Latest / China Economy with Fexingo: Beijing's Policies, Trade, and Asia-Pacific Markets / How China Tech Stocks Surged on July 20 2026
Transcript
- Lucas: If you looked at China tech stocks this week and thought 'something shifted,' you're not wrong. The KWEB ETF, which tracks Chinese internet companies, jumped 5 percent in five days. Alibaba alone gained over 7 percent. And this isn't just a dead cat bounce — there's a specific story underneath the numbers. Luna: It's interesting because the macro picture hasn't exactly turned sunny. The latest trade balance data for May showed the deficit widening to over 77 billion dollars, and the current account deficit is also deeper. So what's driving the rally? Lucas: Right, the macro fundamentals are still mixed. But I think the market is pricing in a shift in regulatory sentiment. We've seen Beijing signal a more business-friendly stance — especially toward tech platforms that align with national priorities like AI and cloud computing. Alibaba's cloud division, for example, has been winning government contracts and enterprise deals. Luna: And the yuan has been relatively stable. We're at 6.78 per dollar, which is actually a bit stronger than a few weeks ago. That helps sentiment for foreign investors who've been burned by currency risk. Lucas: Exactly. Stability in the yuan reduces one of the big headwinds. Plus, the trade-weighted dollar index eased slightly to 120.5. So emerging market assets, including China equities, get a bit of a tailwind. But the real story is company-specific. Luna: Let's talk Alibaba. That 7.3 percent weekly gain — is it mostly cloud AI optimism or is there something else? Lucas: Cloud AI is a big part of it. Alibaba has been rolling out new AI services through its Tongyi Qianwen model, and they've been aggressive on pricing — undercutting some Western competitors. But also, there's a sense that the worst of the regulatory crackdown is behind them. The antitrust penalties are paid, the restructuring is underway, and investors are starting to look forward. Luna: JD.com was up over 6 percent as well. That one's more about consumer sentiment and logistics efficiency. They've been cutting costs and improving delivery margins. Lucas: Yeah, JD is a different play. It's not the AI story — it's the e-commerce efficiency story. Their supply chain is best-in-class in China, and as consumer spending stabilizes, they're well positioned. The market seems to agree, at least for now. Luna: Speaking of the market agreeing, let's talk about the one that didn't: NIO. Down over 3 percent. That's a stark contrast. Lucas: NIO is a reminder that the EV space is still under intense pressure. There's a price war in China's EV market that's crushing margins. NIO is burning cash, and despite decent delivery numbers, the path to profitability is murky. Plus, the EU's tariff discussions on Chinese EVs add another layer of uncertainty. So even as tech rallies, EV names are getting sold. Luna: Baidu was almost flat — up just 0.3 percent. That surprised me. They've also been pushing AI, but maybe the market is waiting for more concrete revenue from their autonomous driving and ERNIE bot. Lucas: Exactly. Baidu is in a weird spot. They have the AI credentials, but monetization hasn't materialized as fast as investors want. And their core advertising business is facing headwinds from a slowing economy. So even with AI hype, the stock is stuck. Luna: So what's the takeaway for someone watching these China ETFs? Is this rally sustainable or just a short-term squeeze? Lucas: I think it's partly a sentiment reset, but not a full-blown recovery. The regulatory environment is improving, the yuan is stable, and companies like Alibaba are showing real AI execution. But the macro headwinds — trade deficits, property sector weakness, youth unemployment — haven't gone away. So I'd call it a tactical rally within a broader cautious outlook. Luna: It's interesting — if today's breakdown was actually useful to you, the way these episodes stay ad-free is listener support. People like you chipping in so we don't have to sell your attention to advertisers. Lucas: Yeah, it's not a huge ask. If you get value from walking through the economy with us, you can keep that going at buy me a coffee dot com slash fexingo. No pressure, just an option. Luna: Exactly. And it makes a real difference. So, back to China — you mentioned trade deficits. The May number was 77.6 billion, worse than April's 54.6 billion. That's a big swing. Is that mostly tariffs or something else? Lucas: It's a combination. Exports have held up reasonably well, but imports have surged — partly due to higher commodity prices and partly because of inventory building. The trade-weighted dollar being a bit weaker actually helps exports, but the deficit widening suggests domestic demand is stronger than some pessimists assume. Luna: That's an interesting lens. A bigger deficit often gets framed as bad, but if it's driven by imports of capital goods or raw materials for manufacturing, it could signal future export capacity. Lucas: Right. And the current account deficit — 226.8 billion in Q1 — is also widening. That's partly due to foreign investment income outflows. But it's not a crisis signal yet. The yuan is stable, foreign reserves are still ample around 3.2 trillion. Beijing has tools to manage capital flows. Luna: So net net, the rally in tech stocks is more about company-specific and regulatory signals than a broad economic turnaround. That makes sense. Lucas: Exactly. If you're looking at the FXI or MCHI ETFs — up 3.9 and 2 percent respectively this week — they're being pulled by a handful of names rather than a broad uplift. Alibaba and JD are heavy weights in those funds. Luna: And PDD, which was up 2.4 percent — their Temu expansion internationally is still a growth story, but regulatory risks abroad are rising too. Lucas: Yeah, PDD is a double-edged sword. Great growth, but increasing scrutiny in the US and Europe over data privacy and trade rules. That's a longer-term overhang. Luna: Alright, so if I'm a listener with some exposure to China tech, what's one concrete thing to watch in the next few weeks? Lucas: Watch the yuan. If it stays around 6.7 to 6.8 per dollar, that's supportive. But if it weakens past 7, that could spook foreign investors and reverse the rally. Also, keep an eye on any Beijing policy announcements around AI or tech regulation — that's been the biggest catalyst. Luna: And NIO — if it keeps falling, it might drag other EV names down, but that's a separate story from the broader tech rally. Lucas: Exactly. Different sectors, different drivers. The tech rally is real, but it's selective. And that's probably the healthiest kind of rally — based on fundamentals rather than just liquidity. Luna: Alright, thanks Lucas. That's a good place to wrap.