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“The recovery of China tech stocks from their trough is still at an earlier stage than the rise of the Nasdaq,” Fiteny says, noting that price-to-earnings multiples of Chinese tech companies are lower than comparable US rivals.“There's still a delta built into where things are trading, but it has been converging.”

US investment firms running global funds are showing an increasing appetite for Chinese equities, says Fiteny.“Hong Kong-listed stocks and the upcoming [listing] pipeline offer diversification from their Western holdings with a broad mix of growth drivers.”

On the financial front, Chinese brokerage stocks jumped this week on news that state-owned China International Capital Corp is acquiring two rivals, fueling hopes for accelerating consolidation in the nation's $1.6 trillion securities industry.

CICC is taking over Dongxing Securities and Cinda Securities using share swaps, asserting that the move will support Beijing's market reforms, reduce costs and raise shareholder returns.

It's a win for Xi and Li, as this deal to create China's fourth-largest investment bank with more than 1 trillion yuan (US$140 billion) in assets helps hasten the consolidation Beijing wants. It also makes CICC a bigger and more globally competitive investment bank.

This M&A move will help CICC“replenish capital” and“catch up to peers in terms of scale,” argue analysts at Citigroup. Analysts at Soochow Securities add that“the consolidation will further expand the reach of CICC's wealth management business.”

Still, the cognitive dissonance of surging Chinese shares and the deflationary reality plaguing Xi's economy is a sight to behold.

It's“premature to declare an end to deflation,” says Carlos Casanova, an economist at Union Bancaire Privee. He notes that the 1.2% year-on-year increase in core consumer prices offered a false sense of comfort that prices are stabilizing. The data reflects“ongoing efforts to tackle overcapacity and price wars” in Beijing, not a return of pricing power, he says.

Commenting on the property crisis, former Finance Minister Lou Jiwei told a business forum that“this drags on the growth of consumption and amplifies the deflation trend.”

Sarah Tan, economist at Moody's Ratings, says that“while prices have fallen less steeply in recent months, the trend points to weak industrial demand. Persistent overcapacity, the result of years of heavy investment, is suppressing pricing power and squeezing profit margins.

“Prolonged deflation erodes profits, hurts business confidence, encourages consumers to delay purchases, and raises debt burdens, potentially entrenching weak domestic demand.”

Industrial production tells a similar tale, Tan adds. October output grew 4.9% from a year earlier, marking a major deceleration from September's 6.5% pace. Growth moderated in areas adjacent to the ailing property sector. Notably, the annual decline in cement production was nearly twice September's retreat at 15.8%.

On the bright side, Tan says, output in high-tech manufacturing and the automotive, ship, rail and aerospace sectors held firm, fitting with their status as industrial production growth drivers.

For autos, a price war at home is driving output growth. Yet“without stronger consumption and external demand, China's producers are at risk of becoming trapped in a cycle of weak prices,” Tan says.

Economist Innes McFee at Oxford Economics says that China erred in 2025 by doubling down on an export-led growth model,“pushing the economy further into deflation than we had feared, while still delivering a slight upside surprise for growth.”

Will China pivot away from this export-centric model decisively in 2026? That depends on the speed with which Xi and Li implement the new five-year plan.

The next step is implementing the 15th Five-Year Plan, which, if implemented as articulated, should be a meaningful move in that direction. China's“reliance on exports leaves economic growth exposed to external uncertainties,” says Mingda Qiu, analyst at Eurasia Group.

That plan, Qiu says,“emphasizes the desire to make domestic demand a 'reliable' growth driver while initiatives such as tech self-reliance, import substitution, and supply chain resilience aim to mitigate vulnerabilities. Xi's 'high-quality development' focuses on productivity growth through efficiency, technology upgrades, and AI integration across industries, while leaving non-strategic engines of growth like the property sector in the past.”

But as Macquarie Bank's chief China economist Larry Hu notes, some of the most impactful shifts in Beijing's strategies over the last 25 years were driven by factors outside those telegraphed by centrally decided five-year plans. They include China's entry into the World Trade Organization and the more recent crackdown on the property sector.

Hu thinks the latest turning point is slowing export growth, which will increase the urgency to recalibrate domestic growth engines. That means prodding households to spend more and save less by creating bigger and more robust social safety nets.