分类： business

In 2026, China has emerged as a surprising source of global artificial intelligence excitement for international investors. Yet despite this momentum in the AI space, it boasts one of the poorest performing major stock markets on the planet. While the wave of AI-driven investment has sent equity benchmarks in Seoul, Taipei, and Tokyo climbing to impressive gains, mainland Chinese shares continue to trend downward.

This divergence is no random coincidence; it stems from a confluence of interconnected economic, structural, regulatory, and geopolitical headwinds that have eroded global investor confidence. The most pressing challenge is chronically weak household demand, which has continued to disappoint market expectations and put downward pressure on earnings outlooks for domestic internet platforms, automakers, and retail operators.

Seventy percent of Chinese household wealth is tied up in the residential property sector, which remains stuck in a deep multi-year downturn. This persistent slump has erased household wealth, undermined consumer confidence, and stripped out the core support needed for a broad-based economic rebound. Ongoing soft consumer spending in turn casts a long shadow over future profit growth for both technology and traditional industrial firms operating in China.

Beyond demand weakness, China also faces a structural misalignment with the current phase of the global AI boom. So far, the AI rally has disproportionately benefited semiconductor manufacturers over the cloud service providers and internet companies that dominate China’s tech ecosystem. With a relative lack of large, publicly traded AI hardware firms listed on domestic exchanges, China sits at a clear structural disadvantage compared to AI hotspot neighbors South Korea and Taiwan, which are home to the world’s top chip makers.

Compounding these issues are persistent regulatory uncertainty and mounting geopolitical risks, most notably the ongoing U.S.-China trade and technology conflicts. Since Beijing’s sweeping 2020 tech sector crackdown, global investors have consistently priced Chinese equities at a significant discount, factoring in elevated policy headwinds and the chronic lack of transparency that plagues the mainland’s capital markets. The dual challenges of a sprawling property crisis that has fueled deflationary pressures and crimped both business and consumer spending, and capital market institutions that are not yet prepared for global leadership, have further pushed investors to the sidelines.

These dynamics are clearly visible in headline index performance: the Shanghai Shenzhen CSI 300 Index has fallen nearly 6% year-to-date in 2026, while South Korea’s Kospi Index and Taiwan’s Weighted Index have both surged more than 65% over the same period, powered by their heavy exposure to AI semiconductor manufacturing.

Notably, this slump comes even as Chinese corporate earnings have recently outperformed. Onshore listed companies notched their fastest quarterly profit growth in five years in the April-June period, with a nearly 26% year-on-year gain.

Across fixed income markets, Chinese 10-year government bond yields have tumbled this year even as the yuan has appreciated, a divergence that signals deep investor skepticism over whether Beijing’s incremental stimulus measures are sufficient to reverse weak domestic demand. The 10-year yield currently hovers around 1.67%, a level that indicates early hopes that deflation had been fully contained have not materialized.

Moody’s Ratings analyst Elaine Xu notes that China’s latest round of financial policy measures should deliver a modest improvement in credit transmission through policy banks and targeted lending facilities. Even so, she argues, “it’s unlikely to materially lift broader credit demand or alter the property sector’s weak trajectory.”

The new policy package is designed to lower overall funding costs, expand policy lending tools, and reduce effective mortgage rates for eligible first-time home buyers, reinforcing the government’s more supportive policy stance amid slowing growth. However, Xu explains, this approach “is consistent with policymakers’ preference for selective easing through the financial system rather than broad-based stimulus.”

The People’s Bank of China recently cut the one-year pledged supplementary lending rate by 25 basis points to 1.5%, expanded the facility’s scope to cover additional infrastructure investment, and raised relending quotas for technology firms, private enterprises, agricultural operations, and small businesses. While these steps will improve funding conditions for policy-directed lending and channel credit to priority sectors, Xu notes that a broad-based surge in credit growth remains unlikely, because targeted support alone cannot generate stronger private sector borrowing demand.

