Fang Fenglei: Why the China 'Investibility' Debate is No Debate at All

Ø Veteran Investor Fang Fenglei on Why the China ‘Investibility’ Debate is No Debate at All

Influential financier who helped found CICC says arguments against China investment ‘do not hold water’

· Arguments Against Investibility Lack Substance: Veteran financier Fang Fenglei asserts that claims of China losing its investment merit "do not hold water." He attributes negative foreign sentiment to broader global issues—such as trade protectionism and regional conflicts—rather than structural failure within China.

· Property Market Realignment: The ongoing adjustment in China’s property sector is a deliberate move by the government to curb high leverage and deflate bubbles. Although painful, this intervention has successfully redirected resources into strategic emerging hi-tech manufacturing and biopharmaceuticals.

· AI and Industrial Capabilities: While the US leads in foundational software and high-end chips, China excels in engineering implementation, hardware infrastructure, and physical-world AI applications like humanoid robots and autonomous vehicles.

· Stronger Renminbi Outlook: Backed by robust trade fundamentals and low domestic financing costs (such as a 1.7% 10-year government bond yield), Fang predicts the renminbi will enter a moderate appreciation cycle against the US dollar over the coming years.

· The Power of "Building Factories": China's unmatched combination of an abundant engineering workforce, extensive industrial supply chains, and high industrial robot adoption (accounting for 54% of global installations in 2024) creates an ecosystem that is difficult for other nations to replicate.

· Cognitive Bridging Needed: Fang stresses that understanding China requires looking beyond simple statistics to recognize its unique political economy framework, capacity to execute long-term goals, and commitment to balancing near-term costs for long-term structural upgrading.

[ABS News Service/14.09.2026]

Over the past three decades, investor Fang Fenglei has had a major role in shaping China’s capital markets. He worked with Morgan Stanley in the early 1990s to help create the country’s first joint venture investment bank – China International Capital Corp. Then, at the start of the millennium, he spearheaded the listing of state-owned giants in Hong Kong as CEO of Bank of China International, later chairing a China joint venture with Goldman Sachs.

Now the chairman of Hopu Investments, Fang discusses China’s investment opportunities, the artificial intelligence race, diversification from US dollar assets and Hong Kong’s growth potential.

There has been talk from abroad that China’s economy has peaked, and debates continue over whether China is still “investible”. What is your assessment of foreign investors’ sentiment?

Given their different sectors, standpoints and risk appetites, alongside political, economic and cultural influences, institutions hold divergent views on China.

On a practical level, multinationals can achieve stable operations in China through equity-related and governance-oriented arrangements with Chinese partners.

Take Starbucks’ joint venture deal with Boyu Capital, for instance. Boyu holds a 60 per cent stake, while Starbucks retains a 40 per cent stake and keeps ownership of the brand’s intellectual property rights. For McDonald’s China, a Citic-led consortium holds 52 per cent, with McDonald’s owning 48 per cent.

Foreign capital acts both as “distant water” and “living water” for China: “distant water” refers to its long-term nature, while “living water” indicates its role in stimulating market dynamism.

Some investors with reservations about China often point to falling birth rates and weak domestic demand. These are actually global issues intertwined with multiple factors including trade protectionism, regional conflicts and shifts in the global industrial landscape.

Growth rates cannot be assessed in isolation from the size of an economy. As the world’s second-largest economy, China’s pursuit of moderate, high-quality growth represents a healthy trajectory. Arguments claiming China has lost its investment merit do not hold water.

Looking back to 1979, when the concept of a “moderately prosperous society” was first introduced, China’s per capita gross national product stood at less than US$300. Few at that time anticipated China would become the world’s second-largest economy.

To understand China, one must not only look at statistics, but also look at its proven capacity to deliver on goals and drive economic transformation.

China’s property adjustment, a widely watched issue among investors, stems from changing market conditions and proactive government efforts to deleverage, deflate bubbles and fend off systemic risks. The property sector has long carried high leverage. Its unique features have delayed market self-correction and kept resources away from other industries.

Many developers used to rely heavily on offshore US dollar-denominated bonds. However, the US Federal Reserve rate hikes in 2022 sharply increased their debt servicing burdens. Such risks would only continue to accumulate and escalate without timely regulation.

