---
title: "Morgan Stanley's Xing Ziqiang: The \"924\" new policy is just the prelude, not the final chapter | Alpha Summit"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/222890335.md"
description: "Xing Ziqiang is optimistic about the policy shift since 924. It is not aimed at ensuring the GDP data for a specific quarter, but rather to achieve a comprehensive improvement in social welfare, ensure the healthy operation of local governments, and enable the public's expectations regarding prices and asset values to move towards a positive cycle"
datetime: "2024-12-20T07:26:02.000Z"
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# Morgan Stanley's Xing Ziqiang: The "924" new policy is just the prelude, not the final chapter | Alpha Summit

On December 20th, Morgan Stanley's Chief Economist for China, Xing Ziqiang, attended the "Alpha Summit" hosted by Wall Street Insights, **to analyze and forecast the global economic outlook for 2025-2026, the impact of Trump 2.0's three major agendas, the comprehensive economic policies since September 24, the upcoming second round of policies, and potential opportunities for structural adjustments.**

_The following are highlights from the speech:_

> -   The impact of this round of Trump 2.0 tariffs **on the Chinese economy, Chinese enterprises, and the industrial chain will be far less than that of the first round of tariffs in 2018-2019.** This is because over the past six years, Chinese enterprises have achieved two things: diversification and upgrading.
>     
> -   Diversification is reflected in the fact that six years ago, the reliance on the U.S. was relatively high, with the U.S. market accounting for 20% of China's total exports. Today, China's direct reliance on the U.S. has decreased, with the U.S. accounting for only about 14% of China's export volume. Upgrading is evident in the 12 major categories of Chinese exports, where the Apple supply chain is just one of them; now there are more and larger categories, such as the automotive supply chain, high-end capital goods, industrial robots, lithium batteries, and new energy vehicles, among others.
>     
> -   To break the external pressures of the Trump 2.0 phase, **China still needs to focus on doing its own things well.** During the Trump 1.0 period from 2017 to 2020, China transformed pressure into motivation, and both the domestic economy and capital markets performed remarkably well, resisting external pressures.
>     
> -   Even as we enter a new era, development and security must be balanced, but one understanding will not change: **that development is the cornerstone of security.**
>     
> -   I am quite optimistic about the shift since September 24, **which is not just to ensure GDP data for a particular quarter, but to achieve a comprehensive improvement in social livelihoods, ensure the healthy operation of local governments, and enable the public's expectations for prices and asset prices to move towards a positive cycle.**
>     
> -   The first round of policies since September 24 **is just a prelude, not the final chapter.** The first round of policies mainly focused on addressing existing debt issues and restructuring debt through monetary and fiscal policies; it was merely the first step.
>     
> -   Even during the adjustment phase, structural opportunities continue to emerge. For example, new productive forces are taking root in China, **and we have identified three trends: artificial intelligence, robotics, and green energy transformation.**
>     
> -   China has a unique advantage in the application phase of AI, allowing it to overtake in a curve. Whether it's OpenAI's ChatGPT or Google's AI tools, the U.S. tends to emphasize the enterprise side too much. In contrast, China's AI tools, whether Doubao or Kimi, emphasize integration with the consumer side, often being very practical, entertaining, and engaging. In the application phase, China often finds innovative ways to create killer applications for consumers and rapidly promote them, resulting in vast amounts of data and diverse application scenarios.
>     
> -   Once the global potential demand for humanoid robots combines with China's industrial chain, the cost of each humanoid robot can be quickly reduced from $50,000 to around $20,000, making it feasible. Perhaps in the next 5 to 8 years, there will be a potential demand for up to 8 million humanoid robots, representing a market of about $400 billion This will also provide a broad space for Chinese enterprises to continue.
>     

_The following is the transcript of the speech:_

Hello everyone, I am Xing Ziqiang. It is an honor to be here at the Wall Street Journal Alpha Summit.

The previous speaker also mentioned many changes in overseas situations, the United States, and global markets. I will follow up by sharing some fresh insights we produced about the Chinese economy and capital markets from 2025 to 2026, which we developed about three weeks ago. Of course, this is also closely related to changes in the overseas environment.

I think the core issue, as everyone has already heard, is that in the external environment, "a Trump 2.0 is coming from the west." The Republican Party achieved a great victory in the U.S. elections, and Trump has brought three new agendas. What impact will this have on the global economy, the U.S. market, and the Chinese market? This is the first topic I want to address today.

