This article first appeared in Forum, The Edge Malaysia Weekly on September 15, 2025 – September 21, 2025
Travelling in China last week, one had the feeling that the stars are aligned for big changes. In February this year, the planets Mercury, Venus, Mars, Jupiter, Saturn, Uranus and Neptune were aligned in a rare cosmic moment. Last Sunday evening, we witnessed a full blood moon over Xiamen, where Malayan tycoon Tan Kah Kee donated the funds to establish Xiamen University in the 1920s, creating one of the top universities in China today, with a branch campus in Malaysia.
Astrologers have predicted that 2025 will be a special year of grave cosmic significance. In the last two weeks, the prime ministers of Japan, Thailand, Nepal and France stepped down, with the UK Deputy Prime Minister Angela Rayner and respected Indonesian Minister of Finance Sri Mulyani dropping out of power. Meanwhile, the US stock market and gold prices hit record highs.
The rich never had it so good. And yet, the middle class is petrified by the devastating wars in Ukraine and Gaza, Israel attacking Hamas in US-protected Qatar, and growing inflation with US debt and job numbers continuing to deteriorate.
Are financial markets completely oblivious to potentially horrendous man-made or natural disasters?
Until recently, US Treasuries have been the backbone of global official central bank reserves, but the World Gold Council estimated that central bank buying took their gold reserves value to US$4.2 trillion (RM17.73 trillion), larger than their US$3.9 trillion holding of US Treasuries. Remember, in 1971, when the US Federal Reserve delinked gold from the dollar, gold’s share of official reserves was nearly 70%. After 1980’s Fed chairman Paul Volcker raised Fed interest rates to a peak of 20% per annum, it became more profitable to hold US Treasuries rather than gold. With US Treasury Secretary Scott Bessent openly pushing for cutting of interest rates by roughly 150 basis points, which would move US real interest rates to near zero or negative, gold becomes more attractive, because it does not yield a dividend, but depends on expected higher future price.
My own assessment is that since US Treasury debt growth is more than 8% per annum annually since the 2008 subprime crisis, the price of gold as a neutral hedge against the dollar’s depreciation against real goods will follow the same trend, even though short-term volatility would be higher. All eyes are now on the People’s Bank of China, whether it will continue to buy gold.
According to the State Administration for Foreign Exchange, the official reserves manager, China’s gold holdings rose to 74.02 million ounces at the end of August, an increase of 60,000 ounces from July, pushing Comex gold futures to US$3,639.8 an ounce, up 37.9% year to date. This upped China’s gold reserves by US$9.9 billion to US$253.8 billion in August, raising its share of total foreign exchange reserves to a record 7.64%. China is the world’s largest gold producer and its share of gold in official reserves is below the global average of 22%.
The current hot topic within China is whether the economy is on the recovery path or continues to suffer huge problems, as outside detractors claim. Within China, I had a distinct feeling of recovery and growing confidence, despite tensions with the US. The latest official estimates suggest that Chinese gross domestic product (GDP) in the first half of 2025 grew by 5.3% a year in real terms, with a slightly slower growth in the second quarter. Of significance was the growth of mining by 6%, manufacturing by 7%, with equipment manufacturing growing by 10.2%, and high-tech manufacturing by 9.5%. State-owned enterprises grew more slowly at 4.2%, whereas private enterprises grew by 6.7%. The most spectacular growth was in the production of 3D printing devices, new energy vehicles and industrial robots, which grew by 43.1%, 36.2% and 35.6% year on year respectively.
The pessimists see continued pressure from real estate prices, high unemployment among fresh graduates and a low level of domestic consumption. Deflation is also a major issue, as hot competition keeps prices down. Nevertheless, with the Hong Kong Hang Seng Index up by 32.2%, while the Shenzhen and Shanghai indices were up 24% and 16.6% respectively year to date, compared with 7.3% for the Dow Jones and Nasdaq (13.1%), it is not surprising that Chinese authorities are feeling more confident.
The point to note is that China’s main stock indices reflect a dominance of state-owned giant companies, whereas the real value growth is coming from not just big platforms, but also small and medium sized privately owned artificial intelligence (AI), robotics and electric vehicle manufacturers who are innovating at “Breakneck” speed — from the title of the latest book by Dan Wang, Breakneck: China’s Quest to Engineer the Future, one of the best tech analysts following the rise of Chinese technology.
Wang’s hypothesis is that China is run by real engineers, whereas America is run by lawyers. While lawyers do seem to run Washington politics, Wall Street is run by financial engineers, with current Treasury Secretary Scott Bessent, a former hedge fund manager for George Soros, being a classic example. He thinks and operates in terms of quarterly financial results, how to monetise balance sheets and leveraging the power of the dollar and US sanction power. Companies like Intel, Boeing and auto giants like Ford and GM lost their focus on engineering excellence, emphasising short-term revenue to maintain share prices, resulting in lagging investments in the long term. This year, US listed companies spent
US$1 trillion buying back their shares to keep the management’s share options valuable. If the US stock market tanks, there would be a lot of poorer C-street managers who would lose their financial engineering benefits.
My own discussions with the Chinese tech corporate captains reveal a different story. They are mostly engineers by training, hands-on and pragmatic in actual operations and supply chain issues, pretty confident of their tech and manufacturing prowess, never underestimating their European, Japanese and American rivals, super keen to continue exporting. Instead of arrogance and complacency, they agree vehemently that US and European sanctions forced them to up their game in terms of innovation, branding and resilience.
They know that their backs are to the wall, keen to learn from everyone. They have the classic Intel legend Andy Grove’s dictum in their blood, “Only the paranoid survive”. Consequently, those investing in Chinese stocks will have to focus on the better Chinese tech platforms with good AI capabilities, which are probably underpriced compared with the AI giants in the US. Alibaba and Tencent have price-earnings ratios in the range of 16-27 times, cheaper than the top three US AI giants, Alphabet, Meta and Microsoft (25-37 times).
On the other hand, investing in the newer, second-tier tech companies that are on the rise is fraught with both opportunity and uncertainty. The big Wall Street investment banks do not give sufficient detailed research coverage on these emergent Chinese tech companies, because they have little track record in performance, low liquidity in trading and appear to be highly speculative. You have to read Chinese to follow Chinese securities houses who punt these companies.
Investing in China is like riding the dragon’s back, exhilarating and yet fearsome. Since 1978, China’s GDP growth was the fastest, averaging 8%-9% per year, and yet the public stock market did not do that well for retail investors. The private equity funds that went into the market early through holding key stakes in Chinese banks, utilities and leading companies today did very well. There is therefore a lack of investment research and channels on how to invest into the new group of Chinese growth companies.
The lack of an ecosystem in enabling Chinese companies to “go out” (listing overseas and building their global presence), while allowing global retail and institutional investors to partake in the Chinese economic story, is a work in progress. Those who are brave and willing to take informed, calculated risks will be rewarded. Those who buy with their eyes wide shut will pay for their unwillingness to do their homework. This will be a bumpy year, but could also be a bumper year. Caveat emptor.
Tan Sri Andrew Sheng writes on global issues from an Asian perspective
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