The adjustment has come with pain, yet it has also steered resources towards strategic emerging industries. In the first half of this year, China’s investment in hi-tech industries rose by 4.6 per cent, while value-added output of hi-tech manufacturing expanded by 13.3 per cent. New growth drivers are taking shape.

Globally, only China and the United States possess AI capabilities capable of driving full-chain industrial development.

The same holds true for biopharmaceuticals. Total out-licensing deals for Chinese innovative drugs exceeded US$130 billion last year, and topped US$100 billion in the first half of 2026 alone. International recognition of China’s innovation capacity is on the rise. Faced with such growth dynamics, investors will not easily walk away from the Chinese market.

What categories of Chinese assets are the most appealing to foreign investors?

It is worth looking at the two ends of the K-shaped consumption [model]. At the value-for-money end, I’d like to take Dayao soda, which is backed by KKR, as an example. It targets carbonated drinks commonly served at barbecue stalls. Companies in this segment can deliver solid profits if they maintain efficient distribution channels and healthy cash flow.

The high-end segment also draws investor optimism. Premium malls in China such as SKP remain popular.

China has largely emerged from the aftershocks of the [Covid-19] pandemic. Historical experience shows that for every major shock China has weathered, the time it takes to recover has been roughly one-to-one versus the length of the shock period. The pandemic‑driven shock lasted around three years, so the recovery phase is also roughly three years.

In the first half of this year, China’s consumer price index (CPI) rose 1 per cent year on year, while core CPI, which excludes volatile food and energy prices, added 1.2 per cent. Sustained improvement in price indicators sends a positive signal.

Surging global investment in AI has sparked a debate: some view it as a sign of prosperity, while others regard it as a potential bubble. What do you think?

Bubbles do exist in certain segments. Yet the build-up of venture capital and valuation expansion can accelerate research and development spending, technological accumulation and the construction of new infrastructure. The key lies in whether such bubbles will burst, how severe their negative fallout would be, and how these risks can be pre-emptively mitigated.

Both China and the US are investing heavily in AI. China channels more resources into applications, embodied AI and industrial use scenarios. In a study this year, Rand Corp analysed 1,181 AI firms in the two countries. It found that the two ecosystems bear strong similarities at the foundational technology level.

The real divergence lies in product forms and application priorities: 61 per cent of US firms are software only, compared with 26 per cent for Chinese counterparts. Chinese companies deploy AI more widely in physical world scenarios including humanoid robots, ground-based robots and autonomous vehicles, as well as the manufacturing, transport and energy sectors.

The US holds an edge in high-end chips and foundation models, while China excels in engineering implementation, industrial supply chains, application-use cases and market scale. It stands a good chance of building comprehensive advantages in application scenarios and in industrialisation.

When comparing AI-related investment between China and the US, we also need to take account of exchange-rate effects and statistical methodologies.

Much US spending shows up as capital expenditure by large technology firms. In China, a substantial amount of infrastructure has been built by power utilities, telecoms operators, data centre operators and hardware equipment vendors. Such outlays may not be booked under “AI company investment” on financial statements, yet they effectively support AI development.

Bubbles can emerge in any sector. A moderate bubble may even be beneficial, yet one must guard against continuous build-up and potential bursting. By pursuing its own path, tailored to local conditions, China can achieve more stable development.

The US also has bubbles, yet it is more resilient to them thanks to its multi-tiered financial system. Backed by the US dollar system, mature capital markets, ample liquidity and established exit mechanisms, it boasts strong recovery capacity.

By comparison, China’s strength lies in the combination of policy guidance and market forces, enabling it to mobilise resources for major strategic initiatives.

Policy uncertainty under US President Donald Trump has risen this year, and regional conflicts, energy prices and inflation pressures are also roiling markets. Could China – and by extension its currency, the renminbi – be a safe haven to accommodate the rising need for portfolio diversification?

Not putting all one’s eggs in one basket is a fundamental principle for investors worldwide. International investors allocate their capital to both the US and China. China’s foreign exchange reserves are also diversified – based on considerations of safety, liquidity and returns – with a certain amount of US assets serving practical needs.

