WE Think — The Busan Summit Marks a Historic Turning Point, the Dawn of the G2 Era

WE Think — The Busan Summit Marks a Historic Turning Point, the Dawn of the G2 Era

1. Overview

China's capital markets saw notable volatility in October, driven by renewed U.S. tariffs and rare-earth export controls. The CSI 300 and the Wind All-China Index closed nearly unchanged, while Hong Kong equities posted monthly declines (Hang Seng Index: -3.53%; Hang Seng Tech Index: -8.62%). The U.S. - China leaders' summit in Busan on October 30 marked a breakthrough of profound historical significance. The final week of October—a period dubbed a global “Super Bank Week”—witnessed a rare alignment, with four major central banks announcing policy decisions within 24 hour: On October 29, the Federal Reserve cut interest rates by 25 basis points and announced the end of balance sheet reduction effective December 1; meanwhile, the Bank of Canada also lowered rates by 25 basis points. On October 30, the Bank of Japan and the European Central Bank kept interest rates unchanged.

How will China-US economic and trade relations evolve? Is China’s capital market undergoing a structural transformation with increasing technology exposure? What is the logic behind this shift?

This edition of WE Think explores these critical questions.

2. Historic Significance of the October 30 China-US Summit in Busan  

This marked the first in-person meeting between Presidents Trump and Xi since the start of Trump’s second term. Prior to the summit, their trade teams had made progress in technical negotiations in Malaysia. However, the US had previously threatened additional tariffs and even the cancellation of the summit due to sanctions on China's shipbuilding industry and rare - earth export controls. Market expectations were therefore muted.  

However, the meeting achieved unexpected results. The US delegation, led by President Trump, spoke highly of the meeting. According to the official outcomes:  

· The US cancelled the 10% 'fentanyl tax', suspended the 24% reciprocal tariffs for one year, and halted the export control measures and the Section 301 investigation into China's shipbuilding industry.  

· China delayed the enhanced rare - earth export controls by one year.  

· Both sides reached consensus on anti - drug cooperation, agricultural trade (including China's pre - summit purchase of 180,000 tons of US soybeans), and specific issues such as TikTok, achieving a mutually beneficial trade outcome.  

Clearly, the recent leader - level talks delivered mutual gains, mainly in the short term. More importantly, beyond easing U.S. - China trade frictions, in the past eight years (since the 2018 tariffs imposed by Trump), China has reduced its reliance on the United States through business resilience and self - adjustment. Friction has shifted from passive defense (marked by the May 12 trade restart and rare - earth controls) to a strategic stalemate.

This year's U.S. - China talks, which were all held in third countries and featured increasingly equal dialogue, reflect China's growing manufacturing strength. This has led global leaders to reassess how they engage with a rising China. Trump and Hegseth's social media signals show mutual desire for "peace." While future relations may not be smooth, the key breakthrough is America's adaptation to coexisting with China as the world's No. 2 power through mutual respect and equal dialogue. With Trump's planned visit to China next year, bilateral ties are likely to remain on a path of détente.

The Busan summit carries profound historical significance, marking the official entry into the G2 era.

3. China's Capital Markets: A Structural Shift

For years, comparisons between Chinese and U.S. capital markets have focused on their divergent drivers: U.S. markets led by tech stocks, while China's were dominated by financials and alcohol sector stocks. But beneath the debate over whether Cambricon's share price surge (which topped RMB 1,600 per share, surpassing Kweichow Moutai) signals a bubble lies a deeper structural shift in China's capital markets.  

This year marks the end of the 14th Five Year Plan（14th FYP）. As of the market close on October 29, 2025, the number of A-share listed companies reached 5,444, with a total market value exceeding 119 trillion yuan. China's capital market has remained the world's second largest for five consecutive years. The proportion of operating revenue of listed companies relative to GDP rose from 52% during the 13th FYP period to 58.3%. Meanwhile, the proportion of total profits of physical-listed companies (i.e., non-financial firms) to the total profits of industrial enterprises above designated size increased from 35.5% to 49%. More significantly, there has been a major structural shift: the technology industry's market value accounted for nearly 50% of the total, and the electronics sector surpassed the banking sector to become the largest in A-shares.

These structural changes reflect a shift toward “new”sectors, with the real economy gaining strength. By the third quarter, listed firms in strategic emerging industries accounted for 52.3% of the market (up from 42.6%). The profit structure shifted notably: firms in the real economy now account for 52% of total profits, outpacing the financial sector. Market value also shifted significantly: the electronics sector accounted for 12.7% of total market value (overtaking the banking sector's 9.9% to become the largest), while tech-related industries (including electronics, communications, power equipment, autos, and pharmaceuticals/biotech) grew from 40.5% (end of the 13th FYP) to 49.2%. The combined market value of the financial and real estate sectors fell from 19.7% to 17.2%.

This year, the previous focus on the ”New Three” (NEVs, solar, and lithium) has gradually shifted to the “New-New Three” (robots, AI, and innovative drugs). In the first half of the year (H1), profits in the “New-New Three” sectors (robots, AI, and innovative drugs) rose 22.1%, 67.2%, and 40.9% year-over-year, driving China's asset revaluation. Globally, robots and pharmaceuticals lead in development; AI is competitive, with a slight gap in large-model ratings but a leading position in open-source models and cost reduction. Future AI competition—particularly in compute localization and model commercialization—is likely to feature top players from both China and the U.S. Data we track confirms the strong competitiveness of China's tech sector.

Despite weak consumer sentiment and ongoing weakness in real estate, China’s macro and electricity consumption data remain resilient. The driver? The “New Economy”—China’s vast entrepreneurial base, robust manufacturing supply chain, cost efficiency, and massive domestic market have enabled it to capture leading shares in global technological advancements. From past solar/lithium/NEV booms to future “New-New-New Three” sectors, this structural shift mirrors the tech-driven rise of the Nasdaq, with A-shares now playing a similar role.

4. Recent Markets & Strategy  

As 2025 nears year-end, some sectors and institutions face revenue realization and next-year adjustments. Fundamentals, valuations, and policies all support a slow-bull trajectory for China’s capital markets. Though market sentiment remains cautious, we recommend maintaining confidence in this gradual uptrend.

For competitive, fairly valued industry leaders, we recommend patient holding, allowing compounding to work while filtering out noise. This remains our core strategy. Operationally, we will dynamically adjust portfolios based on developments in specific sectors and companies.

Wu Weizhi

2-November-2025

本期《偉志思考》簡體中文版鏈接：

伟志思考：中美领导人的釜山会晤具有历史性意义，开启了G2时代