Chinese innovation: what we saw on the ground

China is undergoing a profound transformation from an investment-driven model to one centered on advanced manufacturing and technological self-reliance, with the coexistence of old and new economies leading to market divergence.

The report points out that China is in the midst of a deep economic transition, where the old investment-driven model is under pressure, while a new model of advanced manufacturing and technological self-reliance is rapidly rising. The author argues that the coexistence of these two models explains the polarized narratives about the market and challenges the idea of understanding China through a single lens.

• Old economy under pressure: Real estate remains weak, private investment is sluggish, and consumer sentiment is cautious.
• New economy on the rise: A model centered on advanced manufacturing, technological self-reliance, and global expansion is developing rapidly.
• Consumption divergence: Overall consumer spending is weak, but not a total collapse; households are more focused on value for money, while travel, experiences, and select premium products remain relatively resilient.
• Key quote: The author states, "The coexistence of these old and new models helps explain the polarised narratives we often hear. But it also challenges the idea that China can be understood through a single lens."

"China Speed" is reflected in the remarkable execution from innovation to commercialization

The author believes that "China Speed" is a unique combination of execution capability, infrastructure efficiency, technological iteration, and extreme customer focus, enabling Chinese companies to iterate and commercialize at a pace that other economies struggle to match. The report supports this view with several specific company case studies.

• BYD: Management holds daily meetings to respond to customer feedback from dealers.
• Xiaomi: It took only about three years from announcing its entry into car manufacturing to mass-producing the SU7. At full capacity, its Beijing factory can produce one car every 76 seconds.
• Luckin Coffee: Launched over 90 new products in 2025, using app data and customer behavior to test, personalize, and rapidly scale successful offerings.
• Robotics company Sharpa: Its ice cream robot can complete 55 steps without human intervention. The author notes that making the robot reliably perform tasks is the hard part, while making it faster is relatively easier.
• Horizon Robotics: Founder Yu Kai offers a useful caution, warning that expectations for humanoid general-purpose robots have already far exceeded what current technology can achieve.

The key to investing lies in "selectivity," not simply judging industry growth

The report emphasizes that the core paradox of "China Speed" is that rapidly developing industries can also lead to overcapacity, falling prices, and low returns due to intense competition. Therefore, the investment question is not whether a particular industry will grow, but where within that industry sustainable economic moats, pricing power, and competitive advantages will reside.

• Industry risks: The author notes that overcapacity and low returns have already been seen in the solar and electric vehicle sectors, and suggests a similar situation may be emerging in the humanoid robotics field.
• Geopolitical impact: Geopolitical and regulatory uncertainties will persist, but the consequences are not one-sided. While restrictions constrain market and technology access, they also increase the strategic value of domestic alternatives. Tariffs and sanctions have accelerated China's efforts to build a more self-sufficient technology ecosystem.
• International expansion: Intense domestic competition and slowing growth make international expansion increasingly a necessity rather than an option. Chinese companies are bringing products, brands, and capabilities overseas through cooperation and localized structures.

Investment Implications

The core investment implication of the report is that in the Chinese market, "selectivity" is crucial. Investors should not simply bet on a high-growth industry (e.g., electric vehicles, robotics) but must deeply analyze whether a specific company possesses sustainable competitive advantages and pricing power to withstand fierce domestic competition. At the same time, attention should be paid to companies that can translate "China Speed" into global competitiveness. Institutional perspective bias: As an active fund manager, the author's argument aims to highlight the value of their "on-the-ground research" and "deep stock-picking" capabilities. Readers should be aware that their views may be colored by a defense of their investment methodology.

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