Foreign Institutions Bullish on China’s Economy

Foreign investment institutions are expressing strong confidence in China’s economic prospects, citing the country’s vibrant innovation ecosystem and sustained growth momentum as key drivers of continued optimism. Despite global economic uncertainties, international investors increasingly view China as a premier destination for capital allocation, according to a report from Xinhua News.

China’s gross domestic product grew 4.7% year-on-year in the first half of 2026, with hard-tech-driven economic momentum increasingly becoming a critical force supporting growth. The late-July Politburo meeting characterized the economy as showing “a development trend of new momentum and improved structure” while also emphasizing the need to address difficulties and challenges in economic operations.

AI and Innovation as Core Drivers

Nomura Global Macro Research Head and Co-Head of Global Markets Research Su Bowen highlighted China’s competitive advantages in artificial intelligence, noting that the country’s low-cost and massive power capacity, continuously growing talent pool, and leading position in large models and physical AI are driving rapid development of the AI industry chain.

“Open-weight models released by Chinese companies like DeepSeek and Moonshot AI not only have outstanding performance but also low token call costs, helping to expand AI applications in more fields,” Su said.

China’s AI investment in 2026 is expected to grow nearly 20% year-on-year, reaching approximately 900 billion yuan (about $125 billion), according to data cited in the Eastmoney report on Morgan Stanley’s bullish stance on Chinese hard tech.

Advanced Manufacturing Strengths

Morgan Stanley China Chief Economist Xing Ziqiang emphasized China’s competitive advantages in advanced manufacturing, pointing to new energy vehicle global penetration exceeding 60%, new energy storage accounting for approximately 50% of global installed capacity, and rapidly increasing innovative drug out-licensing deals.

“These constitute the long-term investment logic of foreign capital in China’s hard tech and manufacturing leaders,” Xing said.

The strength of China’s manufacturing and tech sectors has drawn attention from global investors. As Global Times reported in January, Goldman Sachs forecast continued growth for Chinese listed companies, predicting gains of 15-20% in 2026 and 2027, citing strength in China’s exports sector, a rebound in investment, and policy focus on driving domestic consumption.

Policy Support and Infrastructure Plans

The July 30 Politburo meeting emphasized that “macro policies should exert force and improve efficiency” and called for “increasing counter-cyclical adjustment.” DBS Bank Senior Economist Zhou Hongli noted that the “Six Networks” infrastructure planning — encompassing water networks, new power grids, computing networks, next-generation communications networks, urban underground pipeline networks, and logistics networks — can effectively hedge against downward pressure on private investment in the short term.

As 21jingji reported, the “Six Networks” plan involves total investment expected to reach 7 trillion yuan, providing significant support for investment growth in the second half of the year.

UBS Securities China Chief Economist Song Yu emphasized that “economic operations need a combination of ‘releasing the brake’ and ‘stepping on the accelerator’” — accelerating fiscal spending and bond fund usage, planning incremental policies, and improving fiscal-financial policy coordination.

Foreign Capital Flows Turning Positive

Foreign capital flows to China turned net positive in 2025, with the pace of return accelerating further in 2026. According to Securities Daily, multiple foreign institutions believe the market correction has largely concluded, with August expected to enter a recovery phase.

Morgan Stanley (Asia) China Onshore Equity Business Head Shen Li noted that international investors’ perception of Chinese assets has shifted from systematic underweight to “must have.” Global funds remain approximately 1.3% underweight on China, while emerging market funds are approximately 5.7% underweight, suggesting significant room for further allocation.

As 21jingji reported, Citi has upgraded Chinese stocks to “overweight,” and Standard Chartered maintains an overweight position on Chinese equities, citing attractive valuations and deepening AI industry trends.

Outlook for the Second Half

Zhou Hongli predicted that “with counter-cyclical adjustment strengthening and macro policies taking effect, China’s economy is expected to show a stable and progressive trajectory in H2, with full-year main expected targets expected to be achieved smoothly.”

UBS China Equity Strategy Research Head Wang Zonghao noted that beyond AI, investors’ interest in China’s biotech sector has also exceeded expectations, suggesting investors are seeking under-explored Chinese innovation areas and diversifying beyond AI.

JPMorgan China Equity Strategist Zhang Xiaoning observed that “the tactical rotation from AI to non-AI over the past month is still ongoing, and we expect AI to re-establish its market leadership in August.”

With MSCI China trading at approximately 12 times earnings — below the emerging market average — and 2026 earnings growth forecast at 15%, international investors see compelling value in Chinese assets. As the CCTV News report on the Xinhua article noted, the combination of policy support, innovation momentum, and improving fundamentals positions China’s economy for continued resilience in the months ahead.