China enjoys stable development with solid long-term growth underpinnings. Its 2035 target is to achieve the per capita gross domestic product level of moderately developed countries. Diligence among its population, entrepreneurial spirit, a complete industrial system and its super-large market all point to substantial room for further development.

On financing costs, China’s 10-year government bond yield stood at roughly 1.7 per cent at the end of July, compared with around 4.7 per cent for the US and 2.8 per cent for Japan.

As Chinese assets grow more appealing, renminbi-denominated financing and investment in renminbi assets will both become serious options for a larger number of global investors.

China’s exports enjoy strong competitiveness with its ample production capacity and industrial-chain support, sufficient sources of capital, and a large pool of engineers and industrial talent. A rising number of Chinese enterprises have also established after-sales service networks globally.

Thus, I believe the renminbi will enter a moderate and steady appreciation cycle, with an estimated average annual appreciation of around 5 per cent [against the US dollar] in the coming years. Specifically, the exchange rate could move towards 6 yuan per US dollar in the next two years and move closer to 5 yuan per US dollar in the next five to six years.

Three major factors underpin this outlook: a solid foreign trade base, robust economic growth and China-US ties trending towards a more manageable and less confrontational state.

To sum up, professional investors are unlikely to disengage from China, given the appeal of renminbi assets, industrial strength, economic structure and financial factors.

Hong Kong is developing as an offshore renminbi centre, with yuan internationalisation being seen as a major opportunity. What is your take?

Hong Kong should prioritise consolidating its status as an international financial centre, while developing technological innovation, education and healthcare. These sectors align with global demand, national development priorities and Hong Kong’s own needs.

It faces favourable conditions for developing its offshore yuan business. The Chinese currency has entered an era of low interest rates, and yuan-denominated financing carries substantially lower costs compared with US dollar financing.

Hong Kong’s offshore renminbi potential is yet to be fully unleashed. Some economists point out that the Chinese currency is still barely used in everyday trading and settlement across Hong Kong’s financial markets.

Daily turnover of Hong Kong stocks stands at roughly HK$200 billion to HK$300 billion. There are 24 yuan-denominated stocks, with the highest daily turnover amounting to only several billion yuan.

In fact, mainland Chinese enterprises accounted for around 77.7 per cent of Hong Kong’s market capitalisation and 90.2 per cent of equity turnover in June, according to Hong Kong Exchanges and Clearing. One viable path worth exploring is Hong Kong dollar-quoted securities settled in yuan, US dollars or Japanese yen. Yuan internationalisation requires both expanding liquidity pools and unclogging capital flows.

The central government has consistently supported orderly connectivity between the mainland and Hong Kong markets. Within the existing framework, authorities can steadily expand the scope of eligible securities and products, giving mainland capital convenient access to Hong Kong’s market through legal channels.

The market is divided on US stocks. Some global investors favour higher cash holdings, while trading and market value are heavily concentrated in a few big technology firms. What is your view?

There have always been smart and less-smart investors in the market. We remain in a complex environment defined by AI-narrative validation, Federal Reserve policy uncertainty and geopolitical risks. Every year, some argue US stock valuations are too high – and valuations are indeed elevated at present.

As for global tail risks, multiple overhanging issues are yet to be priced in by markets. These include tensions in the Strait of Hormuz, US-Japan exchange rate intervention, and long-standing sovereign fiscal risks. Apart from the sharp shock of the 2012 European debt crisis, most of these risks have not translated into substantial real-world damage.

Large investors are holding cash while waiting for market corrections. A cohort of macro hedge investors in the US regard SpaceX’s share price dropping below its issue price as one sign. Once opportunities emerge, investors will deploy their cash – investment strategies are never monolithic.

The Trump administration attaches high priority to stock market performance and has rolled out multiple capital market policies. It expanded the investment scope for 401(k) plans via executive orders, instructed relevant agencies to draw up proposals for setting up a US sovereign wealth fund, and promoted “Trump accounts”. Saudi Arabia’s pledged investment has risen from US$600 billion to nearly US$1 trillion. Objectively, these policies could boost the supply of long-term capital.