Expanding on this topic, we will also discuss two other more important domestic issues. The first is that on September 24, a package of policies was launched to boost confidence, setting the stage for the entire economy and prices to return to a positive cycle. However, market confidence has still experienced ups and downs during this process.

Recently, the Central Economic Work Conference was held to analyze the upcoming second round of policies and their subsequent effects on addressing deflation. We have conducted some analysis and foresight on this.

Finally, we will focus on the fact that even if we emerge from deflation and the economy returns to a positive cycle, it is still a difficult exploratory process. However, what visible and tangible structural adjustment opportunities do we have during this process? In particular, what specific sectors are seeing new productive forces take root in China? These are the three topics I want to share with you today.

## 2025~2026 Global Economic Outlook: The Impact of Trump Tariffs is "Not What It Used to Be"

**First, let's return to the first topic, which is the global economic outlook for 2025~2026.** We cannot avoid the fact that after the results of the U.S. elections, the three major agendas of the new U.S. government may have a revolutionary impact on the world. **These three major agendas can be summarized as: imposing tariffs externally, reducing taxes internally, and strictly controlling immigration.** This is the three major agendas proposed by Trump and the Republican Party during the campaign. I think many people are worried that this will turn the global economy upside down, especially for China, which is the first to bear the brunt of potential U.S. tariffs on China. However, despite many unchanged aspects of the Trump 2.0 version, such as his love for tariffs, his enthusiasm for domestic tax cuts and reducing regulations, and his attitude towards strictly controlling immigration, there are also many changes in the U.S.

What has changed in the U.S.? According to our U.S. macro research team's summary, **the current U.S. economy is worlds apart from the Trump 1.0 era, that is, the time when he first took office as president in 2017.** The current U.S. economy exhibits characteristics of "two highs and one lag": high fiscal deficit, high inflation, and the economy is in a late cycle, that is, at the tail end of the current economic and market cycle. This is in stark contrast to when Trump first took office in 2017, when the U.S. economy was just emerging from deflation, with industries waiting to thrive and in urgent need of stimulus At that time, Trump had just taken office, and through tax cuts, fiscal stimulus, and reduced regulation, he reignited market confidence; the U.S. economy needed these stimuli. It was also during this process that the recovery of market and corporate confidence in the U.S. absorbed some of Trump's other policies. For example, the tariffs imposed on China from 2018 to 2019 certainly had adverse effects, but the U.S. benefited from other new Trump policies, which mitigated the related impacts.

**But times have changed. Today, U.S. inflation is much higher than in 2017 and has persisted for several years. Although it has recently declined from its peak, inflation remains quite sticky. Similarly, the U.S. fiscal deficit has remained high for several consecutive years**, especially after the pandemic, where many stimulus plans implemented by the Biden administration have pushed the fiscal deficit rate to historical peaks. Even in 2023 and 2024, when the economy has rebounded and inflation has become a problem, the fiscal deficit still maintains around 6% to 7% of GDP, which is significantly higher than the fiscal burden in 2017.

At the same time, we also know that the current economic and market cycle in the U.S. has been prolonged; it always follows a pattern. Trees cannot grow to the sky, and this cycle may be approaching its end. At this time, repeating Trump's 1.0 phase policies could have significant consequences. For example, these three major policies—imposing tariffs externally, cutting taxes internally, and strictly controlling immigration—firstly, inflation has not risen. Because imposing tariffs externally will increase the costs for U.S. companies, whether it is the cost of imported materials or the prices consumers pay, leading to rising inflation levels.

Secondly, he also wants to strictly control immigration. In fact, immigration in the U.S., including some that may not have been entirely legal over the past three years, has helped reduce inflationary pressures by providing a large labor supply. However, the new Republican policy aims to strictly control or even expel immigrants, which would reduce the labor supply and further increase inflation levels. Internally, cutting taxes is intended to maintain a high level of fiscal deficit, which leads to a contradictory outcome: due to external tariffs and strict internal immigration control, U.S. inflation remains high, and the Federal Reserve's interest rate cuts may not be as aggressive as people thought six months ago because inflation is relatively high. However, if interest rates cannot be lowered, the U.S. economy will continue to face the burden of high deficits, and the federal government's debt repayment and interest burden will become increasingly heavy each year.

