Fresh foreign capital shows investor confidence
China attracted $8.1 billion in foreign capital inflows in May, defying emerging market outflows, driven by investor confidence in its economic resilience and AI-driven growth. Analysts highlight strong earnings in technology sectors, with AI hardware, semiconductors, and the 'AI Plus' strategy boosting exports, fixed-asset investment, and productivity gains, contributing significantly to GDP growth.
China recorded net foreign capital inflows of $8.1 billion in May, contrasting with broader emerging market outflows of $26.6 billion, according to the Institute of International Finance. The influx reflects confidence in China’s economic stability and policy support amid geopolitical tensions, with technology sectors leading gains. The CSI 300 Index rose 6.3% year-to-date by May 25, driven by AI hardware and semiconductors, while the STAR 50 and ChiNext Indices surged 41% and 25%, respectively, fueled by first-quarter earnings growth of 54% to 230% in electronics and computing. Analysts attribute the rally to China’s 'AI Plus' strategy, integrating artificial intelligence with manufacturing, which has spurred hardware exports and capital market activity. Lu Ting, Nomura’s chief China economist, noted exponential growth in AI model usage and its expanding role in fixed-asset investment, exports, and productivity. The AI sector’s value is projected to exceed 1.2 trillion yuan ($177 billion) in 2025, accounting for nearly 1% of GDP, with potential to surpass that share in 2026. HSBC expects structural earnings recovery in A-share markets, with materials, energy, and information technology leading revisions. Desmond Kuang, HSBC’s China chief investment officer, emphasized AI’s role in driving global capital into technology and benefiting broader sectors like industrials and materials. Meanwhile, UBS Securities reported a rebound in global fund allocations to Chinese equities, though still below pre-2021 peaks. China’s low dependence on Gulf oil imports and resilient industrial base have further insulated its economy from external shocks. Policymakers and economists agree that sustained AI investment and productivity gains will underpin long-term growth, positioning China as a key player in the global technology sector.
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