At the beginning of 2025, China looked like the global market almost everyone wanted to avoid. The investment case appeared broken on multiple fronts at once. A protectionist Trump administration was returning to Washington with renewed threats of tariffs and technology controls. China’s property sector, long the backbone of household wealth and local government finances, was still wobbling under the weight of unfinished projects and debt-laden developers. A possible U.S. ban on TikTok threatened to gut ByteDance, one of China’s most valuable technology champions.
Meanwhile, American firms seemed to be sprinting ahead in artificial intelligence, raising fears that China was permanently losing ground in the most strategically important industry of the next decade.
Twelve months later, the story looks very different. China did not just stabilize. It delivered one of the strongest equity rebounds anywhere in the world, rewarding investors who stayed put and embarrassing those who exited at the height of pessimism.
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The turnaround was not driven by a single catalyst, but by a series of developments that collectively defied the prevailing narrative. Beijing, under pressure to restore confidence, leaned decisively into economic support. Fiscal stimulus, easier financial conditions, and a clear signal that authorities would not allow markets to spiral further helped calm nerves.
Listed companies responded with a surge in share buybacks, effectively stepping in where foreign investors had retreated. The result was a steady tightening of supply in the equity market and a re-rating of stocks that had been trading at deep discounts to global peers.
Crucially, the worst fears around China’s tech sector failed to materialize. The TikTok standoff, once framed as a potential death blow to ByteDance, evolved into a negotiated outcome. ByteDance sold a majority stake in its U.S. TikTok operations, easing political pressure while preserving the core economics of the business.
But far from being diminished, ByteDance emerged more valuable than ever. HSG, the venture capital firm formerly known as Sequoia China, recently pegged ByteDance’s valuation at between $350 billion and $370 billion, placing it firmly among the most valuable private companies in the world.
That outcome mattered beyond TikTok. It sent a broader signal that even in a fractured geopolitical environment, commercial compromises were still possible, and that outright destruction of Chinese tech champions was not inevitable.
Artificial intelligence, another area of deep concern at the start of 2025, also delivered surprises. By the end of 2024, the consensus view was that U.S. companies had established an insurmountable lead, backed by superior access to capital, chips, and cloud infrastructure. Chinese firms, constrained by export controls, were expected to fall further behind. Instead, China’s AI ecosystem proved more resilient and adaptive. Startups such as DeepSeek demonstrated that Chinese developers could still compete at the frontier, even with tighter hardware constraints.
That resilience was reinforced this week when the U.S. government said Nvidia would be allowed to sell its powerful H200 AI chips to Chinese companies. While export controls remain in place and the policy environment is far from predictable, the decision marked a softening from the most restrictive scenarios investors had feared. It suggested Washington was balancing national security concerns with the realities of global supply chains and corporate interests.
For hedge funds that leaned into China when sentiment was bleak, the rewards were striking. Bridgewater Associates generated a 34.2% return in its China Total Returns fund in 2025, according to a person close to the firm. Tekne Capital, run by Beeneet Kothari, posted gains of more than 50%. Kothari’s approach was unapologetically contrarian. His fund invested in companies such as DiDi Global, online recruiter Kanzhun, and data-centre operator GDS, businesses he argued had been punished more for macro fear than for company-specific weakness. As he told Business Insider last year, the hostile backdrop had made strong companies “very cheap.”
Performance across the sector told a similar story. HSBC’s Hedge Weekly report showed that China-focused funds delivered some of their strongest returns in years. Pinpoint Asset Management’s China strategy gained more than 24%, while its Asia-wide multistrategy fund rose 11.6%. Golden China, run by George Jiang, returned close to 33%. Epimelis Capital, led by Hutchin Hill and former Goldman Sachs banker Fei Sun, delivered about 35%. Hedge Fund Research estimates that the average China-focused fund rose nearly 18% in 2025, comfortably ahead of the global hedge fund average of 10.7%.
What made these returns particularly notable was the starting point. At the beginning of the year, positioning in China was exceptionally light. Many global funds had reduced exposure to near-zero, meaning even modest positive developments forced rapid reallocation. As confidence improved, inflows accelerated, amplifying gains.
Looking ahead into 2026, few investors are declaring victory, though structural challenges remain. The property sector is stabilizing but far from healthy. Consumption is improving unevenly. And the U.S.-China relationship remains volatile, particularly around trade, technology, and Taiwan. Any sharp escalation would quickly test the durability of China’s rebound.
ByteDance, backed by global investors such as Tiger Global and Coatue, will remain under scrutiny as it continues to grow amid regulatory complexity. Semiconductor policy will also be critical. While the Nvidia decision was welcomed, investors know it could be reversed as quickly as it was granted.
Still, the lesson of 2025 is hard to ignore. China did not need a perfect policy environment or a clean geopolitical slate to deliver strong returns. It needed expectations to be excessively low. When fear became consensus, valuations followed, and for investors willing to absorb volatility and political risk, the payoff was substantial.