In this process, if we look at the proportion of interest payments made by the U.S. government to GDP, it has been continuously rising in recent years and may reach a historical high in the next year or two. Therefore, the market will question the sustainability of U.S. finances. In this process, the new U.S. government places a high emphasis on market feedback. The appointed Secretary of the Treasury also comes from Wall Street and is quite focused on the credibility of the dollar and the sustainability of U.S. finances. However, to achieve the sustainability of the dollar's credibility, compromises and trade-offs must be made. **In other words, the three major policies of Trump's current 2.0 version are unlikely to be fully implemented simultaneously. The resulting contradictions mean that the U.S. must ultimately choose among these three major policies to reach a compromise.**

## Trump 2.0: China’s Economy Must Focus on Its Own Affairs

For this reason, reflecting on the impact on China, we do not believe that the U.S. will immediately impose the extreme tariffs mentioned during the campaign. Such a move would be unsustainable for the U.S. economy itself. A more likely scenario is that they will initially announce such high tariff rates, essentially "calling it out." However, the actual implementation process will be gradual and phased. Perhaps there will be an initial wave of tariffs in early 2025, with an increase of around 15 percentage points, followed by another round of tariff increases in the second phase in 2026. Overall, it will be a gradual process.

**If our assumption is validated from various perspectives, the impact on the Chinese economy, Chinese enterprises, and the industrial chain will be far less than the first round of tariffs in 2018-2019.** During the Trump 1.0 phase in 2018-2019, tariffs on China increased by 18 percentage points, from an average of about 2% to 20%. This indeed affected China's GDP growth rate by about one percentage point, indicating a significant impact.

However, that was the first trade friction, and Chinese enterprises and the industrial chain were caught off guard. After six years, companies are no longer naive; they have largely abandoned the fantasy that globalization is still in a honeymoon phase. The gradual decoupling between China and the U.S. has prompted non-entrepreneurs and the Chinese industrial chain to prepare extensively. Today, they are far more experienced in dealing with an increase in tariffs from 15% to 25% compared to 2018.

**Chinese enterprises and the industrial chain have implemented two strategies to cope with tariffs: diversification and upgrading.** Diversification is evident in the fact that six years ago, in 2018, the reliance on the U.S. was relatively high, with the U.S. market accounting for 20% of China's total exports. Today, China's direct reliance on the U.S. has decreased, with the U.S. now accounting for only 1/7, or about 14%, of China's export volume. Of course, we know that this process has been driven by Chinese companies going abroad, establishing factories and marketing channels in third-party countries, with some products being re-exported to developed countries through Chinese factories in Mexico and Southeast Asia. Even considering these factors, China has discovered many new markets, and the market structure has diversified.

For example, in 2018, emerging markets that had relatively friendly geopolitical relations with China, such as Southeast Asia, the Middle East, Eastern Europe, Latin America, and Africa, accounted for less than 1/3 of China's total exports. Today, these emerging markets together account for about 43% of China's total exports. This means that China has managed to strengthen economic and trade ties with countries that have relatively friendly relations with China through the Belt and Road Initiative, partially offsetting the decrease in exports to the U.S. This is the first point: diversification.

**The second point is upgrading.** Over the past six years, we have heard a lot of news about U.S.-China trade frictions, tariffs, and geopolitical challenges, leading many enterprises to relocate parts of their industrial chains and cease production in China. The most frequently mentioned cases involve products like the iPhone being moved to Vietnam or India for assembly. Is this noise true or false? After careful verification, we found it to be half true and half false. Indeed, in certain product categories, such as mobile phones and communication products, China's global export market share has slightly declined, and some factories have indeed moved to so-called India and Southeast Asia However, we have counted 12 major categories of China's exports, among which the apple industry chain is just one. There are now more and larger categories, such as the automotive industry chain, high-end capital goods, industrial robots, lithium batteries, and new three items, etc. In the other 11 categories besides mobile communication products, China's export market share has increased over the past six years, which is because companies are no longer satisfied with just assembling mobile phones; everyone is climbing towards higher added value, producing increasingly advanced products, even competing with Europe and developed countries. This means that companies have partially offset the impact of tariffs on the export of mid- to low-end products through upgrades.

