The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Una Galani

HONG KONG, May 20 (Reuters Breakingviews) - Executives, financiers and money managers are warming up to China again after a few difficult years. The Middle Kingdom's economy has stabilised following a property slump, and many of its companies are at the vanguard of key new technologies. It has earned the country a place back on the global investment map, though investors are also apt to mark their route back to the exit.

Last week’s meeting between President Xi Jinping and his U.S. counterpart, Donald Trump, offers a fresh tailwind for capital returning to China. Little of substance was agreed, but the summit may restore more regular contact – a welcome shift from last year’s erratic brinkmanship, which escalated trade tensions. Trump’s talk of a “fantastic future together” puts a near-term floor under the world’s most consequential bilateral relationship.

It helps that the $20 trillion economy is past the worst of its recent troubles. After initially downplaying deflation and excess capacity, Beijing has made tackling both a priority. Domestic consumption remains weak. But the shock from China’s property bust, which is entering its fifth year, is beginning to ebb: prices in top-tier cities are edging up again.

The sheer resilience of China's economy is also wowing. Its export machine has kept humming – and even strengthened – despite Trump’s tariffs and a lack of access to some high-tech American kit. China ended 2025 with a record ​trade surplus of $1.2 trillion. And thanks to substantial stockpiles of food and energy, Beijing has buffers against spillovers from the U.S. conflict with Iran.

Investors are responding to the improvement. Average allocations by global equity funds to Chinese assets stood at 1.8% at the end of February, up from a recent low of 1.4% in early 2024, according to EPFR. The returning money has helped support a revival in Hong Kong initial public offerings.

Chinese equities remain cheap. The MSCI China Index .dMICN00000PUS trades at 11 times forecast 2027 earnings – roughly half the U.S. multiple and also below Japan and Europe. Yet earnings growth for the Chinese benchmark will exceed 15% in 2027, the same as American levels, Goldman Sachs data citing FactSet shows.

Chinese households also have an incentive to shift savings into equities, which could boost local stocks. Bank deposits have grown rapidly, but relatively high-yielding savings products are now rolling off. Replacement rates are lower, owing to rate cuts by the People's Bank of China. Any reallocation of that money to equities could help ignite a long-awaited virtuous cycle: officials are trying to engineer a slow bull market while nudging companies to boost shareholder returns through buybacks and dividends.

Hong Kong’s bond market is benefiting too, as global investors look for relatively safe, non‑U.S. dollar assets. Foreign direct investment, meanwhile, is back in positive territory after turning negative in 2023 for the first time on record. State Administration of Foreign Exchange data, which includes foreign firms’ undistributed and unremitted Chinese profits, shows inflows climbing.

The investment thesis has shifted, however. China, once seen simply as the workshop of the world, is now also an innovation hub. Global companies are investing not necessarily to bring their own technology into the People's Republic, but often to keep up with cutting‑edge local developments, with a view to bringing what they learn back home.

AstraZeneca’s AZN.L recent deals with Chinese biotech firms, along with its pledge to invest $15 billion in the country through 2030, underscore the shift. The partnerships strengthen the pharmaceutical group's capabilities in cutting-edge areas such as cell therapy and radioconjugate cancer treatments, where China is emerging as a leader.

Mercedes-Benz MBGn.DE is also doubling down, after losing ground in the world’s largest car market and falling behind local rivals such as BYD 002594.SZ, Nio 9866.HK and Li Auto 2015.HK, which offer tech-rich vehicles at lower prices. The German carmaker has invested in a clutch of Chinese artificial intelligence firms and in September agreed to take a 3% stake in autonomous-driving developer Chongqing Qianli Technology.

In other areas, though, China still looks more like a trade than a long-term investment. That is evident in money managers’ preference for liquid exposures, which they can cut quickly if Beijing unleashes another unexpected regulatory crackdown – or if Sino-American tensions escalate.

Indeed, the $80 billion of foreign direct investment into China in 2025 remains well below the $344 billion peak in 2021 and the roughly $200 billion annual average over the preceding decade. Similarly, U.S. dollar funding for Greater China-focused private equity continues to decline, according to Bain & Company, the consultancy. While Middle Eastern investors are increasing their allocations, the inflows are not yet enough to offset withdrawals from buyout fund investors in the Americas.

The private equity industry demonstrates the pitfalls of having illiquid investments tied up in China. Bain studied $100-million-plus Asia Pacific buyout deals with single investors, only including vintages from 2017 to 2019 and excluding real estate. During this period, China accounted for roughly half of the deal value in the region. The analysis showed that only 26% of the portfolio companies were exited within five years of ownership.

China's lower valuation multiples and weaker economy today make it hard to exit investments attractively, while a shrinking pool of secondary buyers adds to the bottleneck, as global funds cap China exposure in their pan‑Asia vehicles. This difficult geopolitical backdrop is complicating Chinese private equity's coming of age. Fundraising efforts this year by larger, more established firms including Hopu Investment, Boyu and Primavera will be closely watched, not just for how much they raise but for who is willing to back them.

China is undoubtedly back on investors’ radar screens. But in an uncertain world, and with the grim experience of buyout barons looming large, it's understandable that money managers are still largely looking for opportunities that will allow quick exits. The lesson is that global investors are free to flood back into China again, but they are staying near the door.

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CONTEXT NEWS

U.S. President Donald Trump departed China on May 15 following the ​conclusion of a two-day summit in Beijing with Chinese President Xi Jinping.