Belle Chang
China concluded its Fourth Plenum meeting in October. China’s Fourth Plenum emphasied tech self-reliance and anti-involution campaigns. These initiatives aim to reduce foreign tech dependence, curb destructive price wars, and restore profitability across key sectors like semiconductors, EVs, and solar panels. In this note we discuss the tech self-reliance and anti-involution campaigns and their implications to the equity market.
- Domestic AI breakthroughs and policy supports have fueled strong rallies in China Tech stocks – FTSE China Tech rose 30% YTD. Technological self-reliance and anti-involution campaigns are widely expected by markets to benefit AI and semiconductor areas.
- EVs, solar panels, e-commerce, and industrials, such as steel, stand to benefit as anti-involution policies aim to drive margin recovery, reduce overcapacity and long-term sustainable growth.
What are China’s tech self-reliance and anti-involution campaigns?
China’s 15th five-year plan [note1] for the 2026–2030 period continue to target global leadership in science and technology by 2035 and emphasize the pledge for “scientific and technological self-reliance and strength”. The campaign seeks to reduce reliance on foreign technology and strengthen innovation, especially amid heightened US-China tensions, to ensure national security and economic security.
The “anti-involution” campaigns aim to resolve the cutthroat pricing competition – also known as “neijuan” in Chinese – in which businesses cut prices aggressively and over invest in order to keep market share. This has led to the issues of price wars, lower margins and overcapacity. These issues, in addition to slowing domestic demand, have been one reason worsening deflationary trends in China. Hence, by restoring profitability and reducing oversupply, the campaign targets to build a more sustainable business and economic growth.
EXHIBIT 1: FTSE CHINA NET MARGINS BY INDUSTRIES (%)
Tech stocks have outperformed other industries YTD
Semiconductors stand to benefit from not only the tech self-reliance pledge but also the anti-involution campaign. Semiconductors, particularly high-end chips, have been a major focus, as the US has imposed restriction to export to China. Therefore, China faces an increasing challenge of staying competitive in the fast-evolving AI competitions while maintaining profitability. China’s new five-year plan confirms the importance of designing and producing high-end chips through its domestic supply chain amid this challenging backdrop.
Exhibit 2: YTD total return - FTSE China Tech (USD, rebased)
To enable semiconductor self-reliance, the Technology Hardware and Equipment sector plays an important role in the supply chain. Anti-involution measures are expected to help prevent the sector from falling into price wars and improve profitability. As Exhibit 3 shows, the net margin of Technology Hardware and Equipment is now near its 10-year low. Technology Hardware and Equipment accounted for 2.4% of FTSE China Index, and has risen 51% YTD as of November, outperforming Software and Computer Services’ 29% (Exhibit 2). Both chip manufacturers and AI chip designers within the Technology Hardware and Equipment sector have posted strong returns YTD. Hua Hong Semiconductor [note2], a chip manufacturer, which has gained over 120% YTD [note3]. Cambricon[note4], an AI chip designer, has surged more than 100% YTD, while its peers Hygon [note5] and NAURA [note6] have both gained more than 45% [note7].
Moreover, we’ve seen an AI-led equity rally since February (more see What drove the February China equity rally? | LSEG). Not only the Tech industry but also AI relevant players, such as Telecom (e.g. Xiaomi [note8]) and Retailers (e.g. e-commerce Alibaba [note9]), have seen strong performance since February. Following the Fourth Plenum, Software and Computer Services stocks (e.g. Baidu [note10] and Tencent [note11]), and Retailers continued to rally on positive developments in Chinese AI, including AI model updates and AI cloud businesses. As of November, Software and Computer Services represented 24.2% of the FTSE China Index.
EXHIBIT 3: FTSE CHINA TECH STOCKS NET MARGIN
Anti-Involution’s reach: from industrial sectors to alternative energy to EVs
Under the anti-involution campaign, sectors such as solar panels, EVs, lithium batteries, e-commerce and food delivery services, as well as industrial and mining sectors such as steel and cement, are expected to benefit. Many of these sectors have faced intense price competitions and overproduction that led to compressed profit margins over the past few years. For instance, Exhibit 4 shows that Alternative Energy (including solar panels firms) has seen its net margin drop from 20% to almost 0% over the past five years, while the net margin of Automobiles and Parts (mainly EV stocks) firms has declined since the escalation of US-China trade tensions in 2018. Therefore, the campaign is expected to restore better pricing discipline and profitability for these industries, creating a healthier competitive environment that supports long-term growth sustainability.
