Contrary to common Western assumptions, China's official AI blueprint focuses on practical applications like scientific discovery and industrial transformation, with no mention of AGI or superintelligence. This suggests a more grounded, cautious approach aimed at boosting the real economy rather than winning a speculative tech race.

Reconcile contradictory advice by segmenting your capital. Hold years of living expenses in cash for short-term security and peace of mind. Separately, invest money you won't need for 10-25 years into assets to combat long-term inflation. The two strategies serve different, non-conflicting purposes.

Facing semiconductor shortages, China is pursuing a unique AI development path. Instead of competing directly on compute power, its strategy leverages national strengths in vast data sets, a large talent pool, and significant power infrastructure to drive AI progress and a medium-term localization strategy.

Unlike previous years dominated by a single theme, 2026 will require a more nuanced approach. Performance will be driven by a range of factors including country-specific fiscal dynamics, the end of rate-cutting cycles, election outcomes, and beneficiaries of AI capex. Investors must move from a single macro view to a multi-factor differentiation strategy.

If AI is truly transformational, its greatest long-term value will accrue to non-tech companies that adopt it to improve productivity. Historical tech cycles show that after an initial boom, the producers of a new technology are eventually outperformed by its adopters across the wider economy.

Following a 30-40% valuation surge in 2025, China's market is expected to stabilize. Further upside in 2026 will depend on corporate earnings, projected at a modest 6%, signaling a shift from a valuation-driven to an earnings-driven market that requires a different investment approach.

For today's high-uncertainty economy, a barbell strategy is optimal. It involves playing safely in liquid assets like front-end government bonds while making long-term private market investments that solve geopolitical vulnerabilities in areas like rare earths, drones, or domestic chip manufacturing.

The dominant market driver will transition from macro risks like tariffs and policy uncertainty to micro, asset-specific stories. The key focus will be on company-level analysis of AI capital expenditure plans and their impact on earnings.

China’s economic strategy prioritizes technology and manufacturing competitiveness, assuming this will create a virtuous cycle of profits, jobs, and consumption. The key risk is that automated, high-tech manufacturing may not generate enough jobs to significantly boost household income, causing consumer spending to lag behind industrial growth.