So, just by observing these two points, one can think that **even if this round still has the Trump 2.0 phase tariffs, Chinese companies and the industry chain are more experienced in coping with it, and the economic impact will definitely be smaller than that from 2018 to 2019.** Of course, there are concerns that if Trump does not just target China but launches a comprehensive attack and imposes tariffs on other parts of the world as well. For example, he has already threatened to impose tariffs on Mexico through Twitter and social media. If he imposes tariffs on Mexico, Europe, and Southeast Asia, will the efforts made by Chinese companies and other foreign enterprises to achieve diversification of the industry chain over the past six years be in vain?

This is certainly a risk, but as we mentioned at the beginning, **the situation is stronger than individuals.** For the new U.S. government, if it comes in aggressively, not only imposing tariffs on China but also launching a comprehensive attack, it will ultimately weigh the impact on U.S. inflation, economic growth, corporate confidence, and even the stock market.

Because Chinese companies have experience in dealing with tariffs. However, if other parts of the world also have to cope with the confidence shock caused by the U.S. tariff war, the impact on foreign direct investment (FDI) will far exceed that of 2018. We have also calculated through a team of economists that if these policies are implemented and tariffs of 10% to 20% are imposed on all other countries, U.S. inflation could rise by 1 percentage point in the future, and economic growth could decline by 1.4 percentage points in two years. This combination of economic downturn and rising inflation is something that the Trump administration, which values market feedback, would not want to see. Therefore, despite this risk, we believe it is not a baseline scenario but worth paying attention to.

After discussing the impact of the U.S. situation on China, to summarize, **the impact of tariffs on China will be milder than in 2018 and 2019, and Chinese companies are more experienced in coping with it.**

However, if there are other geopolitical frictions, such as the new U.S. government appointing many aggressive officials who not only have a profound ideology regarding tariffs but also impose restrictions on capital market investments, limit competition in the technology sector, and have hawkish and aggressive export controls. **Considering these factors, I think China needs to handle its own affairs well to break through the external pressures of the Trump 2.0 phase.** This is exactly what happened during the Trump 1.0 phase from 2017 to 2020, where despite facing external trade frictions and various geopolitical pressures, China actually transformed this pressure into motivation In 2017 to 2020, everyone may remember vividly that both the domestic economy and the performance of the capital market were quite impressive overall, resisting external pressures.

There were many policies that took short-term stimulus measures. For example, after the second half of 2018, we eased the cleanup of shadow banking and adopted a supportive attitude towards real estate, with more of a reform mindset. In the first half of 2018, there were some private enterprises that faced a crisis due to equity pledge issues, which made them quite vulnerable. At that time, there was a prevailing sentiment in the market that "state-owned enterprises advance, private enterprises retreat." However, by October and November of 2018, the decision-making body decisively restored entrepreneurs' confidence through a series of measures, such as symposiums with private entrepreneurs and the announcement of certain policies, combined with the short-term stimulus policies mentioned earlier. This led to a remarkable performance of the Chinese economy and market in 2019 and 2020, step by step, after experiencing the trade frictions of 2018.

## The September 24 Policy is Just an Overture, Not the Final Chapter

If we have these experiences, we can think that since September 24, there has been a package of policy shifts. After the Central Economic Work Conference sounded the horn for the second round of policies, will the subsequent policy strength be sufficient? What effects are to be achieved? I think we need to trace back to why this round of policy shift occurred in September.

In other activities of Wall Street Insights, I have discussed with the editor-in-chief and invited experts. At the beginning of September, we were the first major research institution to predict a clear policy shift. But what was the basis for this at that time? I think it was due to the various changes since 2018, where a somewhat pessimistic narrative spread among foreign investors and some entrepreneurs, believing that after entering a new era, although China publicly emphasizes both development and security, many investors worry that security may overshadow development, leading to a situation where development takes a back seat. This could result in many policies not being adjusted in a timely manner due to changes in economic data, as security takes precedence over everything. Entrepreneurs and investors want to share in the dividends of development, and if development becomes secondary, their mindset will understandably become pessimistic and cautious.

**However, we do not quite agree with this narrative, because even in the new era, development and security must be balanced, but one understanding will not change: development is the cornerstone of security.** Economic improvement is essential; people need to find good jobs, improve their employment expectations, increase their income, and make progress towards a better life, which is more likely to form the foundation of social stability.