At the end of the day, astute investors always keep cash on hand and maintain adequate liquidity buffers.

Hopu Investments made anti-cyclical investments during the 2008 global financial crisis. What’s your assessment of the current market risk? Are you sitting on substantial cash reserves, waiting for investment opportunities?

Our investment philosophy can be summed up as “global investment, with a China angle”.

We invested in French animal-health firm Ceva Sante Animale and brought its business to China. Its China-based revenue grew by 2.5 times under our investment.

Another investment is [logistics firm] GLP. Hopu has invested in GLP twice. In 2017, Hopu led a consortium to privatise the company for US$11.6 billion, marking Asia’s largest ever private equity buyout.

Following Hopu’s involvement, GLP expanded its global footprint and attained leading positions in China, Japan, Brazil and India. Within 12 months of entering the US market, it became the region’s second-largest logistics property owner, while also building an extensive presence across Europe.

Our strategy centres on countercyclical investing and special situations investing. Put simply, we seek out “mismatch” opportunities. We understand limited partners’ risk appetites, return objectives and industrial priorities, managing capital and projects within the framework of fiduciary duty.

Frictions over Nexperia have attracted a lot of attention. What key issues should Chinese enterprises bear in mind when expanding into global markets?

This is a challenge for all – policymakers, economic regulatory authorities and businesses alike. The key lies in risk management. Geopolitical conflicts raise risks around regulatory approvals, compliance and supply chains.

There is greater demand for investors who understand diverse markets and can facilitate dialogue between different parties – and this dynamic can create opportunities for many investors. While geopolitics raises additional barriers, markets will find their way in the end.

Now that China’s incremental direct financing – government bonds, corporate bonds and onshore equity financing by non‑financial companies – exceeds that of bank loans, does this structural shift signal that the country’s capital markets have entered a new stage?

China’s financial system has long been dominated by bank-based indirect financing. By contrast, direct investment consists of long-term equity investment from private equity and venture capital investors, who hold equity stakes in companies directly and participate in value creation.

In terms of incremental financing flows, China has entered a phase of accelerated development for direct financing.

Meanwhile, China’s five largest commercial banks set up asset investment companies, expanding their investment scope to include equity investments in technological innovation enterprises. This has created dedicated channels for market-oriented debt-for-equity swaps and long-term equity capital.

As for technological innovation investment, I’d like to cite a speech I made in June: “zero to one” breakthroughs are not yet our strength, but China’s advantage lies in the “10 to 100” scaling-up phase.

The most challenging segment, I believe, is “one to 10” – translating laboratory achievements into mass production. This demands both technical and engineering capabilities. It also requires long-term patient capital from investors who can identify technological value, bear prolonged risks and accompany enterprises through their growth journey.

We now need to further deepen direct investment.

Annual private equity investment accounts for roughly 4 per cent of GDP in the US, compared with less than 0.7 per cent for China. This gap represents the scope for long-term capital to back technological innovation and corporate growth.

Going forward, China needs to build out its corporate credit bond market, private equity, venture capital, mergers and acquisitions financing and diversified long-term capital sources, so that its financing structure can align with industrial upgrading.

When it comes to China’s capital markets and the broader economy, what issues occupy your thinking? What are the most pressing concerns and areas most in need of improvement?

For a long time, Western societies have had two extreme narratives: the “China collapse” theory and the “China threat” theory. With such theoretical frameworks, you would struggle to fully comprehend China’s development path.

In a sense, bridging cognitive differences is the primary task. To understand China, one needs to grasp at least three dimensions.

First of all, China consistently upholds the principle of putting people first. Under certain major public policy initiatives, China is prepared to accept certain short-term costs to safeguard the bottom line of people’s livelihoods and social stability.

Secondly, China has long attached great importance to industrialisation, technological capacity and national security. Today’s drive towards high-level self-reliance and strength in science and technology represents both a proactive response to shifts in the global landscape and a summation of historical experience.

Recent developments in the Middle East have subjected global energy supply chains to a stress test. China has a relatively high external dependence on oil. However, its long-standing push for diversified import sources, enhanced reserve capacity and energy structure adjustment has underpinned overall supply stability – an indication of this long-term-minded approach.

