Celebrating 15 years of Fidelity China Special Situations PLC

It is 15 years since Fidelity China Special Situations PLC first listed on the London Stock Exchange. During that time, the average wealth of each Chinese citizen has more than doubled¹, while the country has moved from a low-cost manufacturing centre to a technology and innovation powerhouse. The stock market has mirrored this evolution, with whole new sectors emerging, and burgeoning choice for active investors.  

The current environment is perhaps the most uncertain in the country’s recent history, with the ultimate outcome of the US tariff regime and its impact on the Chinese economy remaining unclear. However, we believe investors should not over-estimate the long-term effect of tariffs. The Chinese government is already part of the way through its long-term ambition to reorientate the economy towards domestic consumption and its reliance on exporting to the US was already far lower than a decade ago. China’s position on the world stage is undimmed and may ultimately be enhanced by shifting geopolitical allegiances. 

This type of environment can bring about significant opportunities for active investors. In our history of investing in China, we have found that this is when stock prices and company fundamentals often diverge. Sentiment tends to swing far more than the valuations of the companies themselves. This makes them fertile periods for active managers. We believe investors need to focus on the long-term qualities of the Chinese market and its pockets of real growth.   

Innovation powerhouse

Earlier this year, Chinese start-up DeepSeek’s cost-effective AI model stunned the industry, shaking up Western competitors and demonstrating the strength of innovation within China. This is not a one-off. China dominates global markets in areas such as electric vehicles, robotics and clean technology.  

On the ground, innovation continues to thrive across sectors, reflecting companies’ commitment to building a competitive edge. It is evident in independent metrics such as patents, research and development spending, and new research papers, but we also see it every day through our meetings with Chinese companies and management teams. 

High-end manufacturing and domestic consumption are central to the government's long-term plan to reduce reliance on investment and property for driving growth. This has been a significant priority in the Government’s recent stimulus packages and may be accelerated by the trade war.  

We see an increasing preference among Chinese consumers and corporates for Chinese brands and local suppliers, resulting in domestic companies taking ever greater market share in what remains one of the world’s largest markets. We would highlight companies such as Anta Sports Products, one of the world's largest sports equipment companies. Its strategy has been to develop different brands to satisfy different demands and has adapted well to China’s highly dynamic market. 

Policy flexibility 

Chinese policymakers think long-term. There can be little doubt that they were well-prepared for US tariffs and had a clear strategy in place. They had already rolled out new measures to support domestic consumption in 2024 and stabilise the property market. These are bearing fruit, with stronger economic growth data over the past six months².  

Actions to date have included a boost in wages for urban and rural workers, while also improving social protections such as health insurance, pension provision and public services. This should help free up household finances. The government also expanded the trade-in subsidies for major appliances and autos, while improving credit access.  

There may be more to come. The Government is likely to calibrate its stimulus carefully, with the aim of absorbing any impact from US tariffs.  However, it will need a final resolution before it can announce its plans.  

Long-term growth potential

The long-term growth story for China remains as compelling as ever. It has a vast population – around 4x that of the US – with a GDP per capita of around one-sixth of the US³. The trade friction is a reflection of the rising competitiveness of Chinese companies. China has built domestic expertise across a range of sectors that will be very difficult for other countries to replicate. It is building a domestic economic infrastructure likely to dwarf that of any other country.  

The Fidelity China Special Situations trust remains heavily invested in sectors such as healthcare, consumer staples, and segments of industrials, which lean into growth in the domestic economy. These are companies such as Tsingtao Brewery which has strong competitive advantages from its branding and also holds a healthy market share. 

Chinese companies have the resilience and the capability to navigate a challenging and evolving macro environment. While near-term volatility is likely, especially in discretionary and supply chain-linked sectors, the long-term fundamentals remain intact for quality names with robust balance sheets and strategic positioning in domestic growth themes. Just as it has for the past 15 years, China will continue to be a dynamic market that favours active and careful stock picking, but there are exciting returns available for those that can uncover its unique opportunities. 

¹ https://www.macrotrends.net/global-metrics/countries/chn/china/gdp-per-capita 

² https://www.china-briefing.com/news/chinas-economy-q1-2025-5-4-percent-gdp-growth/ 

³ https://data.worldbank.org/indicator/NY.GDP.PCAP.CD 

Important information

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments are subject to currency fluctuations. Fidelity China Special Situations PLC can use financial derivative instruments for investment purposes, which may expose it to a higher degree of risk and can cause investments to experience larger than average price fluctuations. This trust invests more heavily than others in smaller companies, which can carry a higher risk because their share prices may be more volatile than those of larger companies and the securities are often less liquid. This Investment Trust invests in emerging markets which can be more volatile than other more developed markets. The shares in the investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.