It is precisely because of this framework that over the past six months, my team and I have been internally developing and compiling an index reflecting the public's perception of economic issues, inflation and deflation issues, and asset price fluctuations, called the Morgan Stanley Social Perception Coefficient. The benefit of this coefficient is that it answers the question of whether development is still the cornerstone of security under this new framework. As long as this is taken into account, the decision-making body will certainly respond sensitively to public feedback on livelihood issues and make significant adjustments to economic policies and even reform policies This index is certainly based on some well-known employment situations, income confidence expectation surveys, underlying welfare guarantees, and labor disputes, among others. Historically, whenever this index enters a relatively soft range, it triggers significant economic and political adjustments, whether in the second half of 2015 or at the end of 2022. As we enter August and September of this year, this index is also in a relatively weak range, just a step away from the second half of 2015 and the end of 2022. It is precisely for this reason that I believe the decision-making body has received sufficient feedback on people's livelihoods and has made arrangements for a package of policies after September. **In other words, the starting point and purpose of this package of policies is to comprehensively improve social livelihoods, restore the healthy operation of local governments, and enable the public's expectations regarding prices and asset prices to move towards a positive cycle.**

Each of these three major goals is not easy; each is much more difficult than simply maintaining a short-term GDP figure of 5. But because of this, **we also deeply recognize that the first round of policies since September 24 is merely a prelude, not the final chapter, as the first round of policies mainly focuses on monetary policy and some fiscal measures regarding resolving existing debt issues and restructuring debt; it has only taken the first step.**

## Breaking the Fixed Mindset, Victory is in Sight

Since July of last year, my team and I have released a series of discussions on how China can emerge from deflation and escape the "3D" issues, namely debt, deflation, and population. We need to break these structural constraints and escape deflation, and since July of last year, our framework has mainly relied on the realization of a trilogy.

This trilogy includes restructuring debt, which means addressing existing local hidden debts and real estate debt issues. Stimulating the economy, especially stimulating consumption, so that the entire economic structure shifts towards consumption, and reforming to stabilize confidence, allowing private enterprises and local governments to restore a normal business environment.

From July of last year to September of this year, the initial progress of this trilogy was relatively slow, but after a series of policy shifts since September 24, **at least in the first step of restructuring debt, we have made significant progress.** Now, looking at the overall progress, the realization of this trilogy and escaping deflation may have progressed to about 40%, which is much faster than before, though still not enough, as the remaining two parts are stimulating the economy, especially stimulating consumption, and reforming to stabilize entrepreneurs' confidence, which everyone may still be observing and anticipating.

The recently held Central Economic Work Conference has sounded the horn for the second round of policies, and everyone has read its announcement regarding the positioning of fiscal policy, monetary policy, and unconventional policies, which is unprecedentedly proactive in recent years. What does this mean? **I think it partially means that the decision-making body is trying to break the three major fixed mindsets that have constrained itself in the past, taking a new step and attempting new policies to break deflation.**

These three major fixed mindsets, many of you have seen in some interview programs from Wall Street, so I won't elaborate on them one by one. From the end of last year to now, we have discussed them in various occasions. **The first point, for example, is the fixed mindset regarding fiscal strength; in the past, we have been relatively cautious about the strength of central fiscal policy, adhering to the principle of balancing income and expenditure, always feeling that the deficit rate should be arranged around 3%.** Unwilling to implement relatively strong central stimulus. However, countries around the world have basically abandoned the past dogma and adopted relatively strong central fiscal stimulus.

**The second point is the direction of policy efforts. For the past 20 years, we have been more accustomed to focusing on the supply side, investing in infrastructure, and transforming production capacity, but often neglecting the consumption side.** Now, considering that on the supply side, China's infrastructure and production capacity are somewhat excessive, and the return on investment is weakening, should we timely shift to stimulate consumption?

**The third mindset is that there are two difficulties in stimulating consumption during this process. One is that China's savings rate is too high, and the public has concerns about the future, making them reluctant to spend. The second is that the real estate market is still in decline, and this negative wealth effect also constrains consumption tendencies.** Breaking through these two points requires abandoning the distance of moral hazard. For example, should we establish a relatively good social security welfare system for migrant workers and the strategic low- to middle-income groups? Have we been too worried in the past that once the welfare system is expanded, it will impact the finances and the motivation of everyone, potentially leading to dependency? This is a moral hazard that needs to be discarded.