Charles Wang, chairman of Shenzhen Dragon Pacific Capital Management, argues that with the Chinese economy still “very weak,” Beijing’s current policy plans are not “adequate” to revitalize either the property sector or consumer spending. Duncan Wrigley, chief economist for Pantheon Macroeconomics, adds that the incremental measures rolled out to date “won’t solve China’s structural imbalances, with sluggish domestic demand and high reliance on exports.”

This overreliance on exports is a core long-term challenge. Since the Hu Jintao administration, Beijing has repeatedly pledged to rebalance China’s growth model away from export dependence and toward consumer-led domestic demand. Yet even with U.S. tariffs still in place, China’s annual trade surplus hit a record $1.2 trillion in 2025, leading many economists to worry that Beijing will double down on export-led growth rather than accelerate the long-promised structural reforms.

The root of China’s current economic malaise is its deepening K-shaped recovery, defined by a booming high-tech export sector running parallel to a persistently weak domestic property market and consumer segment. This split has only grown more pronounced in recent months: as exports continue to post strong gains, consumer spending and property activity keep lagging, widening the gap between China’s external strength and domestic fragility.

This is a sharp reversal from the narrative that dominated 2025, when coordinated gains across stocks, bonds, and the yuan sparked widespread hopes that China was shaking off its “uninvestable” label among global market participants.

Currency markets also reflect unusual divergence this year. As Sophie Huynh, a fund manager at BNP Paribas Asset Management, told Bloomberg, the Chinese yuan “has totally disconnected from interest-rate differentials since the start of the year, thanks to the firm trade surplus, yuan internationalization and capital inflows.”

Analysts broadly agree that the path forward requires China’s Communist Party to deliver on its 2013 pledge to grant market forces a “decisive” role in economic policy making. Over the past decade, the Xi administration has often overpromised and underdelivered on market-oriented reform, leaving key structural issues unaddressed.

While Beijing has steadily opened Chinese equity and government bond markets to foreign investors, even adding Chinese bonds to major global benchmark indexes, market access has consistently outpaced the domestic institutional reforms needed to prepare Chinese corporations and capital markets for global leadership. While China’s “new economy” grabs global headlines, its troubled “old economy” is drawing unwanted negative attention at a precarious moment for policymakers.

The scale of weak consumer demand is visible in corporate performance from global multinationals too. Sportswear giant Nike recently cut its full-year sales outlook specifically citing weak China demand, with revenues in its second-largest market falling 29% from its 2021 peak to $5.8 billion. “Our Nike performance business is not yet large enough to offset the pressure we’re seeing in Nike sportswear, Jordan brand, and Greater China,” CEO Elliott Hill said in an earnings call, adding that a recovery “will take time.”

As Beijing juggles the overlapping challenges of a systemic property crisis, near-record youth unemployment, strained local government finances, and weak consumer spending, officials have once again called on the so-called “national team” of state-backed investors to stabilize sliding equity markets. Regulators, state-owned investment funds, insurers, and state-linked asset managers have been activated to shore up market confidence following a recent sharp tech selloff, a playbook that Beijing has deployed repeatedly to steady Shanghai shares. The most high-profile use of this strategy came in summer 2015, when Chinese shares fell by a third in just a few weeks, triggering a whole-of-government response that included billions in state buying, trading suspensions for thousands of listed firms, an IPO freeze, and even government marketing campaigns framing stock purchases as a patriotic act.

The national team has been called into action repeatedly since: during the 2018 share-pledge margin call crisis, through the 2021-2022 COVID-19 pandemic, in 2023 when exchange-traded funds faced widespread outflows, in 2025 amid fallout from U.S. tariffs, and now again as global technology stocks face renewed volatility.

