Latest / China Economy with Fexingo: Beijing's Policies, Trade, and Asia-Pacific Markets / China Tech ETFs Surge Despite Trade Concerns
Transcript
- Lucas: So here's the thing about China tech in early June 2026 — the ETFs are having their best week in months, and it's happening against a pretty confusing backdrop. Luna: Confusing how? I mean, FXI is up three percent in five days, KWEB nearly five percent. That's not subtle. Lucas: Right, those are big moves. FXI at 36.37, KWEB at 28.38. But look at what else is going on. China's trade surplus is shrinking — the latest goods and services deficit hit sixty billion dollars in March, wider than before. The current account is negative. And the yuan is basically flat at 6.77 per dollar. So you've got this rally in stocks that seems disconnected from the macro picture. Luna: Is it really disconnected though? Maybe the market is pricing in something else — like policy support or a turnaround in tech earnings. Lucas: That's the question. Let's look at the individual names. Alibaba up 2.8 percent in a week to 131.40. Baidu up 5.5 percent to 137.10. NIO up 4.8 percent to 6.03. These aren't tiny moves. But then JD only up 1.5 percent, Pinduoduo up 2 percent. So there's a split even within tech — the more consumer-facing names are lagging. Luna: Which matches what we've been hearing about Chinese consumers being cautious. The wealth effect hasn't really kicked in. Lucas: Exactly. And that's the puzzle. The stocks that are rallying most are the ones tied to AI, autonomous driving, cloud — Baidu and NIO fit that. Alibaba has cloud too. But JD and Pinduoduo are pure e-commerce, which depends on consumer spending. So the market seems to be saying: 'We believe in China's tech transformation, but we're not yet confident in the consumer.' Luna: So it's a selective rally. But what's the catalyst? Why now? Lucas: Part of it might be positioning. After months of outflows, some investors are dipping back in. Also, the yuan has stabilized — it's not weakening further. That reduces some of the currency risk for foreign investors. And there's chatter about more policy easing from Beijing, maybe another reserve requirement ratio cut. Luna: The yuan at 6.77 is actually stronger than it was a few weeks ago. That's interesting because normally a weaker yuan helps exports, but China's surplus is shrinking anyway. Lucas: Right, the trade-weighted dollar index is down a bit too, at 118.9. So the dollar is easing globally, which takes pressure off the yuan. But the bigger story is that the stock rally is happening without a weaker yuan — that's a divergence from the pattern we saw earlier in the year. Luna: We've done a few episodes on that divergence, but this time it's different because it's not just tech vs. yuan. It's tech vs. the broader economy. Lucas: Exactly. And that brings up a bigger question: is this rally sustainable? You know, the S&P 500 has been ripping higher too — there's a headline about how fast it's rising outside of recession periods, last time before 1987. So there's a global risk-on mood. But China's fundamentals are still shaky. Luna: Speaking of the show's fundamentals — I've been meaning to mention something. We're able to keep this podcast ad-free and focused on exactly these kinds of nuanced questions because of a small group of listeners who support us. Lucas: Yeah, it's really straightforward. If you've been getting value from these episodes — maybe something clicked about how China's economy works — you can chip in at buy me a coffee dot com slash fexingo. That's it. No tiers, no perks, just keeping the lights on. Luna: And it genuinely makes a difference. Every contribution helps us keep digging into these stories without chasing ads. So thank you to those who already do. Lucas: Alright, back to the rally. So if this is partly a positioning-driven bounce, the risk is that it fades if the economic data doesn't improve. China's imports are up — 4.4 trillion in January — which is a positive sign, but it's also partly because of higher commodity prices. Luna: So imports rising could mean domestic demand is picking up, but it could also just be cost push. Hard to disentangle. Lucas: Right. And the trade deficit widening suggests that exports aren't covering the import bill. That's a structural issue if it persists. But the stock market doesn't always trade on structure — it trades on momentum and narrative. Luna: And right now the narrative is AI and tech transformation. Baidu's autonomous driving, NIO's EV push, Alibaba's cloud. Those are long-term stories. Lucas: They are. But they're also stories that have been told before, and they didn't prevent the selloff earlier this year. So the question is whether this time is different because of actual earnings delivery or just hope. Luna: What about the headlines today? Trump signed an AI executive order — does that affect China tech at all? Lucas: Not directly, but it signals that the US is serious about AI regulation and possibly export controls. That's a headwind for Chinese AI companies if they rely on US chips or software. But the market seems to be ignoring that for now. Luna: So we're back to the disconnect. Markets are forward-looking, but sometimes they look past real risks. Lucas: Exactly. And that's why I think this rally is worth watching but not necessarily chasing. If you're an investor in China tech, you have to ask: am I betting on a consumer recovery that hasn't arrived, or on a tech revolution that's still years away from profitability? Luna: Or maybe both. But the data this week suggests the market is choosing tech over consumer. And that might be the right call for now. Lucas: We'll see. The next few weeks will be telling — especially if we get more policy cues from Beijing. But for today, the story is that China tech is rallying hard, and it's doing so on a narrow set of bets. Luna: Which is exactly the kind of nuance we try to bring. Thanks for listening, and we'll talk again soon.