The second point is whether to use the central government's finances and balance sheet to intervene during the real estate downturn to help shorten these painful adjustment periods, achieving not only project rescue but also rescuing the entities. This is also a debate on moral hazard that still confines everyone's thinking.

**Breaking through these three major mindsets, we see some glimmers of hope,** as the economic work conference seems to have taken a half step forward in various statements. For instance, regarding fiscal deficits, I believe that the fiscal deficit arrangement for 2025 will be a step up from 2024, especially the official budget deficit rate, which will break the constraint of around 3%, giving the market confidence.

Secondly, in terms of direction of efforts, although a considerable part of next year's overall fiscal plan will still focus on equipment updates, production capacity transformation, and infrastructure investment, there will also be an increase in consumption stimulus, including expanding the trade-in program for consumers and subsidies for some low- to middle-income groups and childbearing groups. I believe this will be unveiled in 2025, indicating that we are gradually testing the waters, shifting the past excessive focus on the construction side to the consumption side.

Finally, breaking the moral hazard. We have also noticed that since the Third Plenary Session, the central government has been advocating for providing social security benefits and household registration for the 250 million migrant workers and other groups in their place of residence, including access to kindergartens, medical care, and affordable housing. If these household registration benefits can be funded through central fiscal injections to fill the gaps in social security, achieving the settlement of migrant workers, I think this is a significant positive message, marking a complete break from the constraints of the three major mindsets.

**With these glimmers of hope, I am optimistic about this shift since September 24. It is not just to ensure GDP data for a certain quarter, but to achieve a comprehensive improvement in social welfare, ensure the healthy operation of local governments, and lead the public's expectations for prices and asset prices into a positive cycle.** Achieving this is not easy. Therefore, with the first step of restructuring debt, there will be a second step of real fiscal stimulus to consumption, and even a future third step, which is how to reform and stabilize entrepreneurs' confidence In general, the period from 2025 to 2026 may be a difficult exploration process for China to gradually explore these policies, form a synergy, and ultimately break the deflation. During this process, perhaps at the beginning, economic expectations and corporate profits have not fully returned to a positive cycle. So what should we do? This leads to the last topic I want to discuss today. There is a glimmer of hope in breaking deflation while still in the difficult adjustment process, and the decision-makers' understanding is deepening. However, there is still a distance to go before forming the optimal combination plan, which experts and scholars have been calling for, that combines short-term stimulus with long-term reform, often amounting to trillions.

So what should entrepreneurs, investors, and individuals do during this adjustment process over the next couple of years? I think we need not be overly pessimistic because China's scale is relatively large, and there are still plenty of opportunities for structural adjustments. Even if its incremental growth rate is not as high as in the past, there are still numerous opportunities for stock adjustments. We compared the similarities and differences between China and Japan. Although there are concerns that China may fall into a Japanese-style deflation trap, Japan officially fell into deflation in 1995. First, its urbanization had already reached its peak. Second, its per capita income at that time was higher than that of the United States, with no catching-up effect, meaning that the potential growth rate was relatively low. Third, the degree of real estate bubble in Japan was extremely high, so the downward trend in real estate had a rare impact on its economy globally.

**China excels in these three areas compared to Japan.** First, our urbanization is still ongoing, with two-thirds of the population living in cities. With the progress of rural and agricultural productivity in China, there is no need for one-third of the population to remain tied to rural areas, so our urbanization rate will further increase, approaching the 75% to 80% level of developed countries. During this process, the influx of population into medium and large cities, provincial capital cities, and the Pearl River Delta and Yangtze River Delta will continue to create a productivity-promoting effect.

Second, China's per capita income is currently one-seventh of that of the United States, far from the time in the 1990s when Japan's per capita GDP once surpassed that of the United States, meaning China is relatively poorer. This has its advantages, as the public's expectations for improving their quality of life and entrepreneurs' willingness to move up the industrial chain and engage in more valuable chain exports are far superior to those in Japan. Everyone is still in the catching-up stage, so China's potential growth rate is stronger than Japan's at that time.

