China's Resilient Exports and Policy Crossroads: Implications for Global Supply Chains and Strategic Plays

China's export engine has defied U.S. trade tensions in 2025, with key sectors like high-tech manufacturing and automobiles showing remarkable resilience. Yet, beneath this strength lies a complex crossroads: domestic housing market fragility and subsidy-driven overcapacity in strategic industries. For investors, the challenge is to navigate these crosscurrents—capitalizing on trade rerouting and policy tailwinds while hedging against systemic risks.

The Resilience of China's Exports

China's exports in April-May 2025 grew by 9.3% (RMB terms) and 4.8% (USD terms), driven by diversification to ASEAN (+20.78% in April, +15% in May) and the EU (+12% in May).

Sectors like new energy vehicles (NEVs) (+38.9% in April), industrial robots (+51.5%), and household appliances (+38.8%) led the charge, fueled by government incentives and global demand for affordable tech.

The U.S.-China trade truce eased tariff impacts, but the U.S. market remains volatile, with exports plummeting 34.5% in May. This forced firms like BYD and CATL to pivot to Europe and Southeast Asia, where demand for EVs and batteries is surging.

Policy Crossroads: Stimulus vs. Structural Risks

China's 10-point policy package—including credit support for SMEs and tech firms—has stabilized growth, but risks linger. The housing sector's slowdown (construction starts down 24% YoY, prices flat) and weak private investment (-11.4% in foreign enterprises) highlight vulnerabilities.

Meanwhile, subsidy dependency in solar and EV sectors remains a double-edged sword. While firms like JinkoSolar and NIO dominate global markets, overcapacity (e.g., EV battery oversupply) and reliance on state support could backfire. Beijing's tightened export controls on rare earths (+33% to Africa in May) signal a shift toward leveraging resources in trade negotiations—but also risks triggering retaliatory tariffs.

Strategic Plays and Investment Risks

Opportunities:
1. High-Tech Manufacturing:
- NEVs and robotics: BYD, Xpeng, and Teradyne (robotics) benefit from trade rerouting and domestic innovation incentives.
- Semiconductors: China's push to close the chip gap may boost firms like SMIC, though U.S. export controls remain a hurdle.

1. Trade Diversification Plays:
2. ASEAN-focused logistics: Companies like Sea Group or regional ports benefit from China's supply chain shifts.
3. EU-bound tech: Firms with strong EU certifications (e.g., Huawei's automotive division) could thrive.

Risks to Avoid:
1. Housing-Linked Sectors:
- Real estate stocks: Overcapacity and slowing demand (inventory up 6.8% YoY) make this sector volatile.
- Steel and construction materials: Steel exports fell 3.9% in April, reflecting weak domestic demand.

1. Subsidy-Driven Overcapacity:
2. Solar panels: Global price wars and polysilicon shortages could hit margins for JinkoSolar and Trina Solar.
3. EV batteries: Overproduction (China's 80% global share) risks a lithium glut.

Conclusion: Balance Aggression with Caution

China's export resilience offers a compelling investment narrative—but investors must distinguish between structural winners and policy-dependent losers. Focus on firms with global demand diversification (e.g., BYD's EU sales) and R&D-driven innovation, while avoiding overexposure to housing or subsidy-heavy industries. The policy crossroads ahead means navigating between Beijing's stimulus and the realities of trade friction and overcapacity.

For now, the playbook is clear: buy tech resilience, hedge against housing fragility, and monitor subsidy sustainability closely.