China hits the brakes

The world’s second-largest economy is hitting a speed bump.

China lowered its economic growth target for this year to between 4.5% and 5%, its slowest pace since 1991, as weak consumer demand continues to weigh on the country’s economy. Consumption accounts for only 40% of GDP, far below global norms, while manufacturing is also slowing, with PMI falling for two straight months amid US trade tensions.

To address the slowdown, Beijing outlined several priorities in its five-year economic strategy:

• Expanding investment in AI and digitalization
• Boosting domestic consumption, though it remains a secondary focus
• Increasing government spending, with a fiscal deficit target of around 4% of GDP and new financing tools worth roughly $116 billion to support investment
• Increasing military spending by 7% to strengthen national security

BYD’s slump

One victim of the slowdown is BYD, which overtook Tesla as the world’s biggest EV seller last year. But the company reported that vehicle sales fell 41% year over year in February, driven by a 65% drop in domestic deliveries. Shares sank 4.07% today following the announcement.

Part of the decline also stems from what Chinese analysts call “involution,” where excess manufacturing capacity and intense competition force companies into aggressive price wars. With many EV makers chasing the same pool of buyers, margins and growth are under pressure.

To counter this, BYD is shifting its focus outward. Alongside upgrades to its batteries and vehicle lineup, the company plans to expand aggressively overseas, targeting 1.3 million vehicles sold abroad by 2026. That strategy could bring Chinese EV competition more directly into global markets, raising the stakes for Western automakers.

The AI pivot

Other Chinese companies didn’t fare so well today, either: Li Auto fell 2.03%, NIO dropped 2.48%, and Alibaba lost 2.19%.

That makes sense, as investors are reacting to the headlines of slower economic growth. But a closer look shows China’s growth target is relatively pragmatic, with policymakers focusing on fixing structural issues in the economy. The strategy could ultimately provide a tailwind for many of these companies: Boosting domestic spending is good news for companies like Baidu and JD.com, while a focus on AI development should benefit Alibaba, a rising power in the industry.

Speaking of which, investors should keep an eye out for the so-called “AI tigers,” including Zhipu and MiniMax, as Beijing’s AI push creates new growth opportunities. China’s StepFun is also reportedly planning an IPO later this year, which could offer early exposure to the country’s next wave of AI startups.

For now, China’s economy may be hitting the brakes, but it’s also changing lanes. And if the country’s AI push gains traction, investors may soon be talking less about slowing growth, and more about the next wave of innovation.—SY