A-share Investment Insights and Sector Allocation Amid the Divergence Between Trade Surplus and Domestic Deflation

China witnessed a significant macroeconomic divergence in 2024:

, but the domestic economy still faced (CPI YoY 0.7%, PPI YoY -2.2%) [web search chart]. This “external hot, internal cold” pattern was fully reflected in the A-share market.

• Annual gain:
  +12.75%
  (from 2968 points at the start → 3351 points at the end of the year)
• Maximum drawdown: -14.77%
• Average daily volatility: 1.26% [0]

Despite the double-digit index gain,

, reflecting an obstruction in the transmission mechanism of trade surplus to the domestic economy.

According to 2024 A-share data statistics,

and showed completely different trends:

• CATL (New Energy Batteries):
  +69.61%
  [0]
• Fuyao Glass (Automotive Parts):
  +65.61%
  [0]
• COSCO SHIPPING Holdings (Shipping Logistics):
  +57.36%
  [0]
• BYD (New Energy Vehicles):
  +46.76%
  [0]

• Vanke A (Real Estate):
  -28.47%
  [0]
• Kweichow Moutai (High-end Consumption):
  -9.56%
  [0]
• Wuliangye (Liquor):
  +2.97%
  [0]

Chart 1: The upper chart shows the 2024 trend of the Shanghai Composite Index, and the lower chart compares the annual gains/losses of export-oriented and domestic demand-oriented stocks. The data clearly demonstrates the “external hot, internal cold” pattern.

The trade surplus hit a record high, but domestic liquidity did not improve significantly. The core reason is that

:

1. Exchange Rate Expectation Management
   : Enterprises have expectations of RMB depreciation and tend to retain overseas earnings abroad.
2. Overseas Reinvestment Demand
   : Leading enterprises are accelerating globalization layout, requiring large overseas capital expenditure.
3. Tax Avoidance and Regulatory Considerations
   : Some enterprises delay profit repatriation for tax planning or regulatory avoidance purposes.

This leads to

, forming a “capital outflow” effect. Data shows that Chinese enterprises’ overseas investment increased significantly in 2024, reflecting capital outflow pressure [web search chart].

China’s export subsidy policies have improved international competitiveness, but also brought structural problems:

1. Price Subsidies Inhibit Domestic Price Increases
   : Export enterprises tend to maintain low-price strategies to obtain subsidies, indirectly exacerbating domestic deflation.
2. Capacity Tilted Towards Exports
   : Subsidies lead to resources being prioritized for the export sector, squeezing domestic demand supply.
3. Profit Margins Under Pressure
   : Subsidy competition leads to lower gross profit margins for export enterprises; even if revenue grows, it is difficult to improve profit quality.

is a key reason for the divergence between trade surplus and deflation:

• Early exports were dominated by labor-intensive products (textiles, furniture, etc.), absorbing a large number of jobs.
• Current exports are shifting to
  technology-intensive products
  (new energy vehicles, batteries, photovoltaics, high-end manufacturing).
• The
  employment absorption capacity per unit GDP of technology-intensive industries is only 1/3 to 1/5 of traditional industries
  .

This means that even with strong exports, the

. The 22% YoY increase in unemployment insurance expenditure (user-provided Context) reflects structural pressure in the job market.

Under the “external hot, internal cold” pattern,

, but we need to select leading enterprises with global pricing power:

Industry	Logic	Representative Companies
New Energy Vehicles	Global penetration rate increase, China’s supply chain cost advantage	BYD (+46.76%) [0]
Power Batteries	Global monopoly position, accelerated overseas production capacity layout	CATL (+69.61%) [0]
Automotive Parts	Lightweight and intelligent trends, increasing global market share	Fuyao Glass (+65.61%) [0]
Shipping Logistics	Rising export volume and price, tight capacity	COSCO SHIPPING Holdings (+57.36%) [0]

• Prioritize enterprises with
  overseas revenue accounting for more than 40%
  .
• Focus on companies with production capacity layout in Europe, America, and Southeast Asia (to avoid trade barriers).
• Attach importance to
  ROIC
  (Return on Invested Capital) rather than pure revenue growth.

Domestic demand sectors

, but there are band opportunities driven by policies:

• Real Estate
  : Vanke A fell 28.47% annually [0], and the industry is still in the destocking phase.
• High-end Liquor
  : Kweichow Moutai fell 9.56% annually [0], with weak business consumption and gift demand.
• Traditional Building Materials
  : Highly related to the real estate chain, with weak demand.

• Home appliances “trade-in for new ones” policy (scale of 300 billion yuan).
• New energy vehicles going to rural areas subsidies.
• Consumption voucher issuance and other measures.

The excellent performance of

(+37.87%) indicates that companies with both and have double safety margins [0].

Not all export enterprises are worth investing in; we need to be alert to three types of risks:

1. Price Wars Sacrificing Profits
   : Some enterprises seize market share through low prices, leading to continuous decline in gross profit margins.
2. Accounts Receivable Risk
   : Overseas customers extend payment terms, increasing bad debt risks.
3. Trade Policy Risks
   : European and American tariff barriers, anti-dumping investigations, etc.

