Latest / China Economy with Fexingo: Beijing's Policies, Trade, and Asia-Pacific Markets / Why Baidu and NIO Are Bucking the China Selloff
Transcript
- Lucas: So here's something I find genuinely interesting this week. While most China-focused ETFs like FXI and KWEB have been sliding — FXI down about one point three percent over five days, KWEB off about point seven percent — two names are actually rallying. Baidu is up nearly six percent in the same stretch. NIO has gained almost eight percent. Luna: That is a stark divergence. Especially when you look at Pinduoduo down more than ten percent and JD off five and a half. Lucas: Right. So the obvious question is: what do Baidu and NIO have that the e-commerce giants don't? And I think the answer comes down to two things — specific catalysts and a broader shift in what investors are rewarding in China right now. Luna: Let's start with Baidu. What's driving the move there? Lucas: Baidu reported its first-quarter earnings about three weeks ago, and the headline number that caught everyone's attention was AI Cloud revenue growing forty-five percent year-over-year. That's a massive acceleration from the prior quarter. And it's directly tied to the rollout of ERNIE 4.5 — their latest large language model. They're monetizing it through API calls and enterprise subscriptions. Luna: So the market is buying the AI narrative for Baidu the same way it does for Microsoft or Google here. But is the revenue actually material yet? Lucas: It's still small relative to their core search advertising. AI Cloud was about eight percent of total revenue last quarter. But the growth rate is what investors are betting on. And there's a secondary factor: Beijing has been signaling a more relaxed regulatory posture toward tech. Baidu is seen as a national AI champion, so it benefits disproportionately from any policy tailwinds. Luna: Meanwhile NIO — the EV story is different. They're not in the AI hype cycle the same way. Lucas: No, NIO is a turnaround story. They delivered fifty-three thousand vehicles in April, which beat consensus by about six percent. And more importantly, they guided that gross margins would improve to fifteen percent by the third quarter, up from about twelve percent now. That's significant because margin compression has been the biggest fear for Chinese EV makers. Luna: And the stock is up eight percent on that. But NIO is still trading at about five sixty a share — it's down more than fifty percent from its 2021 highs. Lucas: Absolutely. This is a bounce from deeply depressed levels. But the rally is telling us that investors are starting to differentiate again. They're rewarding companies that show they can execute despite the macro headwinds. And the macro headwinds are real — consumer confidence in China remains weak. Retail sales data for April came in softer than expected. Luna: That explains why Pinduoduo and JD are getting hammered. Their business models are directly tied to consumer discretionary spending. Lucas: Exactly. Pinduoduo is down more than ten percent in five days. There's no specific bad news there — it's just the realization that the Chinese consumer isn't spending. And JD, which is more reliant on higher-ticket items like electronics, is getting hit the same way. Meanwhile Baidu's AI revenue is coming from enterprise clients — that's a different budget cycle. Luna: And NIO's customers are wealthy enough that they're less sensitive to the broader consumer squeeze. Though that's a small pool. Lucas: Right. But I think the bigger takeaway is that the China trade is no longer a monolith. For years, investors treated China stocks as a single bet — if the economy was growing, everything went up. That's not the case in 2026. You have to pick your spots. Luna: What about the yuan? It's been hovering around six point seven nine per dollar, pretty flat. Does that help or hurt the case for these stocks? Lucas: It's a modest positive, I'd say. A stable yuan means less currency risk for foreign investors. And it keeps Chinese exports competitive without sparking trade tensions. But it's not the main driver here. Luna: So if I'm an investor looking at the China space right now, the signal from these diverging stock moves is: pay attention to company-specific catalysts, not just the macro. Lucas: That's exactly it. And Baidu and NIO show that there is still alpha to be found if you're willing to do the work. But you have to accept that the broad-based China rally we saw in late 2024 isn't coming back anytime soon. Luna: And that kind of differentiation is exactly why we do this show every week — to help make sense of the noise. Speaking of which, a quick note: if walking through the economy with us has made something click for you, a couple of dollars a month is genuinely what keeps these going. Buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small thing that makes a real difference. And it keeps the show ad-free. Buy me a coffee dot com slash fexingo. Luna: Alright, back to the divergence. Lucas, do you see this trend continuing into the second half of the year? Lucas: I think so, but it depends on earnings. NIO needs to actually hit that fifteen percent margin target. Baidu needs AI Cloud growth to stay above forty percent. If either stumbles, the stock will get punished fast. But right now, the market is giving them the benefit of the doubt. And that's rare for China stocks in May 2026. Luna: So we're watching Baidu's next earnings and NIO's monthly delivery numbers. Lucas: Exactly. Those are the two data points that will either confirm this rally or kill it.