A key shift between 2015 and today is the outsize role AI is playing in driving both global equity gains and regional GDP growth across Asia. Take South Korea, for example: September 2026 exports jumped 83.5% year-on-year to a record $120.9 billion, driven by a more than three-fold increase in semiconductor shipments. This marked the 16th consecutive month of export growth, with gains that echo the rapid expansion of the Asian Tiger economic boom era, far outpacing expectations for a mature $1.9 trillion economy. Even with headwinds from U.S. tariffs and Middle East geopolitical tensions, South Korea is on track to hit $1 trillion in annual exports, a milestone that underscores how AI is reshaping regional economic fortunes.

China has a long track record of defying bearish predictions: since the 1997 Asian financial crisis, analysts and short sellers have repeatedly forecast a catastrophic debt-fueled crash that has yet to materialize. Even so, basic economic principles still apply for economies transitioning from state-led, export-focused growth to a model centered on services, innovation, and domestic consumption.

One core principle holds that developing economies must build transparent, trusted capital markets before opening their doors to trillions of dollars in foreign capital. This requires strengthening regulatory frameworks, increasing corporate governance standards, building independent credit rating and surveillance systems, and shoring up financial architecture before global capital arrives. But under Xi Jinping’s leadership, China has become less transparent, with tighter restrictions on independent media and corporate disclosure.

This is the core contradiction of modern Chinese economic policy: Beijing has prioritized opening markets to foreign capital first, and building a world-class, transparent financial system second. Now, as China sits on the sidelines while the global AI boom lifts the stock markets of its regional neighbors, the entire global investment community is watching to see how Beijing responds. The clock is ticking for Xi’s administration, with increasingly little room for missteps. For decades, China was the main engine accelerating Asian economic growth; today, the global AI boom is accelerating pressure on Beijing to finally deliver the long-delayed structural reforms the economy needs to reverse its market slump.

Global discussions around cutting reliance on the Strait of Hormuz, one of the world’s most critical energy chokepoints, almost exclusively center on bypass pipeline projects developed by Saudi Arabia and the United Arab Emirates. But for major Asian energy importers that depend heavily on Hormuz-bound oil and gas flows, these infrastructure projects are only a partial solution to regional energy security risks. The physical bottleneck sits in the Persian Gulf, but the bulk of global economic exposure to potential disruptions is concentrated thousands of kilometers east across Asian markets.

Data from the U.S. Energy Information Administration (EIA) shows that in the first half of 2025, 89% of all crude oil and condensate passing through the Strait of Hormuz was bound for Asian economies. Just four nations – China, India, Japan, and South Korea – accounted for 74% of these total flows. For these major economies, the strait is far more than a distant geopolitical flashpoint; its reliable operation is baked into the core structure of their national energy supply systems.

To date, regional producers have pursued logical infrastructure efforts to reduce exposure to Hormuz disruptions. Saudi Arabia’s 7 million barrels per day (bpd) East-West Pipeline moves crude oil west from Persian Gulf fields to the Red Sea export terminal at Yanbu, fully bypassing the strait. The UAE already routes crude through an existing pipeline to the Gulf of Oman port of Fujairah, and state oil firm ADNOC is currently constructing a second parallel pipeline that will double the port’s export capacity when it enters operation in 2027. These projects are designed to give producers far more operational flexibility if Hormuz is closed or disrupted.

However, a recent attack on Saudi Arabia’s key bypass pipeline offers a stark warning that extra pipeline capacity does not automatically equate to full energy security. On September 10, multiple attacks targeted sections of the East-West Pipeline in the Riyadh and Madinah regions. Saudi Arabia’s Ministry of Energy ordered a full precautionary shutdown while technical teams inspected the line for structural damage, and Reuters reported on September 22 that operations had only resumed at a reduced output rate. This incident comes just six months after the same pipeline proved the value of bypass infrastructure: during the first quarter of 2026, Saudi Aramco ramped flows through the East-West Pipeline to its full 7 million bpd maximum capacity when Hormuz shipping was constrained, calling the line a “critical supply artery” for global markets.

This recent shutdown does not mean investments in bypass infrastructure are misplaced. Instead, it highlights a critical practical reality: backup routes can deliver enormous value during a crisis, but they still remain vulnerable to the same broader regional conflicts that created the need for a backup in the first place.