Finally, the harm caused by the downturn in real estate. Japan's real estate bubble in 1990 and 1991 was at a level rarely seen in the world, with real estate values accounting for 5 to 6 times its GDP. Once it fell, many companies involved in the real estate bubble, whether in manufacturing or services, suffered greatly. The following decades saw a decline in asset-liability ratios and the need to repay debts. Even at the peak of real estate in China, in 2020, the total value of real estate nationwide only accounted for 230% of our GDP, far lower than Japan's at that time, so the bubble level is not as severe as Japan's. During the downturn, although local government financing platforms were damaged, the vast majority of manufacturing and service enterprises were not deeply involved in the real estate bubble and were not severely harmed, leaving potential for further exploration

## Artificial Intelligence, Robotics, Green Energy... The Chinese Market is Not Lacking Structural Opportunities

From these experiences, China has unique advantages that allow new productive forces to continue to take root in the country. To help everyone find some structural investment opportunities, I have summarized three opportunities.

**The first is the landing phase of artificial intelligence (AI), followed by the rise and widespread use of industrial robots and humanoid robots, and thirdly, the transition to green energy.**

**The first opportunity sounds like it is happening vigorously in the United States, which is AI.** However, we predict that AI will enter a phase of practical application around 2025 to 2026, at which point China's unique advantages will come into play, allowing it to catch up. Although the U.S. is leading in the chip sector, once we enter the application phase, the focus will no longer be solely on simple chips and models, but rather on massive data, application scenarios, and the integration with consumers and businesses.

Investors who have experienced the mobile internet phase are well aware that China has unique advantages. For example, in Hong Kong, people often compare domestic and overseas AI tools. From a productivity perspective, each has its merits. However, tools like OpenAI's ChatGPT or Google's offerings in the U.S. tend to emphasize deep integration with businesses, forming a productivity connection that is heavily business-oriented.

In contrast, Chinese AI tools, whether Doubao or Kimi, tend to emphasize integration with consumers, often being more lifestyle-oriented, entertaining, and engaging. This is often a unique approach during the application phase, allowing for the rapid promotion of consumer-oriented killer apps, with vast amounts of data and diverse application scenarios, showcasing a catch-up phenomenon.

**Similarly, aside from the application phase of AI and China's unique advantages for leapfrogging, the second opportunity lies in robotics.** Robots have existed for a long time, but with the advent of AI, there is now great hope for the rise of industrial robots and humanoid robots. The application of large language models enables robots to respond in real-time to external environments, making it possible for them to replace human labor in certain industries for the first time, especially in sectors with high repetition, danger, and labor intensity.

We summarize that there are five industries where humanoid robots are particularly suitable: agriculture, mining, construction maintenance, street cleaning, and the restaurant industry. However, as everyone knows, during the U.S. election, Elon Musk, who made headlines, emphasized that his company would transform more towards humanoid robots. However, the material cost of their optimusgen2 currently reaches $50,000 to $60,000, making it economically unfeasible in the U.S. and globally, despite potential demand.

However, according to our calculations, China's unique industrial advantages in the upstream and downstream fields of humanoid robots are enormous, especially in components and assembly. Once the global potential demand for humanoid robots combines with China's industrial chain, the cost of each humanoid robot can be rapidly reduced from $50,000 to $60,000 to around $20,000, making it economically viable and scalable. Perhaps in the next 5 to 8 years, there will be a potential demand for up to 8 million humanoid robots, representing a market of about $400 billion This will also provide a broad space for Chinese enterprises to continue.

**Finally, there is the green energy transition.** Everyone is quite confident in this area. However, there is a new phenomenon now, which is the Trump 2.0 version. It has a political agenda that is not very enthusiastic about these green transition new energies, and it may even modify the Inflation Reduction Act introduced by the Biden administration, which contains many policies supporting new energy. This is not necessarily a bad thing for China, because other parts of the world are still striving for the new energy transition. In this process, China can attempt to repair its cooperative relationships with Europe and other regions in the new energy field, reduce the risk of trade friction, and achieve a win-win situation, whether from the technological advantages accumulated from being a first mover or due to the Trump administration's potential withdrawal from the Paris Agreement.

I believe that in the field of new energy transition, we will continue to see Chinese enterprises making significant global expansions. These three points represent the new productive forces, and they are some industries that we can currently observe taking root in China, which is a relatively superficial understanding on our part. So today, we will discuss "the arrival of Trump 2.0 from the west," its political agenda's impact on China and the world, and expand to a series of policies since 924, following the call of the Central Economic Work Conference. Next, we will look at its purpose, the expected policy intensity, and ultimately focus on the directions of new productive forces that can be invested in over the next few years. I will share this briefly with everyone, thank you.

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