Beyond the oil

Please find below our latest thoughts on China:

• Overall, China equities have been relatively calm through recent events in the Middle East.
• There has, however, been a notable divergence across markets, with China H-shares listed in Hong Kong proving more volatile than A-shares listed in Shanghai and Shenzhen. 
• This continues a familiar pattern during periods of global stress. China H-shares tend to experience sharper swings, due to their greater exposure to international capital flows and global risk sentiment, which amplifies volatility when international markets sell off.
• In contrast, China A-shares remain dominated by domestic investors with greater “home bias” dynamics, providing a degree of insulation from external shocks.

• In terms of China’s energy situation, our assessment is that unless the conflict in the Middle East leads to a sustained, multi-month disruption in physical supply, the macro impact should be manageable.
• China’s overall external energy dependency – the extent to which it relies on imported energy sources – is comparatively low (c.15%).¹ This reflects China’s reliance on domestic energy sources such as coal as well as the expansion of renewables.
• China has also made significant efforts to diversify import channels over time. As such, only around 7% of total energy consumption comes from crude oil and natural gas imported via the Strait of Hormuz.² China also maintains substantial strategic petroleum reserves, equating to around 3-4 months of import cover.³ 
• These buffers significantly reduce the risk of a near-term supply shock translating into a macroeconomic challenge. China also has significant policy space – both monetary and fiscal – to cushion growth if external shocks worsen. 
• On the subject of policy, much of the focus within China in recent days has been closer to home with details of the next Five Year Plan being formally unveiled.
• The key takeaway, from our perspective, was one of continuity. The main priorities for growth remain focused on the development of science, technology and manufacturing. There are few signs of an imminent boost to consumer spending.

• Indeed, the slightly lower GDP growth target for this year – a range of 4.5-5.0% compared to “around 5.0%” in the previous two years – reinforces the message that “growth at all costs” has been replaced by the calculated pursuit of increased self-reliance in critical industries. 
• What was notable, for example, was the marked increase in the frequency of keywords related to AI, quantum computing, and national security. 
• There was also a pledge to keep developing strategically important emerging industries. These were mostly high-tech manufacturing areas such as supercomputing, semiconductors, aerospace, humanoid robots, 6G, biotech, and the so-called low-altitude economy. The latter typically involves activities below 1,000 metres – primarily drone-related at this stage.
• AI is at the core of China's overarching policy objective of enhancing national security and being technology self-sufficient. A lot of coverage of US-China competition is based on “who is winning the AI race”. This, of course, assumes the two countries are running the same race. In many ways, they are not.
• The focus within China is less about building the best LLM models, and more about how AI will be deployed, especially to upgrade its manufacturing sector. 
• As an example, the government tracks AI deployment nationally, ranking factories based on their level of AI use with a classification system. The target is to double the number of factories at Level 3 and above – where AI is used in at least 20% of processes – by 2030.⁴
• In practice, therefore, the different approaches to developing AI are likely to lead to different real-world outcomes. The benefits of AI in China are likely to be widely spread across many companies.
• From an investment perspective, China’s intense focus on tech and AI means that it has rapidly become an integral part of the global AI universe.
• A recent sell-side analysis suggests China accounts for 10% of global AI-related equity market cap, 16% of revenue and close to 20% of capex and R&D.5 Given the relatively low global allocations to China, many investors will be structurally under-exposed to Chinese tech companies compared to their representation in the aggregate AI universe.
• And finally… to get a sense of how advanced humanoid robots have become in a short space of time, take a look at this three-minute video from last month’s Lunar New Year Spring Festival Gala, China’s most-watched annual TV event: Humanoid Robots Steal the Show During China's 2026 Spring Festival Gala – YouTube.

¹ Source: Nomura, 3 March 2026
² Source: Nomura, 3 March 2026
³ Source: The Oxford Institute for Energy Studies, February 2026
⁴ Source: Gavekal, 9 March 2026
⁵ Source: Goldman Sachs, 2 March 2026