After a year of government stimulus packages and recovering economic optimism, Chinese stocks have reached their highest levels for more than 10 years, but their long-term prosperity relies on positive trade relations with the United States.
Off the back of the news that China and the United States had agreed on a framework for a trade deal, the Shanghai Composite index extended its year-to-date growth to 22%, marking its highest levels since August 2015.
The latest movements underline the strength of China's recovering markets but also highlight its dependence on US trade.
To underline this point, the index tumbled 7.3% off the back of the initial announcement of President Trump's reciprocal tariffs in April, which targeted imports from China.
Despite lingering uncertainty, the outlook for Chinese stocks appears to be brightening significantly. Goldman Sachs strategists have suggested that equities in the Asian powerhouse could rally 30% through 2027, citing calming volatility within markets.
Charting a Recovery
The Shanghai Composite's correlation with the differing trade outlook with the United States highlights the value of exports to the Chinese economy, which contributes around 20% to the nation's gross domestic product (GDP).
Such is the strength of China's trade ties with the United States that recent optimism toward the outcome of negotiations saw a global market rally.
The Asian nation has undergone an economic resurgence in 2025, which has also been reflected in domestic equities. Following an ambitious government stimulus plan to encourage more foreign investment and galvanize its stuttering economic outlook, the Bank of China reported a third-quarter profit rise of 5.09% in comparison to a year earlier.
In recent days, Beijing announced another strategy to foster domestic growth with the Communist Party's Central Committee proposal for the nation's 15th five-year plan. The proposal appears to focus on gathering strategic support for the private sector and intends to accelerate China's transformation into a financial power globally in a move that would further ease the nation's economic concerns.
However, this path towards a full economic recovery is likely to depend on the whims of the Trump administration in the US, which recently slapped a 10% tariff on Canada with little warning, further demonstrating that trade disruptions can derail even the most concrete of plans.
Attracting Foreign Business
China's improving market outlook is already making the Asian nation a popular destination for businesses worldwide. This year, China overtook the United Kingdom to rank in second place in BrandFinance's Global Soft Power Index 2025, its highest ranking to date.
Allocated a score of 72.8 out of 100, the country was recognized as the world leader in terms of ease of doing business and future growth prospects.
Having unveiled an exceptionally ambitious stimulus package in 2024 geared towards lowering interest rates and encouraging more borrowing to buy stocks and shares on domestic exchanges, China has consciously positioned itself as a key destination to do business.
The nation's industrial emphasis on adaptation and innovation when it comes to building sustainability-focused circular business models has been inviting for more developing nations to participate in the expanding Chinese market.
Given that the United States has taken a step back from government-subsidized sustainability efforts, China is now the world's most attractive place for clean energy startups and entrepreneurs alike.
With close proximity to suppliers, building a business presence in China can also open the door to a powerful domestic supply chain, meaning that successful trade negotiations with the United States can offer significant potential for foreign business owners.
Trade Dependencies
The clouded landscape surrounding trade may be contributing to investment challenges experienced in China throughout 2025.
Fixed asset investment, including real estate, unexpectedly contracted by 0.5% in the first nine months of the year as infrastructure and manufacturing spending slightly slowed.
Driving the downturn has been falling property investment, which has dropped 13.9% in the year through September, a troublesome reading that shows fragility in the wake of the high-profile collapse of Evergrande.
The economic difficulties for fixed-asset investment suggest that the fourth-quarter will see more downward pressure on Chinese GDP.
Other struggles can be found in China's automotive sector. Despite the number of passenger cars sold in Q3 climbing 14%, intense domestic competition means that the sales values leveled out. This suggests that China's growing emphasis on electric vehicles needs a global market to continue its exponential growth.
While trade uncertainty remains with the United States, China's export-dependent markets may continue to face significant headwinds to hamper growth.
If early signs of a framework for a trade deal are to be believed, the benefits will be reaped by the Shanghai Composite index. This could see a resumption of productivity and industry, amounting to more economic growth through trade.
The early signs of China's government stimulus package are positive. Now the Asian powerhouse is seeking a trade boost with the United States to complete its economic recovery.
Disclosure: On the date of publication, Dmytro Spilka did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer. Dmytro Spilka does not intend to make a trade in any of the securities mentioned above in the next 72 hours.
Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.
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