade tensions with the US.
Goldman said in the report that onshore investors also expected the country's property sector, which has been suffering from a protracted downturn, "to become less of a growth drag in the medium to long-term" following recent increases in home sales and prices in large cities.
Prices of new homes edged up 0.6 per cent month on month in Shanghai in January, and 0.2 per cent in Shenzhen, two of China's largest cities, according to official data.
Amid the bullishness, lingering uncertainties around US-China relations remain a key concern for local investors.
US President Donald Trump said last week that China could face an additional 10 per cent tariff from Tuesday. This would come on top of the 10 per cent tariff implemented in February, bringing the total US tariffs on Chinese exports to 30 per cent.
Barclays analysts said in a report on Monday that a "60 per cent US tariff on Chinese exports would create a drag on China's GDP [gross domestic product] of 1 percentage point", citing the Institute of World Economics and Politics at the Chinese Academy of Social Sciences.
The British bank said the tariffs' impact on GDP would be notably smaller than overseas analysts' estimates of 1.6 to 2 percentage points.
On further policy support from the two sessions parliamentary meetings, Barclays said the measures could fall short of investors' expectations.
The National People's Congress (NPC) and the Chinese People's Political Consultative Conference meetings start on Wednesday to discuss the government work report, which typically sets targets for economic growth, fiscal spending and inflation, as well as other development goals.
"We expect the NPC to raise the official budget deficit to 4 per cent for 2025, versus 3 per cent in 2023-24," Barclays said, adding that it expects authorities to marginally increase the quota for local government special bond issuance to between 4 trillion yuan (US$549.5 billion) and 4.5 trillion yuan this year, from 3.9 trillion yuan in 2024.
Barclays' analysts also expected the authorities to set an ambitious 5 per cent GDP goal this year after achieving similar growth last year.
"However, we think it would be still challenging for China to hit an ambitious growth target of 5 per cent," the analysts said. "We maintain our below consensus/official target GDP growth forecast of 4.3 per cent, in view of persistent structural headwinds, rising US tariffs on Chinese goods and the moderate and reactive fiscal package."
This article originally appeared in the South China Morning Post (SCMP) , the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.
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