Thirdly, China has its own political economy framework. It attends not only to near-term demand, but also to long-term production and structural upgrading.

During the Covid-19 pandemic, the US handed out cash to households. China, however, deployed a mix of tools, such as consumption vouchers and trade-in programmes for consumer goods, to boost consumption and industrial upgrading.

Policy choices require prioritisation and trade-offs among multiple objectives. There is no perfect solution that comes without costs.

Welfare security constitutes an important component of modern governance. But over-reliance on broad-based, indiscriminate subsidies, at the expense of policy efficiency and work incentives, will create sustainability risks.

China needs to make comprehensive choices grounded in its national conditions, development stage, household needs, fiscal capacity and industrial base, rather than taking a simple issue-by-issue approach.

Going forward, China may steadily raise the basic pension for urban and rural residents, narrowing the benefit gap between elderly rural and low-income groups, and urban retirees. Pension security sustains people’s livelihoods and unlocks domestic demand.

Last but not least, China favours the solving of problems. Once issues are recognised and consensus forms, it can mobilise all resources needed and execute fast. This is a core national strength. For instance, China’s anti-poverty drive lifted 98.99 million rural poor out of absolute poverty. It can always pool resources and move quickly.

Also, state-owned enterprise (SOE) reform represents another major source of potential. As Ning Gaoning – one of China’s most influential business leaders – once pointed out, SOEs’ return on assets is 2 to 5 percentage points lower than that of private firms in the same industry. They need to further boost profitability and industrial competitiveness, so as to translate the scale advantages of the state-owned economy more fully into efficiency gains.

Amazing feats and epic fails at the World Humanoid Robot Games in China

China’s technological advances, industrial organisational capacity, edge in engineering talent and its abundant labour force have created extensive synergy across people, robots, craftsmanship, supply chains and organisational management. I call this “the ability to build factories”.

Foxconn built Apple’s production lines in China, establishing a modern industrial manufacturing model powered by robots, engineers and advanced tooling. Data from the International Federation of Robotics shows that China accounted for 54 per cent of global annual industrial robot installations in 2024, with an operational stock exceeding 2 million units.

Robots, when combined with engineers and management systems, create capabilities that are hard for other countries to replicate in the short-to-medium term. China has led the world in manufacturing value-added output for 16 consecutive years, boasting strong advantages in its engineering workforce, complete industrial chains and large-scale production capacity.

European enterprises can follow the examples of BASF and BMW to build production facilities in China. They can combine China’s supply chains and engineering efficiency with European technology, R&D and brand strengths to sell products worldwide.

There are always smart approaches. Drawing lessons from past US-Japan trade frictions, the [Chinese] government could coordinate export volumes and pace, encourage local investment and ease external pressures in the short-run. This approach, however, relies heavily on administrative coordination. It is less market-oriented and cannot deliver fair competition.

Broadly speaking, both China and the US belong to the world’s first‑tier industrial systems. Their overall scales are comparable, yet their structures differ. According to former Chongqing mayor Huang Qifan’s estimates, producer services accounted for roughly 48 per cent of US GDP in 2024, versus around 30 per cent for China.

China’s weak point lies in producer services, while the US falls short on supply chain resilience. The US excels at exporting R&D, software, finance and professional services. Nevertheless, events such as the pandemic will expose its insufficient domestic manufacturing capacity. Its push in recent years to reshore critical supply chains and manufacturing is meant to address this gap.

China has a collaborative innovation ecosystem spanning government, enterprises, universities and research bodies, plus a massive engineering workforce and comprehensive industrial chains. Its underlying strengths are considerable.

To address external industrial frictions, China should partly rely on exchange rate and price mechanisms to phase out low-value-added exports and low-price competition. Meanwhile, localised investment and targeted export coordination can help ease geopolitical pressures.

China may also reduce excessive concentration of its investments and exports towards the US and the European Union, and expand into alternative markets. Companies can either set up production overseas, or welcome foreign counterparts to build facilities in China.

The world should assess China not only by its GDP, but also by its gross national income, which includes income generated from overseas factors of production. More balanced import-export flows and a better adjusted trade structure will contribute to a healthier Chinese economy.