Key Takeaways

• AI monetization in China is shifting toward cloud computing, where Alibaba, Baidu, and Tencent are seeing the strongest revenue traction.

• China’s “anti-involution” policy is easing excessive competition and helping stabilize profitability in areas like solar and clean tech.

• Non-U.S. investors are reallocating to China as valuations, currency dynamics, and tech earnings improve.

• Growth is accelerating in online video, short-form platforms, and gaming, which remain underappreciated by most investors.

• KWEB’s diversified construction captures China’s tech reacceleration while reducing single-stock risk across cloud, AI, entertainment, and biotech.

China’s equity market is finally showing signs of a real inflection point. The recent Trump–Xi meeting in South Korea delivered what many believed was unthinkable a year ago: a one-year suspension of tariffs and export controls plus the resumption of U.S. soybean purchases. That shift alone has boosted sentiment across both markets. Add accelerating AI adoption, cloud monetization, selective policy easing, and early stabilization in domestic prices, and you have the contours of a narrative investors have been too slow to recognize.

To dig into all of it, Melanie Schaffer sat down with Brendan Ahern, Chief Investment Officer at KraneShares and one of the most respected voices on China’s markets. What follows is the distilled version of his key themes — and why they matter for anyone watching KWEB, China tech, or the broader EM growth cycle.

Earnings Strength Is No Longer the Weak Link

Chinese internet and technology companies have quietly been beating expectations. Not uniformly — domestic consumption remains soft, competition across e-commerce is still intense, and China’s real estate drag continues to weigh on household wealth — but certain categories are outperforming in ways that matter for investors.

Online video platforms (Bilibili, Kuaishou), online music (Tencent Music), and major gaming franchises (Tencent, NetEase) have delivered some of the strongest results so far. According to Ahern, this is exactly why KWEB’s diversified construction matters: different subsectors are recovering at different speeds, and the all-weather basket helps capture those divergences while avoiding concentration risk.

Cloud computing is becoming the earnings engine. For Alibaba and Baidu, cloud revenues are now outgrowing the rest of the business — signaling where China’s tech leadership is actually headed.

AI in China Has a Different Business Model — And Cloud Is the Real Monetization Layer

Ahern made one point repeatedly:
China’s AI ecosystem is open-source by design, and the real value is upstream — in the cloud infrastructure, not the models.

Unlike the U.S., where proprietary models sit behind subscription walls, China’s tech giants treat large language models as loss-leaders. Alibaba’s Qwen and Baidu’s Ernie Bot are effectively free. The idea is simple: anyone can build an LLM; the moat is in compute, storage, and deployment at national scale.

Cloud usage tied to AI training and inference is growing rapidly, with revenue acceleration at Alibaba, Baidu, and Tencent confirming this shift. These aren’t unprofitable unicorns — they are established businesses with valuations far below their U.S. counterparts. Stanford’s AI Index even shows Chinese firms leading in several applied categories.

AI enthusiasm is alive in China; it’s just monetized differently.

Policy “Anti-Involution” and Early Signs of Stabilization

China’s campaign against excessive competition — the “anti-involution” push — is now showing up in actual corporate performance. Solar manufacturers, which spent years drowning in oversupply, reported sharply reduced losses after Beijing curtailed production. The October CPI print moved back into positive territory for the first time in months, hinting at early relief from deflationary pressures.

E-commerce remains tough, but green shoots are forming. The government’s long-term plan emphasizes stronger domestic consumption and less reliance on export-heavy manufacturing. That pivot supports internet platforms over time, even if the near-term environment requires more patience.

Where Global Investors Are Moving — And Why U.S. Investors Are Lagging Behind

The most interesting development:
Non-U.S. investors are returning to China first.

European allocators, pressured by currency moves and limited upside in U.S. equities, are rotating into Chinese growth assets. Asian institutions, whose economies are tightly tied to China’s demand cycle, are doing the same. Commodity economies like Brazil and Australia, which benefit directly from China’s activity levels, reinforce the global case for re-engagement.

Meanwhile, U.S. investors remain hesitant due to geopolitics and a consistently negative media backdrop. Yet KWEB has been outperforming the S&P 500 by a wide margin since early 2024. The longer that divergence persists, the harder it becomes for sidelined capital to justify staying out.

Ahern expects the Trump–Xi détente to stick — and potentially expand — given current political incentives. If that continues, U.S. investors may be forced to reassess the narrative they’ve been anchored to for years.

The “Under-the-Radar” Winners: Online Video, Short-Form Platforms, and Next-Gen Entertainment

While many default to Alibaba or JD.com as the core China tech plays, the underappreciated growth stories are in online entertainment. Bilibili’s gamer ecosystem and Kuaishou’s short-form video platform are gaining traction domestically and increasingly abroad (Kuaishou is already expanding in Brazil).

These names are volatile, but KWEB’s diversified structure allows investors to access that upside without the single-stock risk that scares most institutions away.

The Broader Trend: China’s Innovation Engine Extends Into Clean Tech and Biotech

Beyond internet and AI, performance across clean technology and healthcare is breaking out. China’s energy mix — driven by renewables, nuclear, hydro, and low-cost electricity — is giving its cleantech ecosystem a structural advantage. Meanwhile, biotech firms in China are using AI aggressively and attracting global partnerships, particularly in oncology.

The idea that China is simply a manufacturing story is increasingly outdated. Its innovation economy is more diversified and more competitive than the U.S. media narrative admits.

Final Takeaway

China is entering a pivotal reset: sentiment thawing, policy stabilizing, AI moving from hype to monetization, and global capital beginning to rebalance into growth sectors trading at deep discounts.

Investors don’t need to make an all-or-nothing call on China. KWEB provides a diversified expression of the trend — capturing cloud, AI, entertainment, gaming, and emerging biotech — without the idiosyncratic risk of betting on single names.

The inflection is here. The question is whether investors recognize it early or wait until the rerating is impossible to ignore.

Lead-Lag Live is part of The Lead-Lag Report, where we spotlight conversations that cut through the noise — separating market fantasy from fundamental truth.

DISCLAIMER – PLEASE READ: This is a sponsored episode for which Lead-Lag Publishing, LLC has been paid a fee. Lead-Lag Publishing, LLC does not guarantee the accuracy or completeness of the information provided in the episode or make any representation as to its quality. All statements and expressions provided in this episode are the sole opinion of KraneShares and Lead-Lag Publishing, LLC expressly disclaims any responsibility for action taken in connection with the information provided in the discussion. The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.