Hi YXI friends,

Chinese stocks have been more than exceptional in 2025, on the back of its domestic AI hype and policy directions that aim to boost the stock market.

This week, China has announced a Special Action Plan to Boost Consumption, aimed at further strengthening the stock market, but also moving the Chinese economy into a consumption-led one like the US.

Today, we analyse the latest policy as well as the stock market trends across KWEB, FXI, BABA, PDD, JD, and BIDU.

Let’s dive in!

Table of Contents

• 1. Geopolitics and Local Policies

  • Who cares about tariffs

  • China’s “Special Action Plan to Boost Consumption”

• 2. KWEB +40% Since January 10

  • KWEB Chart

  • FXI Chart

• 3. BABA, PDD, JD, BIDU

  • BABA Chart

  • PDD Chart

  • JD Chart

  • BIDU Chart

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. Geopolitics and Local Policies

Who cares about tariffs

The Chinese stock market is enjoying a straight-up mode since mid-January that does not seem to relent. This is against a backdrop of US having applied an additional 20% tariffs across ALL Chinese imports, worth $1.4 trillion, since February.

To put the new tariffs in context, the Trump 1.0 "Trade War” impacted around $500 billion worth of Chinese imports, and much of these tariffs were still in place before Trump’s inauguration.

Interestingly, China’s trade surplus against the US rose by 3.7% in Jan-Feb, to $49 billion. This includes the February period where a 10% tariffs on Chinese imports came into effect.

For now, the negative impact of tariffs have been more felt by the US, in the form of rising recessionary odds and a falling stock market. Chinese equities have so far shrugged this off, due to two reasons.

Firstly, a weaker US Dollar has helped a weaker USDCNH and better liquidity, which we will see in section 2. Secondly, China is finally riding its own AI wave triggered by DeepSeek. A number of Chinese giants, including Alibaba and Baidu, have created their own LLMs that show very promising results compared with OpenAi’s models.

China’s “Special Action Plan to Boost Consumption”

China released a “Special Action Plan to Boost Consumption” on Monday March 17, with 30 policies that aimed at boosting the standard of living, markets, consumption, innovation, and business environment. Note that these are more policy “directions” without specifics right now.

The most interesting policy to me is to help people boost their asset income, via policies that “stabilise the stock market, unblock investment channels for insurance and pension funds, improve market value management for state-owned listed companies, crack down on financial fraud, and diversify bond products for individual investors.”

This shows a high priority the government places on wealth creation via financial markets, a long-term tailwind for Chinese equities.

Moreover, the Chinese government is attempting to create an innovation-led, consumption driven economy (as opposed to investment and exports), via the new policies.

These policies should be beneficial to consumer-facing stocks, such as consumer staples, discretionary goods, EVs, and technology devices. This is why Xiaomi (HKEX: 1810) has rocketed in the past year.

Xiaomi (1810) Stock

2. KWEB +40% Since January 10

KWEB (CSI China Internet ETF) has been on a relentless run since January, up over 40% since January 10.

While I foresaw the start of the run before the Chinese New Year, due to the large liquidity injections via the PBOC in the reverse repo market, the extent and duration of this climb have well surpassed my initial expectations. This is against a backdrop of increasing US tariffs and absent stimulus measures.

KWEB vs USDCNH (https://www.tradingview.com/x/DYBsm0DS/)

We observe that KWEB trades inversely with USDCNH, which is driven by the US vs. China yield spread plus the excess demand for the Dollar or Yuan. Since January, the USD (DXY) has weakened substantially. At the same time, China enjoyed a net capital inflow in February, with an increase of foreign holdings in Chinese bonds and stocks.

China M2 (in USD) vs KWEB (https://www.tradingview.com/x/IMW0veMO/)

Another astonishing chart is how closely KWEB has traded with the directional movement of China’s M2 Money Supply changes in USD (in blue). As the M2 levels declined in USD terms (mostly due to a strong USD) in Q4, KWEB pullback with it. The rise in M2 levels since the New Year has propelled KWEB forward.

KWEB Chart

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