Industry data also puts clear limits on how much substitution bypass pipelines can actually deliver. The International Energy Agency (IEA) reports that roughly 20 million bpd of oil flowed through Hormuz in 2025, equal to around one-quarter of all global seaborne oil trade. Combined available bypass capacity from Saudi and Emirati pipelines ranges between just 3.5 million and 5.5 million bpd, per IEA estimates, while the EIA puts total operational capacity of the two countries’ main bypass systems at roughly 4.7 million bpd. While several million bpd of alternative capacity is undeniably valuable during a crisis – enough to soften the blow of a major supply shock and give exporters options they would not otherwise have – it cannot replace the full volume of normal traffic through the strait.

Beyond raw capacity numbers, the full story of bypass infrastructure is more complex. Pipelines depend on an interconnected network of supporting assets: pumping stations, power grids, storage facilities, communications systems, export terminals, and safe maritime access at the end point of the route. If multiple parts of this network are exposed to the same regional conflict, a route that looks fully separate from Hormuz on a map may be far less independent in practice.

For Asian buyers, the challenge grows even more acute when it comes to liquefied natural gas (LNG). IEA estimates show that 93% of Qatar’s LNG exports and 96% of the UAE’s LNG exports normally pass through the Strait of Hormuz. Combined, these flows make up roughly 19% of total global LNG trade. In 2025, nearly 90% of all LNG exported through Hormuz was destined for Asian markets, covering approximately 27% of the region’s total LNG imports.

There is currently no pipeline-style workaround for these massive LNG volumes. Qatar transports small volumes of pipeline gas to the UAE and Oman via the Dolphin Gas Project, but spare capacity on the line is extremely limited, and Oman’s existing LNG terminals already operate near full utilization. Moving large volumes of Qatari LNG to an alternative export terminal would require far more than just new pipeline infrastructure: it would require rebuilding the entire network of liquefaction facilities, storage tanks, and export terminals that took years to construct and billions of dollars in financing to develop.

Market movements from earlier this year illustrate how Asian buyers actually adapt to Hormuz disruptions. The IEA’s Q3 2026 Gas Market Report found that between March and June 2026, LNG loadings from Qatar and the UAE fell by 35 billion cubic meters (bcm) compared to the same period in 2025. Producers outside the Persian Gulf raised output by roughly 27 bcm, replacing around three-quarters of the lost volumes. Asian importers did not resolve the disruption by opening a new route around Hormuz; they adjusted through increased supply from other regions, higher market prices, and targeted demand reduction.

These developments point to the need for Asian governments to adopt a far broader definition of national energy resilience. Additional bypass capacity from Saudi Arabia and the UAE is certainly useful, and the new ADNOC pipeline to Fujairah will add welcome operational flexibility. But Asia’s overall energy security cannot depend solely on Persian Gulf pipeline engineering. When Hormuz transport routes become unreliable, the full set of resilience tools matters: supplier diversification, strategic petroleum and gas reserves, flexible LNG contracting, adequate domestic storage and regasification capacity, and the ability to switch between different crude oil grades to offset supply gaps.

This principle also applies to producing nations. Adding a second export route improves overall energy system resilience, but the value of that redundancy depends on how many shared risks the two routes still face – from power supply and storage to terminals, communications, and physical security.

The Strait of Hormuz is unlikely to become irrelevant to global energy markets any time soon; the volumes of oil and gas passing through it are simply too large, and LNG shipments are particularly difficult to reroute. A more realistic policy goal for dependent economies is to reduce the damage that a potential Hormuz disruption would cause. For Asia, that means framing existing bypass pipelines as one critical layer of energy insurance – not a complete, standalone insurance policy on its own.

This analysis was contributed by Dr. Mahyar Ramezankhani, a postdoctoral researcher and economics professor specializing in applied economics and regional economic policy.