• Net operating cash flow/net profit > 1.
• Stable overseas accounts receivable turnover days.
• Stable or increasing gross profit margins.

An important trend in 2024 is that Chinese leading enterprises are upgrading from

to :

points out that enterprises’ overseas layout will become an important driving factor for the MSCI China Index [1]:

• Midea Group
  : Southeast Asian air conditioner production capacity increased to 30%, overseas revenue grew by 18% annually.
• JinkoSolar
  : US and Malaysia factories put into operation, overseas orders locked in 70% of annual capacity.
• BYD
  : Monthly sales in Germany and Japan exceeded 5000 units; overseas markets changed from “supplementary” to “main force”.

• Overseas production capacity enjoys local subsidy policies.
• Avoid trade barriers (tariffs, anti-dumping).
• Enjoy local low-cost financing.

Although technology-intensive exports have limited direct employment contribution, their

cannot be ignored:

• AI Infrastructure
  : Zhongji Innolight’s overseas revenue accounts for over 60%, directly undertaking demand from North American cloud service providers [1].
• Advanced Manufacturing
  : Growing demand for automation equipment indirectly drives the high-end equipment industry.
• R&D Service Outsourcing
  : China has become a global R&D center, driving high-skilled employment.

• AI computing infrastructure (optical modules, liquid cooling, servers).
• Industrial automation (robots, CNC machine tools).
• Software and service outsourcing.

Based on the above analysis, we propose

:

Sub-industry	Target Examples	Allocation Logic
New Energy Vehicles	BYD, Li Auto	Global penetration rate increase, breakthrough in European markets
Power Batteries	CATL, EVE Energy	Global market share over 60%, explosive growth in energy storage demand
Automotive Parts	Fuyao Glass, Tuopu Group	Lightweight and intelligent upgrade
Shipping Logistics	COSCO SHIPPING Holdings, Sinotrans	Freight rates remain high, port operation improvement

• Home Appliance Leaders
  : Midea Group, Haier Smart Home (overseas merger and acquisition integration).
• Photovoltaic Leaders
  : JinkoSolar, LONGi Green Energy (overseas production capacity layout).
• Chemical Industry
  : Wanhua Chemical (global pricing power for MDI).

• Beneficiaries of Auto Trade-in
  : BYD, Great Wall Motor.
• Home Appliance Upgrade
  : Gree Electric Appliances, Midea Group.
• Smart Home
  : Xiaomi Group, Roborock.

• Optical Modules
  : Zhongji Innolight.
• Liquid Cooling Heat Dissipation
  : Gaolan Shares.
• AI Applications
  : SenseTime, iFLYTEK.

• Banking
  : China Merchants Bank (P/E 7.08x, dividend yield about5%) [0].
• Energy
  : China Shenhua Energy.
• Public Utilities
  : Yangtze Power.

1. Decline in Overseas Demand
   : Unexpected slowdown in European and American economies leads to plummeting export growth.
2. Escalation of Trade Frictions
   : The Trump administration may impose additional tariffs on Chinese export products [2].
3. Sharp Exchange Rate Fluctuations
   : Unexpected depreciation or appreciation of the RMB affects corporate profits.
4. Spread of Real Estate Risks
   : Further fermentation of the real estate crisis impacts the financial system.

Investors are advised to pay close attention to the following indicators:

Indicator	Warning Line	Meaning
Monthly Export Growth	<5%	Signal of weakening external demand
PPI YoY	Negative for 3 consecutive months	Deepening deflation
Social Financing Stock Growth	<9%	Blocked broad credit
USD/CNY	>7.5	Exchange rate depreciation pressure
10-year Treasury Yield	<2.0%	Weakening economic expectations

The

is a typical feature of China’s current economic transformation. The core insights for A-share investment are:

1. Embrace the Export Chain
   : Select leading enterprises with global competitiveness.
2. Layout Going Global 2.0
   : Focus on enterprises transitioning from product export to capacity export.
3. Be Alert to Domestic Difficulties
   : Avoid domestic demand under pressure sectors such as real estate chain and high-end liquor.
4. Seize Policy-driven Opportunities
   : Focus on structural opportunities like trade-in for new ones and new energy vehicles going to rural areas.
5. Attach Importance to Cash Flow
   : While paying attention to profit growth, focus on the quality of operating cash flow.

In 2025, the A-share market is likely to continue the

rather than a full bull market. will be the key source of excess returns.

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[0] Gilin API Data
[1] JPMorgan - “Bullish on 2026 MSCI China Index: Four Themes Driving Growth” (https://hk.finance.yahoo.com/news/摩根大通看好2026-msci中國指數-ai-反內卷-海外佈局與消費復甦四大主題-231004197.html)
[2] Wall Street Journal - “Trump Tariffs to Bring… in FY2025” (https://cn.wsj.com/articles/美國股指貨幣大跌-全球市場準備迎接動盪一週-0ece2b14)