HANGZHOU, China, Dec. 19, 2025 /Xinhua-AsiaNet/--
"Hoist the sails and ride the wind across the boundless sea!" With this rousing declaration, Li Chao, Chief Economist of Zheshang Securities Co., Ltd., has struck an optimistic chord for China's economy and capital markets in 2026 - the opening year of China's 15th Five-Year Plan.
Leveraging his pioneering four-level analytical framework, Li delivered a comprehensive breakdown of macroeconomic fundamentals, growth drivers, and investment opportunities, offering investors a clear roadmap for the year ahead.
Four-Level Framework Unlocks Economic Logic: High-Quality Development as Guiding Star
Amid divided market views on 2026's economic outlook, Li emphasized that understanding China's economy requires grasping its intrinsic operational dynamics - and his four-level framework is the key.
Breaking free from the narrow focus on pure economic growth, the framework prioritizes four core policy variables: China-U.S. competition, social stability, structural transformation, and economic growth, arranged in a distinct order of importance.
For 2026, the framework reveals a central narrative: structural transformation led by high-quality development. Li stressed that this transformation is not pursued in isolation but advances steadily while safeguarding growth resilience. Fundamentally, exports - a critical pillar of current economic expansion - have maintained stable growth through strong cost-performance advantages, even amid trade friction headwinds, providing a solid buffer for structural adjustments.
Market confidence in structural transformation is on the rise. While acknowledging that reform inevitably entails costs, Li noted that confidence has been recovering strongly since 2025 - a trend set to gather further momentum in 2026 and serve as a key psychological pillar for stable economic performance.
Data from the first three quarters of 2025 underscores this progress: China's GDP grew 5.2% year-on-year, the share of value-added output from equipment manufacturing and high-tech manufacturing continued to climb, and exports of the "new three high-value products" (electric vehicles, lithium-ion batteries, and solar cells) surged by double digits. These figures validate the solid gains from structural transformation, aligning with Li's assessments.
Liquidity to Fuel Market Uptrend
Li pinpointed declining interest rates as the market's core driver. The steady recovery in market confidence since 2025 has removed barriers to liquidity flowing into the capital market, and as this confidence momentum extends into 2026, the valuation-boosting effect of lower interest rates will come to the fore.
This logic echoes international market patterns. During the U.S.'s 35-year interest rate downtrend (1984-2020), simultaneous bull markets in stocks and bonds were the norm - even in periods of fragile economic recovery, accommodative monetary policy sustained equity gains. Similarly, Japan experienced a stock-bond bull market amid falling interest rates after launching large-scale quantitative easing (QE) from 2013 to 2019. China's current interest rate environment and confidence recovery trajectory are laying the groundwork to replicate this dynamic.
Clear Investment Playbook: Tech and Dividends as Dual Pillars
Li identified two key sectors set to benefit from falling interest rates: technology stocks and dividend stocks. While both are interest rate-sensitive, they cater to distinct risk appetites, with China-U.S. competition emerging as the primary factor shaping risk sentiment.
Technology stocks stand to gain from long-term valuation repricing. Li explained that lower interest rates significantly reduce the discount rate for future cash flows, highlighting the long-term growth potential of tech firms. Investors, he argued, should look beyond short-term profitability and focus on long-term returns from technological innovation and market expansion. This thesis is supported by the 9.6% year-on-year growth in high-tech manufacturing value-added output since 2025, as well as the robust production growth of emerging products, such as industrial robots, signaling strong momentum in the tech sector.
Dividend stocks, meanwhile, offer relative return advantages. Against a backdrop of falling bond coupon rates, high-dividend stocks provide stable dividend yields that can match or exceed bond returns, positioning them as a "safe haven" in asset allocation. From a relative valuation perspective, A-share dividend sectors still have ample room for valuation recovery, making them the top choice for investors with low risk appetite.
Based on the unique traits of these two asset classes, Li outlined a clear allocation strategy: prioritize dividend stocks when China-U.S. tensions escalate and risk appetite wanes; shift to technology stocks when bilateral relations ease and risk sentiment improves. This strategy is anchored in the core logic of falling interest rates, while accounting for marginal changes in key variables, offering investors an actionable decision-making tool.
Source: Zheshang Securities Co., Ltd.