EXHIBIT 4: NET MARGINS OF SECTORS EXPECTED TO BENEFIT FROM ANTI-INVOLUTION CAMPAIGNS
Net margins matter for equity performances. Take the Automobiles and Parts sector as an example. The sector accounted for 4.3% of FTSE China, as of November 2025. As shown in Exhibit 5, Chinese automakers have underperformed their Asian peers over the past five years. This is despite the fact that Chinese Automobiles and Parts stocks have surged since September 2024 as the government’s consumer goods trade-in program have boosted auto sales. While the anti-involution campaign may pose near-term headwinds for EV makers, such as BYD (weight: 1.5% of FTSE China), as they digest inventories improved margin could be positive for the business and the whole industry in the longer run.
EXHIBIT 5: PAST 5Y TOTAL RETURN – CHINA VS ASIA PEERS AUTOMOBILES AND PARTS (USD, REBASED)
The performance of onshore and offshore proxies: China A50 and China 50
As discussed in our previous note, Risk of US-China trade tensions 2.0: How can this time be different? (Dec 2024) [note2], FTSE China A50 Index and FTSE China 50 Index could be reliable proxies for the onshore and offshore Chinese stock markets with smaller numbers of constituents, compared to FTSE China Index, which includes more than one thousand stocks.
Therefore, investors could use either two indices as proxies for their exposure to China equities, though performance has diverged between them. As Exhibit 6 shows, the FTSE China A50 rose 16% YTD as of November 2025, while the FTSE China 50 posted a 27% rally. The FTSE China 50 saw a strong rally in 1Q25, driven by domestic AI breakthroughs, while the A50 has been catching up since 3Q25.
The divergence reflects differences in industry weights. For example, Automobiles and Parts sector accounted for 2.6% of FTSE China A50 Index, as of November 2025. Industrials and Basic Materials accounted for 13.4% and 3.0%, respectively. The A50 index also had a 7.0% weight in Technology Hardware and Equipment, which is expected to benefit from these campaigns. In contrast, the index does not include Software and Computer Services stocks.
Within the offshore FTSE China 50 Index, Automobiles and Parts represented 5.0% while Software and Computer Services accounted for 18.7%, contributing to the strong 1Q25 performance of the index. Additionally, Xiaomi, the largest Telecom stock in the index with a 6.6% weight, was a major positive return contributor during 1Q25.
EXHIBIT 6: TOTAL RETURN – FTSE CHINA A50 VS FTSE CHINA 50 (USD, REBASED)
Conclusion
Tech self-reliance and anti-involution campaigns aim to strengthen domestic innovation, reduce reliance on foreign technology, and curb cutthroat competitions that have eroded margins across multiple sectors. AI related and semiconductor supply chain Tech stocks have been boosted. The anti-involution policies are expected widely by the markets to favor sectors such as EVs, solar panels, e-commerce, and steel, etc.
footnotes
[1] Communique of the Fourth Plenary Session of the 20th Central Committee of the Communist Party of China; October 23, 2025; https://www.fmprc.gov.cn/eng/xw/zyxw/202510/t20251023_11739505.html | Back to Note 1
[2] Risk of US-China trade tensions 2.0: How can this time be different? | LSEG; December 2024 | Back to Note 2
[3] Data sourced from LSEG Workspace - Source: FTSE Russell and LSEG as of November 2025. Past performance is no guarantee of future results. Please see the end for important legal disclosures. | Back to Note3
[4] Data sourced from LSEG Workspace - Source: FTSE Russell and LSEG as of November 2025. Past performance is no guarantee of future results. Please see the end for important legal disclosures. December 2024 | Back to Note 4
[5] Data sourced from LSEG Workspace - Source: FTSE Russell and LSEG as of November 2025. Past performance is no guarantee of future results. Please see the end for important legal disclosures. | Back to Note 5
[6] Data sourced from LSEG Workspace - Source: FTSE Russell and LSEG as of November 2025. Past performance is no guarantee of future results. Please see the end for important legal disclosures.| Back to Note 6
[7] Data sourced from LSEG Workspace - Source: FTSE Russell and LSEG as of November 2025. Past performance is no guarantee of future results. Please see the end for important legal disclosures. | Back to Note 7
[8]Data sourced from LSEG Workspace - Source: FTSE Russell and LSEG as of November 2025. Past performance is no guarantee of future results. Please see the end for important legal disclosures. | Back to Note 8
[9]Data sourced from LSEG Workspace - Source: FTSE Russell and LSEG as of November 2025. Past performance is no guarantee of future results. Please see the end for important legal disclosures. | Back to Note 9
[10]Data sourced from LSEG Workspace - Source: FTSE Russell and LSEG as of November 2025. Past performance is no guarantee of future results. Please see the end for important legal disclosures.| Back to Note 10
[11] Data sourced from LSEG Workspace - Source: FTSE Russell and LSEG as of November 2025. Past performance is no guarantee of future results. Please see the end for important legal disclosures. | Back to Note 11
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